Ask a Lawyer: Models of Protection


Question: What is the difference between claims-made and occurrence-based protection?

Answer: CLAIMS-MADE protection provides coverage for claims that arise while the protection is active. The availability of protection depends first and foremost on when the claim was commenced. For instance, in the case of an insurance policy, the policy provides coverage for claims that arise as long as the policy is in effect.  Once the policy is no longer in effect, the protection no longer exists, subject to any tail coverage provided by the insurer.  A claims-made policy also typically provides a limited time-frame within which the care must have been provided.

“Tail coverage” can be said to exist when the wording of the policy, usually under the section entitled “Extended reporting period”, expressly states that a claim can be reported after the expiry of the policy.  This period is typically quite short, generally one or two months. 

Once a decision is made to not renew a policy, a longer “extended reporting period” can sometimes be purchased, for a duration and cost determined by the insurer at that time.  The cost of a tail coverage beyond a few months generally cannot be determined at the inception of a policy because it is based on the claims history that develops over the life of the policy.

Under an OCCURRENCE-BASED model, the availability of protection depends on whether the protection was active when the incident giving rise to the claim occurred. For instance, in health care, the availability of protection would only depend on whether it was in place when the care was provided.  It does not matter when (how soon or far in to the future) the claim is commenced. This is why tail coverage is not needed when occurrence-based protection is in place.

If a claims-made insurance policy is established on behalf of a group, the organization that purchases the insurance policy may choose to renew the policy on behalf of both the existing and past members of the group, such as to extend the protection for past members beyond the date when they leave the organization, but the policy remains and continues to operate as a claims-made policy.  If at any point, the policy is not renewed, any protection that previously existed under the policy no longer exists, subject to the specific “extended reporting provisions” contained in the policy. Such a policy does not become and cannot be described as an occurrence-based policy. 

CNPS legal counsel member are available to provide advice to CNPS beneficiaries with respect to this issue. Call us toll free at 1-800-267-3390.

 

Published October 2019

 

This publication is for information purposes only. Nothing in this publication should be construed as legal advice from any lawyer, contributor or the CNPS. Readers should consult legal counsel for specific advice.