In this blog we explain the difference between Occurance basis and Claim Made basis.
The losses Occurring policy responds for events occurring during the relevant period of insurance. Therefore, if a claim is reported for an event that took place a few years ago, the policy in force at the time will respond even though the insured had or could have changed insurer in the meantime.
The Claims Made policy responds to claims made during the current period of insurance of the policy regardless of the date of event and subject to any applicable retroactive date.
With a Claim Made policy, 4 dates must be satisfied:
- Occurrence date
- Policy Effective date
- Retroactive date (must be after)
- Termination date (must be before)
As long as the event giving rise to the claim occurs after the retroactive date and is reported before the termination date, the policy in force when the claim is first made against the insured (not when the event occurs) will respond.
THE PROBLEM :
When a body corporate’s policy moves from a Claims Made policy wording to an Occurrence policy wording, there will quite likely be a huge gap in liability cover. If an event occurs during the Claims Made policy period but the insured does not become aware of and consequently, cannot report the event to the insurer until after the policy is terminated, there will be no cover provided by either policy.
The requirements of neither of the policies are met because the event occurred before the Occurrence policy existed and the claim was only reported after the Claims Made policy expired; therefore the loss is not covered.
Traditionally, the only way to avoid this gap has been to purchase an Extended Reporting Period (ERP otherwise known as TAIL) endorsement before switching to the Occurrence policy. However, very few underwriters are willing to provide this TAIL cover.
THE SOLUTION :
Remove the gap in cover by seeking retro cover. Recently, CIA introduced the Prior Acts Coverage endorsement which is now a standard feature in their new all-risk policy. Trustees, Managing Agents and brokers need to take care when decisions to switch cover are made.
Author: Bruce Gibson, Addsure
Contact ADDSURE – The Leaders in Sectional Title Insurance – to get fit and proper advice from advisors who understand Sectional Title. Contact us: Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069.