Have you ever taken the time to ask your agent what some of the items you see within your commercial automobile or general liability policy actually mean? Let’s be honest, most people do not make the time to sit down and read what their insurance policy says. If you did, would you truly understand the policy language? One major item you always want to have 100% clarity on, is whether or not your policy is claims made or occurrence based. While it sounds simple enough, knowing this could mean the difference between having a covered claim, and one that is not.
Claims Made Policies
Let’s delve into claims made based policy. This policy stands out distinctly, yet it bears similarities to an occurrence based policy regarding coverage limits. A claims made policy effectively covers claims filed during the active period of your insurance. The crucial distinction lies in the timing for reporting a claim to ensure coverage (as long as the policy provides that coverage).
It is extremely important to understand claim reporting timelines when covered by a claims-made policy. Recognizing that all claims occurring during the policy term MUST be reported within the policy term, (prior to policy expiration) is priority number 1. Should an incident not be reported during the policy term, the carrier could decline coverage unless the policy includes an extended reporting period endorsement and/or the insured has purchased tail coverage. It cannot be emphasized enough how important timely claim reporting is when it comes to claims made policies.
Claim Reporting Examples
Acceptable Reporting:
- Policy effective: 1/1/23 – 1/1/24
- Incident occurred on: 2/10/23
- Incident reported to the carrier on 2/15/23 (prior to policy expiration) ✅
Unacceptable Reporting:
- Policy effective: 1/1/23 – 1/1/24
- Incident occurred on: 2/10/23
- Incident reported to the carrier on 1/3/24 (after the policy has expired) ❌
Now, after reviewing the examples above you might ask yourself, what if an incident occurs, but my employee does not make me aware of it until after the policy has expired, or not at all? While it is not your fault that your employee didn’t make you aware, if the policy term in which the incident occurred has expired, and the claim was not reported before policy expiration, the claim will not be covered, and you will be on the hook for it yourself. In this instance, it’s as bad as simply not being insured at all.
Occurrence Base Policy
Switching directions to occurrence based policies. These policies are a lot more lenient when it comes to claim reporting times. With an occurrence based policy, the policy holder can report a claim that occurred during the policy term, even after the policy has expired. While it is not recommended to report claims in a late fashion, if it were to occur, the carrier would be more inclined to cover the loss (provided the claim is made toward a covered loss), unlike a claims made policy.
If an incident were to occur as mentioned above where your employee does not make you aware of a claim until after the policy expired, chances are the carrier would cover the claim, so long as coverage was provided within the policy. Again, we do not recommend late claim reporting, and can’t stress enough how important it is to make your carrier aware of an incident as soon as it occurs.
Protect Your Business
Knowing whether your policy is claims made or occurrence based could mean the difference between remaining in business after a loss, or having to shut down due to a non-covered claim due to the timing of the claim being reported. To better protect yourself, please be sure to clarify whether or not you have a claims made, or occurrence based policy.
Still unsure which coverage is right for your business? Contact Sovereign Transportation Insurance today to review your policy and ensure you’re fully protected.