Claims Made or Occurrence Coverage? A quick overview of the difference and picking the right one for you.
Professional liability insurance, or as it is also known, medical malpractice insurance, provides coverage through two different policy types: occurrence and claims-made. The insurance terminology for this is referred to as a policy form.
Your NSO professional liability insurance uses the occurrence form.* Which form you have determines when malpractice claims are covered—and not covered. This becomes important should a competitor attempt to switch you to a claims-made form, as you could experience a gap in protection.
Occurrence Policy Form
Occurrence policies offer coverage for claims that occur while the policy is active. Even if the policy has expired or been canceled, if the incident occurred while the policy was in force, coverage is available.
For example, you purchase an occurrence policy on January 1, 2017 and end coverage December 31, 2020. If a medical malpractice claim occurs anytime during the three years the policy is active, you are covered.
With an occurrence policy, it does not matter when the claim is reported. It could be reported when the policy is active, or after the policy expires. If a patient is injured on July 10, 2019, but the claim is not reported until May 15, 2021, the occurrence policy still provides coverage.
As long as the policy is in force at the time the alleged injury took place, coverage is offered under the occurrence policy. As some health conditions may take years to manifest themselves and the occurrence policy provides protection ad infinitum, this can be an important policy feature.
Claims-Made Policy Form
Claims-made policies offer coverage for claims that occur and are reported while the policy is in force. Once the policy expires, coverage expires.
As in our example above, you purchase a claims-made policy on January 1, 2017, and stop coverage on December 31, 2020. If a medical malpractice claim occurs and is reported anytime during the three years the policy is active, coverage is offered.
The difference in the policy forms becomes critical if a claim occurs on July 10, 2019 but is not reported until May 15, 2021. Since the claims-made policy has now expired, there would be no coverage.
Claims Made: Extended Reporting Period Coverage
When a claims-made policy is cancelled it is possible to purchase an Extended Reporting Period endorsement, or ‘tail coverage.’
Tail coverage extends the time alleged incidents may be reported on a claims-made policy. A tail offers coverage for incidents that happen while the claims-made policy is effective but are reported after the policy has expired.
Depending on the insurance company, if you meet certain requirements tail coverage may be offered for free. If the requirements have not been met, the claims-made policy may come with the option to purchase tail coverage for a specified period, such as 1, 3 or 5 years, or an unlimited amount of time.
Claims Made: Prior Acts Coverage
Prior acts coverage is another important feature of a claims-made policy. It relates to claims that occurred before the inception of a claims-made policy. This concept becomes important when switching claims-made policies.
To help protect against a lapse in coverage, when switching insurance companies consider the option of purchasing tail coverage on your old insurance policy or purchasing prior acts coverage from your new insurer.
Claims Made: Step Rating
Considering the added complexity that is inherent with the claims-made policy, you may be asking yourself, why would anyone purchase a claims-made policy? The answer, quite simply, is the price.
Premiums are lower during the first few years of a claims-made policy. This is due to something called ‘step rating.’ Over the first several years of the claims-made policy you receive a decreasing discount. At the end of the step-rating period, the claims-made policy rate levels off and becomes comparable to the occurrence policy rate.
Which Policy Form is Better?
The coverage afforded by both policy forms is identical. The difference comes down to when you can report a claim. The occurrence form gives you more flexibility. Whether the claim is reported when you are practicing, or after you retire and cancel the policy, you receive coverage.
The occurrence form is the original contract created by the insurance industry. The claims-made form was devised later in response to long-tail claims such as asbestosis that can take 20-30 years to manifest itself. It protects the insurance company from claims reported decades after the policy has expired.
With the NSO occurrence policy, you have the broadest policy form available on the market today. If a competitor offers you a claims-made policy at a lower price, be careful. Speak to an NSO representative at 1-800-247-1500. They’ll explain how to avoid a gap in coverage that could leave you vulnerable.
* Both occurrence and claims made policies are available in all states, with the exception of nurse practitioners in Florida, where only the claims-made policy form is available.