Occurrence vs. Claims-Made Insurance Policies: Which Trigger Pays Your Claim?

An occurrence policy protects you for injuries to others (or their property) which occur while your policy is active, regardless of when the injured party makes a claim, even years after the policy expires. A claims-made policy will protect you for claims that are first made against you during the term of your current insurance contract, generally with regard to incidents which occurred after the policy's retroactive date. The difference is the coverage trigger, the event that switches a policy on, and it decides which policy, this year's or one from a decade ago, responds to a claim.

Most people who purchase a general liability policy never have to think about this. This is largely because the standard ISO Commercial General Liability form (CG 00 01) is issued on an occurrence basis. However, many other types of insurance policies such as professional liability, directors & officers liability (D&O), and other specialty lines, are issued on a claims made basis. When you switch from one type of trigger to another, that's typically where all the holes appear. For example, if a policy renews with an advanced retroactive date, it can automatically cancel out years of previous work. The policyholder does not need to receive any claim denial letters. The hole is simply there.

What is an occurrence policy?

The policy provides coverage for injuries and damages that happen during the time of the policy, whenever the claim ultimately lands. The ISO CGL (Commercial General Liability) defines an "occurrence" to include an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The classic example of an occurrence is a customer tripping over a loose floor tile at a bakery. In order for this occurrence based CGL to apply, all three factors must be present:

1. There was some type of occurrence that resulted in the injury or damage to someone or something within the policy's coverage territory.
2. The injury or damage took place at some time during the period of time covered by your policy.
3. No person who was an insured under this policy ever knew, in whole or in part, that the injury or damage had occurred before the beginning of the policy period.

Notice what is not on that list of conditions: when the claim is filed. If you sell a product in 2024 and it hurts someone that year but the lawsuit doesn't arrive until 2027, your 2024 policy will respond with its 2024 limits. That third condition is also the occurrence form's only hard limit. No new fresh policy will cover an existing problem known to the insured at renewal time, so all continuation of injury or damage that was known before the inception remains with the old policy and not the renewal.

What is a claims-made policy?

A claims-made policy reverses the trigger. What determines coverage is when a claim is first made against the insured, not when the original injury occurred. Your current policy (with existing limits) covers claims that are submitted as part of your policy period. The majority of these types of policies fall into lines with extended tails from the act until the lawsuit: professional liability, directors & officers, employment practice and cyber insurance. According to the Insurance Information Institute, most professional liability policies are issued under claims-made terms.^[1]

The Claims-Made Trigger is favored by insurers as they can close out claims sooner than pay claims years or even decades later after receiving premiums. This trigger for insurers also has origins in litigation as well. In the mid-1980's insurers advocated to switch the CGL from occurrence to claims-made. Nineteen state attorneys general filed a lawsuit against the insurers alleging an illegal anti-trust agreement to force the market to be on claims-made terms. The case went all the way to the U.S. Supreme Court with Hartford Fire Insurance Co. v. California (1993).^[2] However, the occurrence based CGL survived and the claims-made CGL did not become the standard.

What is a retroactive date?

Beginning with the "retroactive date" there are two key elements to maintain the claims-made system within a defined boundary. This date establishes the first time from which the insurer will provide insurance for injury or damages. If a claim is made against an insured for injuries/damages occurring prior to this date, then this claim will be denied. The longer an insured has maintained their claims-made coverage (i.e., each renewal) with the same retroactive date, they have extended their protection period.

At each renewal you need to keep an eye on the retroactive date. If a new carrier moves it forward then all of the work done prior to the new date will be excluded from coverage by default. Prior acts coverage (the space between the retroactive date and today) provides coverage for work completed in previous years when a claim eventually develops. The last resort if a new carrier does not agree to accept your retroactive date as presented is to negotiate a nose clause endorsement at binding which would allow coverage for prior acts. The best position a claims-made buyer could have is full prior acts coverage with no retroactive date at all.

What is an extended reporting period (tail coverage)?

The Extended Reporting Period (ERP, the second mechanism) is commonly referred to as "tail" coverage. This concept has relevance with a claims-made policy that ends without replacement, due to retirement, sale of your practice/business or conversion to an occurrence based form. If claims are made against you after the end date of the last reporting period, there will otherwise be no place for those claims to go. The Extended Reporting Period provides additional time within which a claim can be submitted for an injury/damage occurring prior to the end of the last reporting period.

The basic extended reporting period (ERP) included with the claims made commercial general liability (CGL) policy is automatic upon cancellation, non-renewal, or renewal to include an advanced retroactive date. The length of this complimentary tail varies depending on what type of claim it may be. For claims generally, the complimentary tail will last for 60 days. However, for occurrences where notice was given within 60 days of the end of the coverage term, the complimentary tail will last for five years.

Protection beyond this complimentary tail is available through purchase of a supplemental ERP. While there is no limitation as to how long the supplemental ERP will provide protection, it must be purchased by written request no later than 60 days after the termination of the policy period. Failure to elect the supplemental ERP during the specified time frame means the option cannot be elected at any future point. The tail is not cheap. Under the ISO form the supplemental ERP premium is capped at 200 percent of the annual premium, so plan for a one time charge that can approach double a full year of premium, payable up front.

How do occurrence and claims-made policies compare?

The trigger difference plays out across limits, key dates, and what happens after the policy ends:

An occurrence form does not ask anything from you at the end of the policy period. Therefore, there are no tail periods (tail) to purchase, nor will you have to check on any retroactive dates. The reason that contracts requiring General Liability (or workers compensation) assume occurrence forms, is that nothing more is asked of you once the policy year ends. In a claims made program, it is rewarding to be disciplined in that if you allow a lapse in your renewal, or if the new carrier advances the retroactive date, you create a gap. Older claims also "draw-down" the current limits they share with any new claim(s).

How do you switch between claims-made and occurrence coverage?

When transitioning back and forth on this issue, the most common problem is usually finding uninsured claims when you transition. Normally these are lawsuits filed against you after the old policy expired and prior to purchasing a claims-made tail. Talk to your broker about this before moving:

• Map your triggers: Create lists of each liability insurance policy you purchase by indicating whether they provide occurrence coverage or claims-made coverage and by listing the retroactive date of each claims-made policy.
• Protect the retroactive date: When changing from one claims-made policy to another insure that the new insurer agrees to maintain your current retroactive date. If the new insurer rejects this (which happens often after a claim or in a hard market) then price the tail of the current carrier against the nose of the new carrier and buy whichever provides the same window for less money.
• Buy the tail when you exit: When moving from claims-made coverage to occurrence coverage or shutting down the business obtain the supplemental extended reporting period before the 60 day election window closes. Purchasing occurrence coverage at some point in the future has no value as an act prior to it is not covered by it.
• Check what your contracts require: Many construction and service contracts require occurrence-based general liability and a certificate reviewer will reject a claims-made form prior to mobilization.

Prior to binding a switch, verify how your certificate of insurance will be interpreted under the new program. To better understand the actual coverage provided once the underlying policy has been activated, please refer to our what general liability insurance covers guide.

This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

The Bottom Line

An occurrence policy pays for injuries that occur in the time frame of the contract. A claims-made policy pays for claims that are first reported in the time frame of the contract (back to a retroactive date). The occurrence policies ask nothing more of you as soon as they expire. The claims-made policies require you to protect the date that is retroactive and purchase a "tail" if you ever decide to leave. Pull out every single liability insurance policy you have. Take note of each policy's trigger and retroactive date, then go over these items with your broker prior to the next renewal cycle.