Occurrence Policy

An occurrence policy covers claims made for injuries sustained during the life of an insurance policy, even if the claim is filed after the policy has been canceled. An occurrence is an event that can result in the filing of an insurance claim.

Insurance companies can provide two types of liability insurance coverage through an occurrence policy and claims made. Occurrence coverage covers incidents that happened while the policy was in effect, even if the claim was filed after the policyholder changed insurance companies later on. For example, an individual exposed to hazardous chemicals may only experience the effects years later. Occurrence coverage will cover the employer and the former employee even if the injured individual files a claim after retiring. Insurers typically place a cap on the total coverage offered through such a policy. One form of cap limits the amount of coverage offered each year but lets the coverage limit reset each year. For example, a company that purchases five years of occurrence coverage with an annual cap of $1 million will allow the policyholder to have up to $5 million in total coverage.

Claims-made coverage is more common than occurrence coverage. A claims-made policy provides coverage when a claim is made against the policy, regardless of when the claim event took place. A claims-made policy is most likely to be purchased when there is a delay between when claims are filed and when they occur. Business insurance policies are often offered as either a claims-made policy or an occurrence policy. While the claims-made policy provides coverage for claims when the event is reported, the occurrence policy provides coverage when the event occurs.

Claims-made policies are used to cover the risks associated with business operations. For example, these policies are used to cover the potential for mistakes associated with errors and omissions in financial statements. They are also used to cover businesses from claims made by employees, including wrongful termination, sexual harassment, and discrimination claims. These claims may be made against a policy months after the claims event takes place. This type of liability is referred to as employment practices liability, and may also cover the actions of directors and officers of the business. Until the mid 1960s the claims-made wording didn’t exist, and into the early to mid 1970s, its use was sporadic. The occurrence form now dominates except for most professional and executive liability exposures, where claims made policies rule.