What is a claims made liability insurance policy? Why should you care!

Not all claims made and reported professional liability insurance polices are the same. The initial objective is to allow an insurance underwriter to close out a policy when conditions dictate that a claim may occur years long after a policy may expire. Examples of this condition are products liability claims, construction latent defect claims and professional liability errors & omissions/malpractice. A claims made and reported liability policy requires that the claim happens and is reported in the policy period and that the claim occurred after the retroactive date listed in the declarations(this is sometimes shown as a prior acts exclusion date).

Some policy contracts may be silent about prior acts and in effect provide full prior acts coverage for the insured. This type of policy may approach coverage similar to an occurrence policy form. Other claims made and reported policies may address issues of predecessor firms with an absolute exclusion or a detailed explanation of the conditions covering or excluding any predecessor firms. And still other claims made and reported policy forms may contain extensive explanations of extended periods of reporting while other policies simply state that you must request a tail within 30 days of a policy expiration. There are inconsistent treatments of many policy issues, terms, conditions and exclusions in today’s professional liability insurance marketplace.

In our discussions about claims made professional liability insurance with clients and prospects, the one clear issue is that may informed buyers have full spectrum of understanding the policy from not at all to a clear conceptual understanding of how the insurance policy will respond. Clearly asking as many questions up front adds to the understanding. Knowing that there are no uniform policy forms is a first step.