Difference between ‘Claims Made’ and ‘Claims Occurring’ for Care Operators

When arranging liability insurance cover, it is important to understand the basis on which cover is placed, as this affects against which policy, or policy year, any claim may fall and whether an insurer will be liable for it.  Policies will routinely be written on either a ‘claims made’ or ‘claims occurring’ basis, dependent upon the class of insurance involved, or sometimes at the selection of the insurance company.

Below we provide a simple explanation as to the differences between these two bases of cover.

‘Claims made’ basis

A claims made policy will consider claims which are made against you during the period of the insurance policy and which must also be notified to your insurer in that same policy period i.e. as soon as you first become aware that a claim could, will or has been made against you.  The important factor here is that it is when the claim is first made that matters, not necessarily when the incident or circumstances giving rise to the claim occurred. 

Under a claims made policy, the claim can relate to an incident or circumstances which happened in the current policy period of insurance, but it could equally relate to an incident or circumstances which happened a number of years earlier during a previous insurance period. If the latter is the case and your policy is subject to a ‘Retroactive Date’, then for there to be cover the incident or circumstances that led to the claim must have happened after that date. 

‘Claims occurring’ basis

A claims occurring policy will consider claims which occur during the period of that insurance policy i.e. when the incident or circumstances actually happened determines against which policy (covering that date/period) it falls.  Even if the circumstances don’t come to light for say 2 years after the event, the claim will still fall to be dealt with by the insurers covering the period some 2 years ago. 

Why is it important to understand the terms of your policy?

It is extremely important to understand your basis of cover when moving your insurance arrangements from one insurer to another, especially where they differ. 

Less so when moving from an occurring basis to a made basis, as this may effectively provide an element of overlap.  Example:

Insurer 1 – Insures on a Claims Occurring basis – covering policy period Year 1

Insurer 2 – Insures on a Claims Made basis – covering policy period Year 2

An incident or circumstance which occurred in Year 1 but wasn’t notified until Year 2 could potentially be dealt with by either insurer 1 or 2, or both, as both can be deemed to cover the notification (depending on the Retroactive Date of the Claims Made policy).

An issue arises when moving the other way i.e. from a made basis to an occurring basis.  Using a similar example:

Insurer 1 – Insures on an Claims Made basis – covering policy period Year 1

Insurer 2 – Insures on a Claims Occurring basis – covering policy period Year 2

An incident or circumstance which occurred in Year 1 but wasn’t notified until Year 2 wouldn’t potentially be picked up by either insurer, as it wasn’t ‘made’ in Year 1 and it didn’t ‘occur’ in Year 2, thus falling into a gap in cover between the two.

As such, when moving a policy from a Claims Made to a Claims Occurring basis, it creates a gap in cover.  It may be possible for your insurance advisor to make provision with the new insurer to provide retroactive cover for claims resulting from incidents or circumstances which may have occurred prior to their inception, but have not yet been reported (& therefore are unknown) to the insured.  However, this may also not be possible, dependent upon the insurer involved, and your insurance adviser should inform you accordingly, as this is an important consideration before deciding to move your arrangements, so you can consider the risks involved to your business in doing so.

REMEMBER: It is always important to read your policy wording thoroughly to understand the basis on which your cover has been placed and your obligations to notifying any circumstances which may give risk to a claim.