Occurrence vs Claims Made – Comparing Two Policy Types

Have you ever had a claim denied for reasons that seem to make no sense? Did the experience make you feel like the purpose of the insurance industry’s business model is to create a policy that finds a way to not pay claims?

If so, this blog’s for you.

But before we get into it, I want to clarify that I’m going to be talking about liability policies. That is, the type of policy that pays others for the damages that you, the insured, owe to them. Examples of liability policies are General Liability, Liquor Liability, Auto Liability, Workers Compensation, Errors and Omissions, Professional Liability, Employment Practices Liability… and others. But these are the main ones.

The issue that I’m talking about, that always plays a role in determining whether or not a loss is covered, is the matter of timing, that is, when key events take place.

So let’s go!

When it comes to paying claims, the insurance company looks at two key events that matter to our discussion are:

1. When did the damage occur?
2. When was the claim made?

Why do they look at these events?

Because there are two types of policies:

1. Occurrence
2. Claims Made

And each of these two policy types pays claims based on one of those two events.

• The Occurrence policy pays when the damage occurred during its policy period.
• The Claims Made policy pays when the claim was made during its policy period.

To explain, let me give an example:, starting with a sequence of events.

• 2025: a window contractor installed windows in a house.
• 2026: a storm came and water intruded into the walls of the house, causing property damage to the walls and flooring.
• 2027: the owner of the house noticed the damage and filed a claim against the window contractor, alleging defective construction that caused the water intrusion. Why did it take a year to notice the water? Who knows, but it happens all the time. Maybe it was a vacation house that the owner visits seasonally. Maybe it took awhile for the water to make its way to surface of the walls. Maybe the storm was on December 31^st and the owner noticed the damage the very next day, January 1^st: a new year and a new policy.

How does each policy respond?

If the insured is on an Occurrence policy, then the policy in force in 2026 pays. Why? Because that’s when the damage occurred. It doesn’t matter then the claim was made.

If the insured is on a Claims-Made policy, then the policy in force in 2027 pays. Why? Because that’s when the claim was made. It doesn’t matter when the damage occurred.

We can create different scenarios with different dates.

What if the window installer installed the windows in 1986 but the damage occurred in 2026 and the claim was filed in 2027? The same rules apply for each of the two policies and the same polices in the example above would pay.

What if the damage occurred in 1986 but the claim was reported today? Again, the same rules apply. On an Occurrence policy, you might have to dig through your old file cabinets, because whichever insurer covered you in 1986 would pay (if they’re still around). With Claims-Made, today’s policy pays.

When you play with dates like this, you might discover that Claims-Made has an advantage: it pays for anything that gets reported now, even if the damage occurred decades ago, whether or not there was a policy in place decades ago. That’s my kind of policy!

But wait, there’s more: The Retro Date.

The Retro Date is a boundary to the seemingly boundaryless Claims Made policy. It is a date that prohibits claims from being covered on the current policy if damage occurred before the Retro Date. So let’s go back to the original scenario and apply a Retro Date of 1/1/2026.  Do we have coverage? Yes! Because the damage occurred in 2026, after the Retro Date. What if we move the Retro Date to 1/1/2027. Now do we have coverage? No! Because the damage occurred before the Retro Date.

So with Claims Made policies, the Retro Date is critical. So how do you get a favorable Retro Date? Usually the earliest Retro Date you can get are going to be based on when the business first got coverage in place and will only continue on through each renewal if there is continuous coverage since that date without a lapse. If there’s a lapse in coverage, any new insurer will use the inception date of the new policy as the new Retro Date. For example, let’s say a business had a Retro Date of 1/1/1986, but during the Covid Era, in 2021, they shut down operations and let their insurance lapse. In 2023 they started up again. They got a new Claims Made policy, but because of the lapse, they weren’t able to maintain the 1986 Retro Date, and had to use the inception date of the new policy, 1/1/2023, as their Retro Date.

So in the end, because of the Retro Date issue, I prefer and recommend Occurrence policies whenever possible.

OK, now the Big Misconception. This occurs among contractors, mostly, and it applies exclusively to Occurrence policies. This misconception is the tendency to believe that the insurance that was in place when the insured was doing the work is the one that will pay all claims arising out of that work. For example, in our window contractor scenario above, the misconception is to believe that the 2025 policy would pay the claim because 2025 is when the insured installed the windows. That may be how a guarantee or a warranty works, but it is not how an Occurrence policy works. Why? Because the insurer asks one question when determining which policy pays: when did the damage occur? NOT: when did you do the work? This presents a big potential negative surprise to any business that lets their insurance lapse after they complete a project and believes they’re still protected because they had insurance when they did the job.

It’s often for reasons like these that businesses find themselves with confusing uninsured losses even if they currently have or had insurance. Understanding the type of policy you have now (Occurrence or Claims Made) and what triggers coverage (when the damage occurred or when the claim was made) on that type of policy makes all the difference.

If you’ve ever found yourself in one of these situations, or are hoping to avoid one in the future, hit us up because we would love to talk! We are happy to review your insurance or help you find new insurance.

The process is super easy:

1. Set an appointment. Just click HERE
2. Have a conversation. We’ll learn about you and your business, gathering all the information our providers need to offer a quote.
3. We’ll present you with a quote. Once we’ve received your custom offer, we’ll reach out to you and schedule a time to discuss and review this potential solution.