In the insurance world, there are two main types of policies — occurrence and claims-made. You’re likely to be most familiar with occurrence policies, as this is how your home and auto insurance work. Legal malpractice insurance is written as a claims-made policy and it’s a bit more complex. Read below to learn about claims-made policies, or watch this video:
A Quick Overview of Occurrence Policies
With occurrence coverage, the policy covers losses that take place during a specific coverage period, regardless of when an incident is reported. For example, say you had a car accident in 1995. It doesn’t matter if the claim is reported in 1995, 1996 or 1997. The policy you had in 1995 is responsible for responding to the claim because that’s the policy you had when the accident actually occurred. This means if you had Progressive when the wreck happened, but now you’re with State Farm, Progressive would respond to the claim.
But, as mentioned above, legal malpractice insurance is written as a claims-made policy.
Okay, So What’s A Claims-Made Policy?
In order for an incident to be covered under a claims-made policy, two things must be true. First, you need to have insurance when the claim is made. Second, your prior acts date contained in your policy must be on or before the date the incident occurred. The insurance policy in effect when the claim is made is the one that responds to the claim, hence the name claims-made. So, say a deadline is missed in 1995. If the incident is reported in 1997, it’ll be covered under the 1997 policy. If it’s reported in 1998, it’ll be covered under the 1998 policy.
Because there are two factors involved in determining if a claim is covered, continuity of insurance is very important for claims-made policies. If you had coverage when the claim was reported but NOT when the incident occurred, you will NOT be covered. Therefore, each year you renew your policy, it will cover you for the year ahead, as well as back to your retroactive date, or the start date of the first claims-made policy you purchased.
Legal malpractice, and all professional liability insurance, is priced this way because of the length of time that can occur between the work being done and the claim being made. In the state of Oklahoma, home and auto insurance have a two-year statute of limitations. But with legal malpractice, the statute of limitations is based on discovery of the error, which can sometimes be a decade or more.
If you still have questions about claims-made policies, please feel free to contact us.