An Overview
An occurrence insurance policy provides coverage for incidents that happen during the policy period, regardless of when the claim is made. If the event causing the claim occurred while the policy was active, the policy will cover the claim, even if it is reported years after the policy has expired.
Understanding occurrence based insurance policies is crucial for businesses and professionals because it offers long-term protection for liabilities arising from their operations or services. Unlike claims-made policies, occurrence policies ensure that any covered incident that happens during the policy period is protected indefinitely, offering peace of mind that future claims related to past incidents will be covered. This type of policy is particularly beneficial for businesses and professionals who face potential long-tail liabilities, such as in construction, healthcare, and manufacturing industries. By comprehending the nuances of occurrence policies, businesses can make informed decisions to safeguard against potential financial and legal consequences, ensuring sustained protection over time.
Essential Terms
Policy Period - The policy period is the specific duration of time during which an insurance policy is active and provides coverage. For an occurrence insurance policy, this is the timeframe in which incidents must occur to be eligible for coverage. The policy period is defined by the start and end dates listed in the insurance contract. If an incident happens within these dates, the policy will cover the claim, even if the claim is filed after the policy period has expired.
Occurrence - An occurrence refers to an event or series of events that cause damage or injury, which triggers coverage under the insurance policy. In the context of an occurrence insurance policy, the critical factor is that the occurrence must take place during the policy period for the coverage to apply, regardless of when the claim is reported.
Occurrence policies vs claims made policies
Timing of Coverage – Occurrence policies are triggered by the timing of the incident, while claims-made policies are triggered by the timing of the claim.
Policy Period Relevance – Occurrence policies mean the policy period is crucial only for determining when the incident occurred. For claims made policies, the policy period is crucial for both the incident and the claim.
Long-term Protection – Occurrence policies provide long-term protection for incidents that occurred during the policy period, offering peace of mind that claims will always be covered. However, claims made policies require continuous coverage to ensure protection. Gaps in coverage can leave professionals exposed.
Retroactive Date – Occurrence policies do not require retroactive dates because the policy covers any incident that happens during its term. Claims made policies will not cover incidents occurring before a retroactive date. This date can be set in the past, after consultation with the insurer at the point of agreement.
Extended Reporting Period (ERP) – Occurrence policies have no need for an ERP because claims can be made anytime in the future. Claims made policies can rely on ERPs to cover claims, to ensure there’s coverage against claims for past incidents.
Coverage limits
Coverage limits refer to the maximum amount an insurance policy will pay for a covered claim. These limits are specified in the policy and will typically include two components. One is a per-occurrence limit, meaning the maximum amount an insurer will pay for a single incident or claim. There is also an aggregate limit, referring to the maximum amount an insurer will pay for claims within the policy period.
In an occurrence policy, these limits apply to incidents that occur within the policy period. If a claim exceeds the per-occurrence limit, the policyholder is responsible for any additional costs. Similarly, if the total of all claims within a policy period exceeds the aggregate limit, the policyholder must cover the excess.
Exclusions
Exclusions are specific conditions or circumstances that are not covered by the insurance policy. Common exclusions in occurrence policies may include:
Intentional Acts – claims arising from intentional or fraudulent acts by the insured.
Contractual Liability – Claims related to liabilities assumed under a contract not covered by the policy.
Pollution – Environmental damage or pollution-related claims, unless specifically included.
Employment Practices – Claims related to employment practices such as wrongful termination, discrimination, or harassment, unless covered by a separate employment liability policy.
Professional Services – Claims arising from professional services provided by the insured, which typically require a separate professional liability policy.
War and Terrorism – Claims resulting from acts of war or terrorism, which are often excluded or limited.
Industry-based examples
Here are some examples of industries that can use occurrence policies to mitigate against long-term risks:
Construction –
Construction companies and contractors often use occurrence policies for general liability insurance. These cover incidents such as property damage or bodily injury that occur on site. Given the long-term nature of projects, as well as potential claims arising years after completion, this kind of policy is ideal.
Healthcare – Similarly, hospitals, clinics and healthcare professionals can have claims arise a long time into the future. This makes occurrence policies ideal to mitigate these risks long-term.
Manufacturing – Consumer goods can cause harm or damage a long-time after they are sold. An occurrence policy in
manufacturing can help ensure cover for any incident where the product has been manufactured within the policy term.
Real Estate and Property Management – Real estate companies, property managers and landlords use occurrence policies for liability insurance. Claims can arise any time, meaning occurrence policies can provide ongoing protection against these liabilities.
