What is a Claims-Made Policy

Claims-made policies are insurance policies that provide coverage when claims are filed against them, regardless of when the claim event happened. When there is a delay between the time an event occurs and the time a claim is filed, a claims-made policy is usually a popular option. It should be noted, however, that the policy only covers claims made while it’s active. In other words, you must have a valid policy in action when you file a claim with claims-made insurance and if you do not, your insurer won’t pay for your loss. Claims-made policies are commonly used in professional liability insurance as well as employment practices liability insurance (EPLI).

Key Takeaways

• Claim-made policies cover an insured for claims on active policies, regardless of when the claim event occurred.
• In cases where there is a delay between when the claim event occurred and when the claim is filed, claims-made policies are ideal.
• Most professional liability insurance (also known as errors and omissions or EO), directors and officers (D&O), and employment practices liability insurance (EPLI) are written as claims-made policies.

More on Claims-Made Policies

Claims-made policies are common insurance policies designed to cover the risks associated with the operation of a business. For instance, businesses often use claims-made policies to protect themselves from claims made by employees such as wrongful termination or sexual harassment. Moreover, claims-made policies can cover risks associated with errors and omissions (EO), which are claims of inadequate work or negligent actions.

There are a few benefits to claims-made policies. Firstly, they are usually more affordable than other insurance policies such as occurrence-based policies. Also, it does not matter if you were covered by a different policy with another company at the time of the claim event - a claims-made policy will cover the incident even if it occurred years ago.

While there are several advantages to claims-made policies, there are also some drawbacks. 

After the expiration of a claims-made policy, claims are not covered, even if the incident involved took place while the policy was active. Additionally, it is important to consider the aggregate limits of claims-made policies. As opposed to occurrence-based policies, where the aggregate limit resets every year, claims-made policies never actually reset. This usually results in a lower aggregate limit.

Bottom Line

Knowing how your insurance policy covers claims will assure you that if anything happens, you'll be protected. This is why it is crucial to understand the ins and outs of how insurance policies work. Whether you are in need of assistance filing a claim or you’re interested in increasing your business’s insurance coverage, reach out to an experienced insurance attorney. He or she will be able to help you choose the right insurance policy for your needs, or assist you in making sure you are covered in case the unexpected happens.