Commercial General Liability Insurance
The insurers determine coverage when writing liability insurance basis two differing approaches. The difference lies upon the event that triggers coverage. The two approaches are known as “claims-made and reported” (“claims made”) and “occurrence.”
Let us understand these with an example
Claims-Made vs. Occurrence Claims Trigger
Commercial general liability coverage is usually written on an “occurrence” basis. The basic difference between the claims-made and occurrence forms of coverage is when the coverage is actually “triggered” or activated.
The Occurrence policy coverage is linked to the date of the accident or occurrence of an event. Occurrence coverage is triggered when the event giving rise to the claim actually happened. The policy in effect at the time the event or occurrence happened is responsible for the claim even if the claim is not made until years after the policy expires. The claim may arise years after the policy has expired, and this type of coverage does not place any importance on the claim notification date.
Claims-made coverage is based on when a claim is actually filed, and the insurance carrier providing coverage on the filing date is responsible for the claim. The insurer’s policy which is active on the date you become aware of the claim and give notice is the insurer who must defend and settle the claim.
Claims-made policies include a retroactive date, which is usually the effective date of the first policy the insurance carrier writes for an insured. Generally, the claims-made form will not provide any coverage for claims arising out of events that take place prior to the retroactive date.
The following example will help understand the concept better
ABC Engineering has had claims-made policies for the last three years.
Insurer X provided coverage during 2017, Y Insurer provided coverage in 2018, and Z provided coverage in 2019.
In 2019, ABC received notice of a claim from a client, even though the event leading to the claim occurred in 2018
Assuming that the allegations are within the CGL policy’s coverage, which carrier would be obligated to provide defense for ABC and possibly pay the client’s damages?
Claims-Made—The claim occurred in 2019, while Z Insurance’s policy was in effect. Thus, Insurer Z would respond to the claim.
Answer: Occurrence—The event leading to the claim occurred in 2018, while Y Insurer’s policy was in effect. Thus, Y would respond to the claim.
A retroactive date is generally the date from which you have held uninterrupted insurance cover. It is applied to all Commercial General Liability policies that are issued on Claims-made basis form.
As a result, if you have held commercial general liability insurance continuously (with no break in cover) since you began the first policy, you’ll be covered for all losses you’ve done in the past – even if you’ve switched the insurance company.
If, however, there has been a period of time when you did not hold commercial general liability insurance (for example, you cancelled your policy following the end of a contract or chose not to renew it), you will only be covered for claims happening since the start of your new insurance policy.