Liability insurance policies allow companies to protect themselves from various risks. Some liability policies are “occurrence-based,” while others are considered “claims-made” policies. Claims-made policies may have an extended reporting period (ERP), which provides some protection after the policy period ends that may be important during times of transition.
Occurrence vs. Claims-Made Policies
An occurrence policy covers claims stemming from an event that happened during your coverage period. With this type of policy, you will be covered for events that occurred during the policy period – even if the claim is made after the policy ends. For instance, say you had a general liability policy during 2023, but you did not renew it for 2024. If a client was injured on your property during 2023 and waits until 2024 to report the incident and bring a claim against you, you are still covered under the policy, since the triggering event occurred during the coverage period.
By contrast, claims-made policies cover claims made during the policy period. For instance, if you had a claims-made errors and omissions liability policy in 2023 and you are sued in 2024 for alleged negligent actions during 2023, you do not have coverage, because coverage is triggered by the claim itself, not the underlying event. However, if your policy has an ERP, this gives you a finite amount of time after the policy period ends to report claims for prior wrongful acts to the insurer. The wrongful acts themselves must have occurred prior to the policy’s end date for there to be coverage.
It’s important to note that claims-made policies typically have a retroactive date, which limits how far back in the past triggering events could have occurred for a claim to be covered.
Extended Reporting Period (ERP)
Read your claims-made policy carefully to determine if it contains an ERP provision, which is also known as tail coverage. Some policies will have an automatic 30-day or 60-day extended reporting period after the expiration date, which is a sort of grace period in case a claim is brought against you immediately after the policy expires. As noted above, however, the claim must apply to alleged or actual wrongdoing that occurred prior to the policy expiration date. Additionally, some insurers allow you to purchase a supplemental ERP, which can range from one to five years or more. Some insurance companies only offer an ERP if it was the insurer that elected to cancel or non-renew the policy.
Which Policy Types Are Claims-Made vs. Occurrence
Most commercial general liability (CGL) policies, umbrella policies and commercial auto policies are occurrence-based policies. You don’t need an ERP with occurrence-based policies, because your policy covers you as long as the loss occurred during the policy period – even if the claim arises many years later.
Most other types of business liability policies are claims-made, including errors and omissions, professional liability, directors and officers, employment practices liability and cyber insurance.
When an ERP Can Be Useful
If you retire or close or sell your business and therefore discontinue your liability insurance coverage, an ERP provides some protection in case a claim is made against you based on your prior work activities. Or if you cancel your claims-made policy in favor of an occurrence-based policy, an ERP will continue to protect you for events that happened during the previous period, which will not be covered by the new occurrence-based-policy.
If you are involved in a dispute with your business insurance company, contact Schwartz, Conroy & Hack. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.