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Business owners are far more insurance savvy than the typical policyholder. Still, unless they’ve spent a lot of time reading commercial insurance contracts, they might never have thought about claims-made vs. occurrence insurance policies. While these terms might come across like typical insurance jargon, they are important options for purchasers of commercial liability insurance policies. To explain it simply:

  • Claims-made policies provide coverage for claims made while a liability policy is in force. These policies may have a reporting period that extends the reporting deadline beyond the policy expiration date.
  • Occurrence policies provide coverage only for incidents that take place while the policy is in force.

The Asbestos “Occurrence” Problem

Commercials about mesothelioma lawyers and asbestos settlement trusts are the remnants of a decades-old body of cases that may never fade away. These cases are also a perfect illustration of the differences between occurrence vs claims-made policies. When doctors across the country began diagnosing asbestos-related illnesses in the 1970s, diseases were showing up in workers exposed to asbestos fibers as early as the 1940s. Due to the delayed manifestation of asbestos-related diseases, medical confirmation often came decades after exposure.

When asbestos manufacturers began shipping lawsuits to multiple insurance companies, it became an “occurrence” nightmare. Insurers accepted the suits but reserved their rights to decline coverage. At that time, many liability policies were “occurrence” based. Insurance companies had to decide if they owed their policyholders coverage or a defense.

Some insurance companies believed that when a worker was first exposed to asbestos it was potentially covered as an “occurrence.” Under this theory, the insurers providing coverage in previous decades would owe defense and indemnity. Other insurance companies decided that the disease’s manifestation date was the “occurrence.” Based on this theory, the insurer that provided coverage when the worker first became ill had a duty to defend and pay damages. The manifestation/exposure/occurrence battle went on for years.

Claims-Made Policies Reduce Occurrence Problems

Insurance companies and their policyholders spent a lot of time and legal expenses battling asbestos exposure vs manifestation issues and which insurance companies were responsible for paying claims. If claims-made coverage had been available to all of the asbestos defendants, the coverage issues would have been far less complicated. Barring other coverage obstacles, the insurance company with a claims-made policy in force when a plaintiff first makes a claim would defend the suit and pay damages for which an insured was found liable.

Notice is Important

Of course, insurance coverage isn’t quite that simple. Whether a liability policy is occurrence or claims-made, insurance companies require “…notice as soon as practicable…” Asbestos manufacturers were allegedly on notice of problems long before sick plaintiffs began filing suits. This delayed notice added another layer of coverage issues that would have been a problem no matter which type of policy was in force.

Timely notice is crucial for both types of policies. It allows an insurance company to investigate a claim or get involved in the litigation process early on. Whether a company has a claims-made or occurrence policy when an insured reports a claim, the claims representative will want to know:

  • The date the person sustained injury
  • The date the insured first knew about the claim or potential for a claim

The answers can help the insurance company determine if notice was timely. Failure to notify the insurance company in a timely manner can jeopardize the insurance company’s ability to resolve a claim before it spins out of control.

Which Policy is Best For Your Business?

Liability coverage is very personal to each business. While an occurrence-based liability policy might be a good fit for one company, another company might need claims-made coverage.