Last week we started our discussion on the two types of insurance coverage forms that affect restoration contractors: Occurrence and Claim Made. This week we want to focus on the differences in the claims-made policy and how it can affect you.
“Claims Made” Differences
Unlike an occurrence-based policy, where only the date of occurrence must be determined (or occurrences – based on the legal theory applied), three dates must be known and/or determined to trigger coverage in a “claims made” form. These essential dates are:
1. The Date of Occurrence;
2. The Retroactive Date (found inside the policy); and
3. The Date the “Claim” is Made.
The date of occurrence was discussed in our last post and the date the claim is made might be considered self-evident. However, the term “retroactive date” necessitates further explanation.
A retroactive date is a limiting provision in the “claims made” policy. If an injury or damage occurs BEFORE this date – the policy will not respond to the loss. If, however, covered injury or damage occurs AFTER the retroactive date, the policy in effect when the claim is made will respond to defend and/or pay the claim.
For example, let's say a pollution policy has a January 1, 2004, retroactive date and the injury is determined to have occurred on November 1, 2003. The claim is then reported on February 1, 2004.
In this example, the policy in effect on February 1, 2004, will NOT pay for or defend the injury because the occurrence/injury took place before the retroactive date. Even worse, the prior claims-made policy will probably not pay the loss because the claim was not made during the policy period.
Continuing the above simplified example, if the retroactive date were January 1, 2003, the policy in effect on February 1, 2004, (when the claim is made) would respond in defense or payment of the injury. Both examples are overly simplified, but they should make clear the importance of the retroactive date and its effect on coverage availability.
These examples highlight the importance of working with an insurance agency that understands claims-made policies and how they can affect you and your restoration company.
If you have any additional questions, please don't hesitate to contact us.