More and more contractors are understanding the importance and necessity of Professional Liability insurance. While the coverage afforded by Professional Liability policies depends on the carrier, one thing that is constant, and often overlooked, is that the coverage trigger on a Professional Liability policy is on a claims-made basis.
Insurance companies take two drastically different approaches when writing liability insurance. The difference centers on the event that triggers (initiates) coverage, which is simply known as the ‘coverage trigger’. Liability policies utilize either an occurrence coverage trigger or a claims-made coverage trigger. More often than not, Commercial General Liability, Auto, and Umbrella policies are typically written on an occurrence basis, while other lines, such as Professional Liability, are commonly written on a claims-made basis.
Under an occurrence policy, the coverage trigger is tied to the date the injury or property damage took place, not when a contractor receives notice of a claim. While the injury or property damage must occur during a policy term, a claim that results from the injury or property damage may be filed during or after the policy period.
Claims-made policies cover injury or damage that occurred in the past or during the current policy period, so long as the claim is made during the current policy period. It is important to note the determination of coverage is triggered by the date the policyholder first becomes aware and notifies the insurance company of a claim or potential claim. The policy in force on the date the policyholder becomes aware and gives notice to the insurance company is the policy which will respond with defense and settlement.
It is not unusual for an insurance company to limit the duration of coverage for prior acts or prior losses. Insurance companies accomplish this by utilizing the ‘retroactive date’ provision. The retroactive date provision excludes any claims that arise from injuries or damage that occurred prior to the specified ‘retroactive date’.
For example, a professional liability policy insuring the period of January 1, 2016, through January 1, 2017 with a retroactive date of January 1, 2010 would allow coverage for a loss that took place after January 1, 2010, despite the claim being made against the insured at a point in time during the January 1, 2016, to January 1, 2017 policy period.
In all likelihood, a Professional Liability policy is not your only claims-made policy as Employee Benefit Liability, Employment Practices Liability, and Cyber Liability policies are all commonly written on a claims-made basis as well. If you have any questions regarding the coverage triggers of your specific policies, or would like to discuss the benefits/disadvantage of either coverage trigger, please contact a member of your Hausmann-Johnson Insurance team.