How Is the Policy Written?
Occurrence form coverage may be considered the simpler of the two types of coverage, and most property and casualty insurance policies are written on an occurrence basis. Occurrence form coverage means that the policy will respond to events that occur during the policy period regardless of when the claim is actually made. Once the policy year has concluded, the policy will respond to claims that may be made several years later. For example, there may have been an auto accident that occurred during the policy year, but because the statute of limitations may not expire for four or five years, the actual claim may not be brought for several years after the date of the accident.
Claims-made form coverage responds only to claims reported during the policy year, although the triggering event may have occurred prior to the policy period if there is a retroactive date (retro date) on the policy. A retro date is typically established as the date when the first claims-made policy is issued, and all subsequent renewal policies use the same retro date. When a retro date is used, coverage is provided from the retro date to the current policy period. Claims that occurred prior to the retro date are not covered.
How Do the Requirements Differ?
The primary difference between occurrence basis insurance policies and claims-made basis policies is the time in which claims must be reported to the insurance company to trigger coverage for the claim. A claims-made policy provides coverage only when the claim is made and reported to the insurance company during the policy period or a specified period thereafter (such as an extended reporting period specifically set out in the policy). An occurrence policy provides coverage for claims occurring during the policy’s coverage period, regardless of when the claims are reported.
If an insurance policy is written on a claims-made basis, it will be prominently indicated on the declarations page(s) of the policy and / or at the beginning of the coverage form (i.e., “THIS IS A CLAIMS-MADE POLICY”). Types of insurance commonly written on a claims-made basis would include directors and officers liability (D&O), employment practices liability (EPLI), fiduciary liability, professional liability (E&O) and pollution legal liability. A careful review of the definitions section of a claims-made policy must be made to determine if a notice of a claim fits the definition of a claim. If it does, the claim must be reported to the insurance company prior to the expiration of the policy (or any extended reporting period specifically set out in the policy), or the claim will be denied.
To be safe and to prevent any doubt, insureds should promptly notify their claims team when they:
- Become aware of an incident that could become a claim
- Receive any communication from an attorney making a demand or asserting a claim
- Receive any sort of administrative notice (such as from the Equal Employment Opportunity Commission or any similar agency) that a complaint is being made
- Receive a summons (explained below), subpoena, notice or anything else that appears to be related to a lawsuit
A prompt review by the insured’s claims representative can quickly determine if it’s necessary to provide notice to the insurance company.
What Is a Summons and What Action Is Required?
When a lawsuit, or complaint, has been filed against an insured or the insured’s business, the insured will be served with that lawsuit, or complaint, via a summons. Below are the important things every insured should know about a summons:
- A summons is an order or writ issued by a court that gives notice to the party being sued that a lawsuit has been filed, and the date by which an answer, or response, must be made.
- Deadlines to file a response may vary depending on the jurisdiction someone is sued in, but in most cases, people are given a deadline of 14 to 30 days. If an answer or response to the lawsuit is not filed in a timely manner, or within an extension of time granted, a default judgment may be rendered against the individual.
- A summons may be served personally by a sheriff or process server or, in some cases, it may be served by certified mail.
- Upon receipt of a summons, it is imperative for an insured to immediately advise their claims team so that steps can be taken to ensure the lawsuit is promptly reported to the insurance company.
Insurance companies can quickly analyze lawsuits for coverage under the terms of a policy and will make sure defense counsel is assigned to any covered lawsuit so that a proper response is made to the court within the deadline imposed.
Contact Your Claims Team
Reporting requirements can be confusing – especially when they differ among policies. When a lawsuit or summons is added to the mix, the process can quickly become overwhelming. When in doubt, it is important to err on the side of coverage by promptly notifying your claims team and letting the insurance professionals sort through the policy terms and reporting requirements. Involving industry experts can help ensure that liability events are being handled in an orderly and timely manner.
This article originally appeared in the 2016 | ISSUE THREE of the SilverLink magazine under the title “Time Is of the Essence.” To receive a complimentary subscription to the SilverLink magazine, sign up here.