Claims-Made Insurance Policies
Claims-made policies protect policy holders for wrongful acts which occur and are reported to the insurance company while the claims-made policy is in continuous force, plus any Extended Reporting Period (see below). Under a claims-made insurance policy, as long as the insured has maintained continuous coverage, the underwriting insurance company will be responsible for paying any covered claims.
Claims-made premiums are typically discounted the first few years because there may likely be significant time between when a treatment, drug or test was administered and the filing of a malpractice claim. Consequently, claims-made policies are structured to have incremental — typically annual — premium increases which take into account the increasing possibility of claims being reported from the current and previous policy periods.
A couple of the advantages of claims-made policies are their lower initial premium costs and pricing stability. Annual premium costs are realistically valued because claims-made policy renewal rates are based on current claims trends which are timely and the most reliable, current reflection of “risk versus cost”.
Because a claims-made policy provides coverage for only one year at a time, insureds must pay special attention to policy renewal dates and any coverage changes under the policy. If you decide to cancel your claims-made policy for any reason, you must consider purchasing an Extended Reporting Period or “TAIL” coverage to insure you for incidents which occurred while the policy was in force but was reported after the policy was cancelled.
For instance, if you were to purchase an annual claims-made policy with an effective date of January 1, 2005 and chose to cancel or let the policy lapse without TAIL coverage or an Extended Reporting Period — any claims made after December 31, 2005 would not be covered. If you were sued in 2007 for a wrongful act committed in 2005 (during which time you were covered), the insurance company would not be responsible for paying any claim.
An Extended Reporting Period Endorsement (or TAIL) “extends your right to report a claim” to your prior insurance company after the policy has ended, canceled or lapsed. Another option is known as Prior Acts Coverage, which is designed to protect insureds who had claims-made coverage immediately prior to the current policy period — but from a different insurance company — and who did not purchase a TAIL from their former insurer.
If you are currently insured under a claims-made policy, it is important that you continue your coverage without interruption when moving to a new policy. By providing CM&F the Retroactive Date of your expiring policy, upon underwriting approval of your application, your new policy will provide you with continuous coverage. This means that any claim that might occur on or after your Retroactive Date will be covered under your new policy. If you do not provide your current Retroactive Date and do not elect to purchase and Extended Reporting Period coverage (TAIL) from your former insurer, your previous claims-made coverage will lapse. This would leave you completely unprotected against potential future claims which may have occurred during the entire period of your original policy.