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When comedians make fun of insurance seminars and how unexciting insurance principles can be, they might be envisioning topics like this one. If that is the case why in the world would I put my valued clients through such an ordeal? It is because it is important stuff and if you don't have any idea about what a "Claims Made" and an "Occurrence" liability policy form is, you could not only be taken advantage of some day, but incur a significant financial loss.

Liability policies protect you against claims for bodily injury or property damage of others caused by you or your business. A simple example would be someone tripping on a rug as they come into your store and hurting themselves. Of course it wasn't something you did intentionally, but because you are in business the exposure existed and it caused harm. You will likely have to pay for these injuries and your liability policy would be the policy covering such exposures.

There are two types of liability policies, "Occurrence" and "Claims Made". In their simplest form, occurrence is a policy that will cover a claim if it occurred during the policy period, no matter when reported. Let's say a nursing home accidentally causes harm to a resident, but a law suit, (thus a claim) is not undertaken for two years. With an Occurrence policy, that particular claim would go to the policy that provided coverage during the actual date the claim "occurred", even if a different company was covering the nursing home when the claim was actually filed. With a Claims Made form, no matter when the claim occurs the claim goes the policy that is in effect when claim is filed or made.

That being the case, here is the exposure you have with Claims Made. If a claim occurs say on the last day of your policy, but not filed until after that policy expires, you had better have renewed that policy with the same company to continue your coverage. If you changed insurance companies that year in this example, the new company would have to agree to offer "prior acts" or coverage for claims occurring prior to the effective date of their policy, or you would have to buy an Extended Reporting Period Endorsement commonly known as a Tail from the expiring company. These can be expensive. Without either option, this claim would have no coverage .

Please, if you have any questions concerning this rather complicated but important distinction in policy forms, call or email me. You definitely need to know what liability form you have and how to deal with renewals and changes in insurance companies.

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