While there may be some E&O / professional liability policies written on occurrence forms, most are written on some form of a claims-made policies basis. Essentially, this form provides the insurance carrier with a much better indication of any and all claims activity. The phrase “IBNR – Incurred but not reported” does not apply to the same degree as it does with occurrence forms.
Within the claims made form, there are actually some variations. There is what I call the “pure claims made” form and there is a form entitled “claims made and reported”. What is the difference and is it really significant?
A pure claims made form is commonly referred to “notice to the insured is notice to the insurer”. While this is basically true, there is still the expectation that the insured is expected / required to give notice of a claim to the insurance carrier “as soon as practicable”.
In a “claims-made and reported” policy, the requirement is much more clearly spelled out and can (and has been known to) cause some claims not to be covered if the requirement is not met.
The “claims-made and reported” form provides 3 main “timing tests” to determine whether a claim will be treated as falling under a given policy year:
1. Was the claim first made against the insured during the policy period?
2. Did the insured “report” the claim to the insurance carrier during the policy period (or any extensions provided for in the policy)? This “reporting” typically is required to be in writing.
3. Did the insured’s alleged act, error, or omission take place after the “retroactive date,” if any” stated in the declarations page?
As you can see, the major distinction between the two variations of a claims made form is more than just a condition of coverage. It is an essential feature of the insuring agreement itself.
This condition (of a claims made and reported form) can be a significant issue especially if the insured looks to move their E&O at renewal time. In this scenario, the insured should be sure to notify their prior carrier of any and all claims or potential claims (as defined in the policy) by the required date because claims submitted after that date may not be covered.