“Claims Made” Differences

Unlike an occurrence-based policy, where only the date of occurrence must be determined (or occurrences – based on the legal theory applied), three dates must be known and/or determined to trigger coverage in a “claims made” form. These essential dates are:

1. The Date of Occurrence;
2. The Retroactive Date (or prior and pending litigation date); and
3. The Date the “Claim” is Made.

The date of occurrence has already been discussed and the date the claim is made might be considered self-evident (even though there is some doubt about what constitutes a “claim” and when it is made); thus only the term “retroactive date” necessitates further explanation.

A retroactive date acts as a limiting provision in the “claims made” policy. If the injury or damage occurs BEFORE this date – the policy will not respond to the loss. If, however, covered injury or damage occurs AFTER the retroactive date, the policy in effect when the claim is made will respond to defend and/or pay the claim.

For example, a policy has a January 1, 2004, retroactive date and the injury is determined to have occurred on November 1, 2003. The claim (as defined by the policy) arising from the occurrence is made on February 1, 2004. In this example, the policy in effect on February 1, 2004, will NOT pay for or defend the injury because the occurrence/injury took place before the retroactive date. Worse, the prior policy may not pay the loss if it was also a “claims made” policy whose retro date was advanced (not covered in this article).

Continuing the above simplified example, if the retroactive date were January 1, 2003, the policy in effect on February 1, 2004, (when the claim is made) would respond in defense or payment of the injury. Both examples are overly simplified, but they should make clear the importance of the retroactive date and its effect on coverage availability.

http://www.mynewmarkets.com/articles/98822/the-difference-be...