Sometimes, learning the secret language of the insurance business may seem daunting. But by learning just a few words, you should be able to get by and understand the importance of the product you’re buying.
Thirty years ago, the insurance industry experienced a crisis that changed the industry forever. Insurance companies received decades old claims for asbestos and pollution damages. The courts rendered legal theories ensuring that policyholders had coverage and victims were compensated.
In other words, insurance companies were being presented with claims for bodily injury that had happened in the 40’s and 50’s and was just now being litigated.
The court’s interpretation of “occurrence” used in then-current policies caused pricing problems for the insurance industry. Companies needed to calculate current premiums for losses that might not be submitted for 20 years or more. The insurance companies needed to find a way to deal with these exposures, or premiums would double and triple.
The claims-made policy offered a solution. It allowed the insurance carrier to contain the period during which they were providing coverage. Once a policy expired, they were no longer responsible for claims that had not been reported.
These sorts of policies are commonly used for professional liability, malpractice, errors and omissions (E&O) and manufacturing liability. In a claims-made policy, coverage is triggered if the claim is made during the policy period for an injury or damage that occurs after the inception date of the policy and prior to expiration. Policyholders are advised to report ANY CIRCUMSTANCES that might result in a claim. This way, the date of “wrongful act” is established, and the policyholder is protected should a claim be filed.
By using this strategy, insurance companies are able to continue valuable protection at an affordable price.
Most business owners won’t need the sort of coverage written on a claims made policy, but if you’re not sure, call with any questions.
