Understanding Business Liability Insurance

Disgruntled customers/clients/patients can file a claim against you or your business whether it is legitimate or not. In such situations, it is not uncommon for plaintiffs to sue multiple parties, despite their level of involvement in the particular situation.

Legal fees, not to mention lost working hours, can be costly. Professional Liability Insurance can help cover these losses and expenses, as well as those incurred by judgments or settlements.

Professional Liability Insurance covers omissions, errors, misleading statements, breaches of duty, and other like claims arising from services rendered. The terms, rates, and conditions of Liability Insurance vary among issuing companies, policies, professions, and locations. It’s very important to thoroughly understand the policy’s terms and conditions before purchasing insurance, and long before a claim arises.

Some key policy issues include the following:

• Are claims filed by governmental or regulatory agencies covered?
• What is classified as a triggering event?
• Will a written demand, an allegation, or the service of papers constitute the acceptance of a claim?
• Is there compensation for working hours lost to legal proceedings?
• Is there a deductible involved, and how does it relate to legal fees?

While most policies are offered only as Claims-Made Policies, you may be given a choice between two types of coverage.

Occurrence Policies cover an incident that occurred during the policy period, regardless of when the claim is filed.

On the other hand, Claims-Made Policies cover claims meeting two conditions: the incident occurred during the policy period and the claim was made during the policy period.

Claims-Made vs. Occurrence Policies

Professional liability insurance can be confusing, especially when it comes to understanding Claims-Made and Occurrence policies. Here’s a simple breakdown:

Claims-Made Policies cover incidents that happen and are reported while your policy is active. If a claim arises after your policy ends, it may not be covered—unless you purchase tail coverage, which extends the reporting period. Tail coverage can last from six months to seven years, but it can be expensive. Some policies include coverage for incidents that happened before the policy started, called prior acts, but this is limited by a retroactive date. Liability limits are based on the coverage in effect when the incident occurs, not when the claim is reported.

Occurrence Policies work differently. They cover incidents that happen during the policy period, no matter when the claim is filed—even years later. For example, if you had an Occurrence Policy from 2006 to 2009, a claim for something that happened in 2008 would be covered even if it’s reported in 2010. Tail coverage isn’t needed because claims are tied to the policy period, not the reporting date. Liability limits still apply based on when the incident occurred.

No business is immune to mistakes or unexpected claims. Protecting yourself with the right coverage can safeguard your reputation, finances, and livelihood.

Our insurance professionals can help you understand the differences between Claims-Made and Occurrence policies, and find the right Professional Liability Insurance to fit your needs.