Claims-Made vs. Occurrence

What is an occurrence policy?

An occurrence policy protects you from any incident occurring while the policy is in force. The policy then covers those incidents forever. For example, you buy a policy in 2010, treat Client X in 2011, and terminate the policy in 2012. In 2015, Client X sues you for an incident that occurred in 2011. You are covered, because you were insured when you treated Client X. With an occurrence policy, it does not matter if you are covered when the suit is brought.

What is a claims-made policy?

A claims-made policy covers you for any covered claim provided it meets two criteria:

  1. You are insured when the claim is made. If you no longer need coverage, you can purchase a “tail” to protect you for the past.
  2. You have continually renewed the policy from the time the incident occurred (the psychological service you provided that is the source of the suit) until the time the claim is made.

For instance, you buy a claims-made policy in 2010 and renew it every year. You treat Client X from 2011 to 2012. In 2014, Client X decides to sue for the services you provided in 2011 and 2012. You are covered because: 1) You are continuously insured up to when the claim is made, and 2) The treatment was provided after the policy started in 2010.

What is a retroactive date?

Your retroactive date is the start date of the first claims-made policy you are actively renewing. You are covered for any covered incident as long as it occurs on or after your retroactive date (also known as prior acts date). That date remains the same and is not advanced as long as you renew your policy. Using the example above, if you have a retroactive date of 2010 on your policy and it is now 2015, your policy covers you for the last five years. Your retroactive date is also portable. If you are currently insured with someone else for Professional Liability, you can bring that coverage with you to The Trust. The Trust will endorse your new policy with your old retroactive date. Here is an example: 

You are insured with Acme Insurance Company on a claims-made policy and you have been with them since 2010. That means you have a retroactive date of 2010. In 2015, you switch to The Trust and ask for prior acts coverage. We would issue you a new policy that includes coverage back to 2010. Your policy would be identical to someone who bought a Trust policy in 2010 and was actively renewing.

What is the difference between prior acts date and a retroactive date?

A prior acts date is the same thing as a retroactive date. The terms are used interchangeably. A claims-made policy covers you for claims-made during that one policy year. The retroactive date allows you to also add coverage for incidents that happen after your retroactive date. The process of covering those past years is called prior acts.

What is a nose?

A nose is another way of referring to your retroactive date or prior acts coverage. Since prior acts coverage covers you for what happened prior to your current policy, it is called a nose (as opposed to a "tail").

I am currently insured with someone else. How do I switch my coverage to The Trust?

The Trust has worked hard to simplify switching over. If you are currently insured elsewhere, simply submit an application and include proof of coverage from your most recent policy that shows your retroactive date. An experienced underwriter will review your application and your past coverage and work with you to make sure there are no gaps in coverage. You are only eligible for this option if your coverage is currently active with another carrier. Don't forget to take a 10% discount. If you switch your Professional Liability coverage to The Trust from another company, The Trust will give you 10% off your first year's premium. In order to qualify, you must own the previous policy. You are not eligible for the switchover credit if you were previously covered by your employer. Proof of coverage can be a copy of your declarations page, a memorandum or verification of insurance, or any other valid documentation from your previous insurance company.

How much does nose/prior acts coverage cost?

Claims-made policies have a graduated rate schedule. The first year rate is fairly low. Each year the rate increases until it caps and levels at the seventh and subsequent years. When you purchase a new policy from The Trust you start at the first year rate. If you purchase prior acts, you start at the rate that represents the number of years of prior acts you have. Here is how it works:

  • Example 1: You started a claims-made policy with Acme Insurance Company in 2012. You have renewed the policy and maintained your 2012 prior acts date. In 2015 you apply to The Trust. The Trust starts you at the fourth year rate, because you spent three years with Acme, plus you are purchasing a new year of coverage.
  • Example 2: You started your claims-made coverage with Acme Insurance Company in 1984 and have maintained your policy. Now you want to move to The Trust. What are you charged? Our rates mature in the seventh year, so even though you were with the last company for more than 20 years, you pay the seventh year step rate.

What is a tail?

The tail is actually called an extended reporting period (or ERP, for short). The tail gets its name because it becomes active after your policy has terminated (that is, you only purchase the tail endorsement when you terminate a claims-made policy). The tail endorsement allows you to report claims that come in after the policy is terminated for covered incidents that occurred while you were insured.

For example: You buy a claims-made policy in 2010. You terminate the policy in 2013 and buy the tail. The tail allows you to report claims that are brought against you after you drop the policy, as long as the incident occurred while you were insured from 2010 to 2013. 

For instance, you buy a policy in 2010 and renew it until 2013. You cancel the policy and buy the tail in 2013. Years later Client X sues you for services you provided while insured. You are covered because 1) You extended the time you had to report the claim indefinitely and 2) The service in question was provided while you were covered by the underlying policy.

The premium is a onetime cost of 175% of your final year's premium. Once you purchase the tail, you retain coverage forever. You have 60 days from the time your policy expires to purchase the tail. You cannot be denied tail coverage, even if your policy is non-renewed or cancelled.

Is there a way to get a tail free?

Yes. The tail is free if you retire, become disabled or die while insured with a claims-made policy. The carrier must be notified within 60 days of the termination of your policy to issue a free tail in the case of retirement. If you die or become disabled, the carrier should be notified within a year.

Do I need a tail for my occurrence policy?

No. The occurrence policy already guarantees coverage for what happened while you were insured. Since you are already covered, tail coverage is not necessary.

Which coverage is better, claims-made or occurrence?

Most experts agree that the right coverage for you depends on your circumstances both now and in the future. Both policies cover you for “the practice of psychology.” Both policies are issued by the same insurance company, offer the same policy limits and discounts, have the same endorsements, and provide defense outside the limits. Some advantages you may consider:

  • The claims-made policy offers greater flexibility, because your last year's policy is the one covering your past (prior acts). Thus, you can increase your limits or buy new coverage that was not available when you started your policy. Since the policy is in force at the time of the claim (not the policy you had when you provided the service), you get the benefit of the enhanced coverage. Claims-made coverage is portable. You can take the coverage from one insurance company to another.
  • The advantage to an occurrence policy is its permanence. The period of time you are insured under an occurrence policy is protected forever by the policy you had that year. You do not need to renew or buy a tail when you leave.

What is the difference in cost between a claims-made policy and an occurrence policy?

The claims-made policy costs at least 35% less when you compare the cost of buying a claims-made policy and the unlimited tail against having occurrence coverage for the same period. The savings increase if you qualify for a free death, disability or retirement tail.

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For more detailed answers, or if your question was not answered here, please call us at 1-800-477-1200.