October 06, 2017

Occurrence vs Claims Made Policies; Which is Better?

U. S. Customs and Border Protection (CBP) offers a video for
U. S. citizens traveling abroad entitled, "Know Before You Go". When purchasing Errors and Omissions (E&O) insurance (professional liability), the best advice is “Know Before You Buy”. This coverage may be the most important insurance coverage you maintain in the protection of your business assets. Given this, you need to understand the differences in policies.

E&O insurance is protection for you when a claim is presented to you alleging your liability or responsibility for an occurrence. As a transportation service provider and/or licensed Customs broker, you regularly provide advice to your clients as a part of your services. While a situation might occur where you have no liability or do not believe you do, what costs will you incur in this litigious society to protect your assets without this coverage?

Most E&O claims are filed on average within three years of the occurrence. However, a critical component for licensed Customs brokers are claims relating to activities with CBP which can be filed as many as seven years after the date of entry. There are rare occasions where claims are filed beyond that timeline, however they do exist and can be devastating to your business.

Understanding key definitions of this coverage is vital, especially occurrence and policy term.

  • Occurrence is a negligent act, error or omission or a series of negligent acts, errors, or omissions arising out of one event, in the course of your performance or failure to perform professional services.
  • Policy term begins from the date of policy inception until canceled.

Practically, all professional liability policies fall into one of two categories; occurrence or claims-made. This can be confusing to the insurance buyer, thus it is crucial to understand why an occurrence policy gives you the best protection and peace of mind. Basic differences in these policies relates to the policy term, date the incident occurred, and when the claim is filed.

Occurrence Policy
An occurrence policy covers claims which occur during the policy term, regardless of when they are reported. This type of policy is considered to be the simpler of the two. It remains available to make claims against for occurrences that happened while coverage was in effect even if the claim is made after coverage has terminated.

Claims-made Policy
A claims-made policy only covers claims which occur and are reported within the policy term. Each year stands alone and must be renewed annually. These policies often include restrictions or exclusions which are not easy to identify.

Gaps in coverage may occur when switching from a claims-made policy to an occurrence policy. To protect your exposure, there are a couple options – Prior Acts coverage available for the occurrence form or Extended Reporting option available on the Claims-made policy form. How do you determine the number of years in the past you need to protect your business? Will an insurance company provide you this protection? What are the costs?

Avalon provides a Combined Transit Liability (CTL) Program covering the unique needs of the transportation and logistics industry. The CTL policy is written on an occurrence basis and includes E&O coverage with options such as Prior Acts and First Dollar Defense coverage. To clearly understand how important having the right E&O coverage is, read these E&O claim examples.

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