Claims-made Coverage

The second way that Professional Liability Insurance policies can be written is as claims-made coverage. Simply put, claims-made coverage pays for claims that are filed during the policy period whether or not the act leading to the claim occurred during that time.

For example, lets say that an accountant made some serious errors in the tax returns of a clients business. A few years later, the client is audited and the problems with the previous return come to light. Due to the incorrect return, the client faces a hefty fine from the Internal Revenue Service and sues the accountant. The policy that would pay the claim is the one in effect when the accountant is sued, not the one from the year in which the problematic tax return was filed.

Claims-made coverage usually has a retroactive date, which is the date furthest in the past that any act can occur that triggers a claim that the policy will pay for. In most cases, that date is the first time the professional in question purchased a claims-made Professional Liability Insurance policy, from any insurance carrier (not necessarily the one who provides the current insurance).

A claims-made insurance policy can have an endorsement for prior acts, which are acts that occur prior to the retroactive date on the policy. Such an endorsement can provide some coverage for acts prior to that date. It can also be modified to include coverage, which will cover some claims arising from acts during the policy period that were not reported during the policy term.

With some claims-made policies a professional or business owner can have a multiyear policy, where the cost of the policy is based on the claims experience during previous years. If the professional or business owner has few claims, this kind of pricing could work in his or her favor and keep costs down. However, if the insured professional experiences many claims during the early years of the policy premiums could rise quite a bit.

For some businesses and professionals, claims-made insurance can be more flexible than occurrence insurance because an insured person can change or upgrade the policy at the present time and that coverage will still apply to claims that come in from prior acts.

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