Claims-Made Insurance Policy
Insurance policies tend to be finite contracts. Coverage begins once the paperwork is signed and the initial premium is paid. It ends when the policyholder cancels the contract or the insurer stops coverage due to non-payment.
In the business world, however, some claims against the insured may come in long after the incident occurred. In this case, a claims-made insurance policy is vital.
Coverage When the Claim Is Made
A claims-made insurance policy offers coverage when a claim is made against a company or professional. This is important when a request for reimbursement is filed long after the initial incident. In other words, regardless of the time span, a business will be covered.
However, there’s a caveat. This situation is only true as long as the incident took place while the claims-made insurance policy was active. Once canceled, a claim isn’t covered unless the business purchases additional protection to handle the interval between old and new insurance.
Some insurance companies provide a variation of this program called a claims-made and reported policy. In this form, the insured is covered from claims as long they’re reported within the policy period. Here, the plaintiff can file an initial claim within the active period but not request reimbursement until they’ve collected all the necessary information. This might take place after the policy is closed.
Claims-Made vs. Occurrence-Based
Occurrence-based policies insure the company and provide reimbursement for incidents that take place within a policy’s lifetime or a specified time period. Additional coverage might not be required to protect a business during a limbo period while it transitions to another insurer’s policy.
When It’s Utilized
Claims-made coverage is particularly useful in an errors and omissions policy. This shields companies and their employees against claims of negligence or incomplete work. It also helps businesses that are charged with wrongful termination, racial or sexual discrimination, and harassment.
It’s usually better for a company to select a claims-made policy than a claims-made and reported policy. There are many examples of former employees suing an organization due to discrimination or harassment long after their employment. A claims-made policy would cover reimbursement requests made after the incident.
There are circumstances when claims-made and reporting insurance is the only option offered. In these environments, additional protections are required so a company doesn’t have to pay legal fees and restitution out of pocket. For instance, nose coverage handles claims made between the completion of a policy and the start of a new one. Commercial general liability helps cover claims that are related to damage or injuries that take place on the business’ premises.