The difference between an occurrence policy and a claims-made policy is one of the most important concepts in commercial insurance — and one that clients almost never understand without an explanation. Getting this wrong creates E&O exposure for the agent and coverage gaps for the client.
An occurrence policy covers claims for events that occurred during the policy period — regardless of when the claim is actually filed. If an injury happens on June 15 and the client reports it three years later, the policy that was in effect on June 15 responds.
Most commercial general liability, commercial auto, and commercial property policies are written on an occurrence basis. This makes coverage relatively straightforward — coverage follows the event, not the claim.
A claims-made policy covers claims that are first made (reported) during the policy period — regardless of when the underlying event occurred (subject to the retroactive date). If a client has a professional liability policy and a claim is filed against them today for work they did two years ago, the current policy responds — as long as the work was done after the retroactive date.
Professional liability (E&O), D&O, EPLI, and cyber liability are almost always written on a claims-made basis.
Every claims-made policy has a retroactive date — the earliest date from which covered events can give rise to a claim. Work done before the retroactive date is excluded, even if the claim is filed during the policy period.
When a client first gets a claims-made policy, the retroactive date is usually the inception date. Each renewal, the retroactive date stays the same — which means the client's coverage for prior work grows deeper over time. This is called "full prior acts coverage" when the retroactive date goes back to the beginning of the client's professional activities.
When a claims-made policy is cancelled or not renewed, claims can no longer be filed against it — even for work done during the policy period. To protect against claims that come in after the policy ends, insureds purchase tail coverage (an extended reporting period endorsement).
Tail coverage can be very expensive — often 200-300% of the expiring premium. Agents must advise clients about tail coverage any time a claims-made policy is ending, especially at retirement, business sale, or carrier change.
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