The Difference Between Occurrence and Claims Made Coverage: An Important Question in Medical Professional Liability
One of the more common calls I field when assisting practices with insurance program alternatives goes like this: “The partners like your Malpractice insurance proposal, but remind me about the difference between Occurrence and Claims Made coverage—if we go ahead with this plan, will we need to worry about a Tail?”
In a physician’s world, ensuring you know the answer to that question has become critical. Claims Made coverage can be the right solution in certain cases, but a short-sighted strategy today can have significant financial implications tomorrow.
Beginning in the early 1970’s, an upheaval in both the availability and cost of Medical Professional Liability insurance led to an important change in what coverage forms were available. Prior to that period, Professional Liability was principally written on an Occurrence form. Subsequently, Claims Made coverage has become the most common form nationally, including Modified Claims Made, which has a built-in “Tail.” That change to Claims Made form helped to bring greater financial certainty to insurance companies’ balance sheets, but brought new risks for physicians. To avoid problems, it is important to be aware of the differences between these two policy forms.
With Occurrence coverage, a policy responds to a claim as long as the adverse event took place during the policy period, regardless of when the claim is made. An Occurrence Policy never requires a Tail; the policy in force at the time of the incident will respond, even though that policy may have been cancelled years ago. Occurrence policies generally offer a level premium.
With Claims Made coverage, while the premium is tiered, starting off quite low and maturing after 4 or 5 years, the coverage response is more complicated. The policy in force at the time the claim is made will respond, though it may be a policy you purchased many years after the incident. There are a number of limiting factors, however, and several dates are critical to determining whether a policy can respond at all. The dates to pay attention to are: the Retroactive Date, the Date of the Adverse Event, and the Date the Claim is Made and Reported. What are these dates, and how do they limit coverage?
- The Coverage Retroactive Date will either be the inception date of the current Claims Made policy, or, if the current insurer has agreed to provide “prior acts” coverage, it may be the Retroactive Date of the prior Claims Made policy(ies), and that date may go back many years – sometimes to the date you first entered practice. When moving from one Claims Made policy to another, it is vital that you bridge the transition by asking the new insurance carrier to honor your “retro date.” In so doing, you will be able to report new claims that arise from incidents that may have occurred in the past under another policy period. Ensuring you can report claims from a prior Claims Made policy period is essential. If the new company will not agree to pick up your prior acts, then you may need to purchase that “Tail” otherwise known as an Extended Reporting Period Endorsement that first concerned us.
- The Date of the Adverse Event or incident date is, in most cases, a specific date when the alleged wrongful act occurred. The policy must provide for coverage on that date for any claim to be made later.
- The Date the Claim is Made and Reported is generally the date at which the insured has been given notice by plaintiff’s attorney, and has promptly reported that notice to the insurer. Be sure to get clarification on what will “trigger” a claim with your policy. Some companies will accept your report that an unexpected outcome has occurred, while others will not recognize the claim until you have been served with a lawsuit. You may have changed carriers several times between the date of incident and the date of suit—hence the need to tread carefully with the Claims Made form.
To recap the impact of these dates:
In a Claims Made policy, if the incident date occurs after the Retroactive Date and before the Policy Cancellation Date, then a claim report can be made, BUT only if one of the following statements is true:
- The policy is still in force, or
- Your new policy has agreed in advance to the coverage Retroactive date, or
- You have purchased an Extended Reporting Period Endorsement (commonly known as a Tail) so you can report after policy cancellation.
The corollary to these statements is that if the incident occurs before the Retroactive Date, the policy will not respond to the loss. If the incident occurs after the policy has been cancelled, and no Tail endorsement is purchased, there will be no coverage, unless your new policy has picked up your original Retroactive date.
Tail endorsements are a separate topic that would occupy a lengthy discussion. Changing from one policy form to another can lead to special risks that merit a separate discussion also. But if a physician is free to explore coverage options, then I’d recommend you ask for premium comparisons that estimate ten years of premium costs as well as Tail costs to truly understand each option. I’d also suggest you seek the assistance of an agent who works primarily with physicians.
Thomas J. Bryant, ARM
Since October 2011, Tom has been Director of Business Development at PIAM (Physicians Insurance Agency of Massachusetts) a subsidiary of the Massachusetts Medical Society. Tom has spoken on Professional Liability and other Insurance issues at UMASS Medical School, Tufts Medical School, the Physician Assistant Program of Bryant University, and the Young Physicians Workshop: ‘Practicing Outside the Box; Entrepreneurship, Advocacy and Inspiration.’’ If you have questions about how to strengthen your insurance program, or would like to discuss a speaking engagement, Tom can be reached at 781-434-7391 or by email at email@example.com.