What is the difference between a claims-made and an occurrence-based policy ?

The distinction between a claims-made and an occurrence-based policy is crucial to understanding Errors and Omissions (E&O) insurance coverage. These two policy types differ fundamentally in determining which incidents are covered and when.

Claims-made policy

This form of policy covers claims made during the policy period, regardless of when the incident occurred, subject to the retroactive date. Key features include :

The claim must be made while the policy is in force.
The incident giving rise to the claim may have occurred before the policy's inception if it happened after the retroactive date.
If a claim is made after the policy expires, it will not be covered even for an incident during the coverage period.
These policies usually include a "retroactive date" that defines the previous coverage limit.

Advantages :

Generally, less expensive than event-based policies.
Allow coverage for past incidents (after the retroactive date).
They are particularly suited to professions where claims may arise long after the incident.

Disadvantages :

Requires ongoing vigilance to maintain coverage, even after ceasing activity.
This may leave gaps in coverage if the policy is not renewed or if the retroactive date needs to be maintained.

Occurrence-based policy

This policy covers incidents during the policy period, regardless of when the claim is made. Key features include :

The incident must occur while the policy is in force.
The claim can be made any time after the incident, even after the policy expires.
Provides long-term coverage for incidents occurring during the policy period.

Benefits :

Provides long-term peace of mind as coverage continues for incidents occurring within the validity period.
There is no need to maintain an active policy to stay covered for past incidents.