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What's the Difference Between Occurrence & Claims-Made Insurance?


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Have you ever wondered how your vendors’ CGL coverage will cover your company in the event of a claim?  The Commercial Liability policy does not always respond in the same way. On a COI in the CGL section you will see 2 boxes: Claims made and OCCUR (short for occurrence).

Claims made


Is a type of CGL policy that responds to claim when the claim is filed.

This means that whatever policy limits are in place at the time of the filling will be what is available to respond to the claim, regardless of what the limits were when the incident occurred.


Occurrence basis:


An occurrence-based type of CGL policy is one that responds to a claim with the limits provided at the time the incident occurred regardless of when the claim was filled. An Occurrence based policy, remains available for claim as long as the incident took place during the policy term and there are limits of liability remaining to pay for an award or settlement.


Let’s look at some examples:


Sam is a plumber working on a new building being constructed in 2017 and his “occurrence” CGL insurance policy is effective from January 1st 2016 to January 1st 2017. It’s on an “occurrence basis”, with insurer A. Sam, does not have an umbrella policy, so the $2M aggregate is all the coverage he has.

Sam did all of his work on the building in March of 2016. In October 2016, after the project is completed and new tenants have moved in, a pipe bursts and floods the building. The damage to the building is caused by Sam’s plumbing mistake and results in 2 million dollars worth of repair work for the building owner. In December 2016, the building owner files a suit against Sam to recover the 2 million dollars of property damage caused by Sam’s mistake. His CGL insurer responds to defend Sam and ultimately pays the building owner 2 million dollars.

Since the incident happened in October 2016, it falls within the policy term and since Sam has a 2 million dollars each occurrence limit on his “occurrence” based CGL policy, his insurer pays the entire amount and Sam is not out of pocket. In Jan of 2017, when the policy expires, Sam renews his CGL policy with another insurer – Insurer B. This one is a claims‐made basis.

Now, lets say there was a second loss in late December 2016 (still within the same policy term) which causes 1 millions dollars worth of damage. The building owner sues Sam again in April 2017 (about 120 days later) and Sam’s insurer A would not pay anything on this loss since the completed operations 2 million dollar aggregate was depleted by the first loss in October 2016. This leaves Sam with no coverage for the second loss. Because we’re talking about the coverage in 2016, it was on an occurrence basis, meaning the policy covered the claim, when the incident actually occurred.

But with insurer A, Sam’s “claims made” based CGL policy does respond to the claim made in April 2017 even though it related to an incident happening in 2016,before this policy was purchased, since the second claim is made during the 1/1/2017‐18 policy term, the policy would respond to defend and pay the $1,000,000 of damage.

So while this last claim scenario appears to favor a claims made policy form, in almost all circumstances, an occurrence policy form is a far better policy form for most buyers of insurance to maintain.

Reach out to your insurance agent or your legal team to figure our which coverage make the most sense for your company.


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