Occurrence vs. Claims-Made Policies
Every liability policy has a trigger: the event that decides which policy year answers a claim. This guide explains the two common triggers, the dates that matter on a claims-made policy and the moments when the difference really counts.
Two ways a policy decides which year responds
An occurrence policy looks at when the incident happened. If a customer was hurt during the policy period, that policy is the one that responds, even if the lawsuit arrives after the policy has expired. The California Department of Insurance’s commercial insurance guide defines occurrence coverage in exactly those terms.
A claims-made policy looks at when the claim is made. The policy in force on the day the claim is first brought against you is the one that responds, as long as the underlying act falls after the policy’s retroactive date. The same state guide describes claims-made coverage as answering claims filed during the policy period regardless of when the loss happened, limited by that retroactive date.
Neither trigger is better in the abstract. They suit different kinds of risk, and knowing which one each of your policies uses tells you what to watch when anything about your coverage changes.
Which policies tend to use which trigger
Policies built around physical accidents, such as general liability and the liability part of a Business Owner’s Policy, are commonly written on an occurrence basis. A slip in your shop or damage at a job site has a clear date, so tying coverage to the incident makes sense. The guide to BOP vs. general liability explains how those two policies relate.
Policies built around decisions, advice and management are more often claims-made. That group includes professional liability (E&O), directors and officers, employment practices liability and many cyber policies. A mistake in a report or a hiring decision can surface long after it was made, and the claims-made trigger keeps those policies focused on the claims arriving now.
The retroactive date
Most claims-made policies carry a retroactive date. IRMI describes it as a provision that removes coverage for claims arising from acts committed before that date, even when the claim itself arrives during the policy period. Often it matches the date you first bought claims-made coverage, and it stays put through each renewal as long as coverage continues without a break.
That continuity is the whole point. Work you did in earlier years stays protected under today’s policy only because the retroactive date reaches back to cover it. Losing the date, through a lapse or a switch to an insurer that resets it, can leave years of past work without protection. When you compare quotes, look at the retroactive date on each one as carefully as the limit and the premium.
Reporting rules and the extended reporting period
Many claims-made policies also require that the claim be reported to the insurer during the policy period or within a short window after it ends. Read the notice section and know who in your business is responsible for reporting a demand letter, a lawsuit or even a client’s written complaint promptly.
When a claims-made policy ends without a replacement, an extended reporting period, often called tail coverage, gives you added time to report claims tied to work done while the policy was active. IRMI defines it as a window after expiration during which claims can be made and treated as if they arrived during the policy period. Tail options are usually offered for a limited time after the policy ends, so ask about them before cancelling, not after.
Moments when the trigger matters most
The difference between the two triggers stays quiet until something changes. These are the moments to slow down:
- Switching insurers: ask the new insurer to honor your existing retroactive date, often called prior acts coverage.
- Closing, selling or retiring: ask about tail coverage before the last claims-made policy ends.
- Seasonal breaks: a business that drops coverage between seasons can lose its retroactive date on a claims-made policy.
- Changing services: confirm the new work fits the policy’s description before you start it.
- Merging with another firm: ask how each firm’s past work is handled going forward.
Seasonal and part-year operators feel the gap risk most. The pop-up and seasonal business insurance guide covers how to plan coverage around the calendar, and the home-based business insurance guide speaks to consultants and freelancers who often carry claims-made professional coverage from a home office.
Contracts that name the trigger
Client contracts sometimes specify the form. A service agreement can require occurrence-based general liability and claims-made professional liability, and then ask that the professional policy stay in force, or carry a tail, for a stated period after the project ends. That request is about the delayed nature of professional claims, and it deserves a place in your calendar as well as your files.
Read the insurance section for words such as occurrence, claims-made, retroactive date, maintain and extended reporting. If a contract asks for something your policy is not written to do, raise it before signing rather than after a claim arrives.
Comparing quotes across the two forms
Line up quotes on the same terms before comparing price. For claims-made quotes, check the retroactive date, the reporting conditions, whether defense costs reduce the limit and what tail options exist. For occurrence quotes, check the limits, the aggregate and the exclusions that apply to your work.
Bring your current declarations pages, the retroactive dates printed on them and any contracts that name a trigger. With those in hand, contact Mithril1 and we can walk through how each option fits the way your business works.
A few useful answers
Common questions
What happens to a claims-made policy if I let it lapse between seasons?
A lapse can reset or end the retroactive date, which can leave earlier work without protection once a new policy begins. Ask about keeping coverage continuous, or about tail options, before you let a claims-made policy end for the off-season.
Is general liability usually written on an occurrence basis?
General liability for small businesses is commonly written on an occurrence form, so the policy in force when an injury or property damage happened is the one that responds. Some general liability forms are claims-made, so check the declarations page.
What is prior acts coverage on a claims-made policy?
It is coverage for work done before the current policy started, back to the retroactive date. When you change insurers, asking the new one to keep your existing retroactive date preserves that protection for past work.
When should a consultant closing a practice ask about tail coverage?
Before the final claims-made policy ends. Tail options are usually offered only for a limited time after expiration, and they give added time to report claims tied to work done while that policy was active.
Do I need to report incidents quickly on an occurrence policy too?
Yes. Occurrence policies still contain notice conditions that ask you to tell the insurer promptly about incidents and claims. Prompt reporting helps on either form, so keep a simple process for passing letters and lawsuits along.