Edition 06/2001
Liability
Insurance - Occurrence V's Claims Made Wordings
In
recent weeks we have received many queries concerning the difference
between an occurrence wording and a claims made wording in regard to
liability insurance. It is very important that a clear
understanding is gained as an inappropriate choice of cover can leave
the policyholder exposed to uninsured damages awards. This is
particularly relevant when changing from one insurer to another, which
has been forced upon many recently due to the collapse of HIH
Insurance, who wrote a large number of liability insurance policies.
When
addressing the protection provided by an insurance policy it is
important to note that the precise details of the cover is contained
within the insurance policy document, which is a legally binding
contract. As policy wordings are not identical from company to
company, covers that may go by the same policy name, or even share
common industry expressions such as "claims made", may not
provide exactly the same cover. It is extremely important then,
that the policy benefits, terms, conditions and exclusions are
understood and considered carefully in making a decision on the
purchase of a specific policy.
For that
reason this article, which will give an explanation of claims made and
occurrence policy wordings, should not be taken as providing infinite
detail of the terms and conditions that will necessarily apply to
every policy. The specific policy wording must be read to obtain
complete details of all terms and conditions.
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The
terms "occurrence" and "claims made" are
applied in determining whether or not a policy will respond to a
particular claim. We will commence by looking at an
"occurrence wording", which has generally been the type
of wording that has applied to Public and Products liability
insurance. Such a policy will contain wording along the
lines of "the insurer will pay a claim for legal liability if
the event that gives rise to the claim occurs during the period of
insurance". Of course this is subject to satisfying all
terms and conditions of the policy, but the critical point in
referring to occurrence wordings is the fact that the event that
gives rise to the claim must occur during the period of insurance
for the policy to respond.
In
the case of liability, which often involves litigation, it can be
some time after the event occurring before liability is
determined. Under an occurrence wording it is the policy in
force at the time of the event that responds to the claim.
The
alternative is a "claims made wording", which is the
type of wording that has generally been applied to Professional
Indemnity, Directors and Officers, and Association Liability insurance
policies. These policies will contain wording such as "the
insurer will pay for loss for which the insured is legally liable
to pay on account of any claim first made against the insured
during the period of cover, and which is notified to the insurer
during the period of cover". Again, this is subject to
satisfying all terms and conditions of the policy, but for claims
made wordings the critical point is that the claim for legal
liability is first made upon the insured during the period of
cover.
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