Most professional liability, malpractice, and cyber policies are written on a claims-made basis. Most general liability policies are occurrence. The difference sounds like fine print until you change jobs, retire, or switch carriers, and then it decides whether a claim from three years ago is covered or is yours to handle. Here is the difference in plain language, and what to watch for.
Occurrence: covered by when it happened
An occurrence policy covers incidents that happen during the policy period, no matter when the claim is filed. If the policy was in force in 2022 and someone files a claim in 2027 about something that happened in 2022, the 2022 policy responds. Once you have paid for a year of occurrence coverage, that year is yours forever. That is why it is the norm for general liability, where a slip-and-fall or a property damage claim can surface long after the event.
Claims-made: covered by when the claim arrives
A claims-made policy covers claims that are first made against you while the policy is in force, as long as the work happened after the policy’s retroactive date. If you have been with the same carrier since 2019 and a claim comes in today about 2021 work, you are covered, because the policy is active now and 2021 is after the retroactive date. The catch is what happens when the policy ends. Cancel a claims-made policy without replacing it, and the claims that have not arrived yet are no longer covered, even though the work was done while you were insured. Many policies are also written as claims-made and reported, which means the claim has to be reported to the carrier during the policy period too, so report anything that might become a claim as soon as you know about it.
Carriers use claims-made for professional lines because it lets them price the risk they can actually see. It also makes the early years cheaper: a first-year claims-made policy has very little exposure, so premiums start low and step up over five or so years as the covered history grows. That is normal and expected, not a sign of a problem.
The two things that make claims-made work
- The retroactive date. This is the start of your covered history. When you renew, or move to a different carrier, keep it. A new carrier that honors your original retroactive date is picking up your prior acts, sometimes called nose coverage, and that is the normal way to switch without a gap. A new carrier that resets your retroactive date to today is leaving every prior year uncovered, and a cheaper quote that does that is not actually cheaper.
- Tail coverage. Also called an extended reporting period. When a claims-made policy ends, tail keeps it open for claims that arrive later about work done while it was in force. You buy it once, when you leave practice, retire, close the firm, or switch to a carrier that will not honor your old retroactive date. Many malpractice and professional policies include free tail on retirement, death, or disability after a minimum number of years with the carrier; the details vary, so it is worth asking about before you sign, not after.
A composite example
An architect runs a small firm on a claims-made policy for eight years, then closes the practice to take an in-house role. She lets the policy lapse without buying tail. Two years later, a client discovers a drainage problem traced to plans she sealed in year six. The old policy is gone, her employer’s policy does not cover her prior firm, and the claim is hers to defend out of pocket. Tail at closing would have covered it.
What to check this week
- Pull your declarations page. It will say occurrence or claims-made near the top, and if claims-made, it will list a retroactive date. Make sure that date is the earliest it should be.
- If you are considering a different carrier, ask in writing whether they will match your current retroactive date.
- Ask what tail costs and whether any is included free. Knowing the number now is better than finding out the month you retire.
- If you are not sure which type you have, send us the declarations page and we will tell you. Read about our professional liability coverage, or call or text (512) 488-3586.
Frequently asked questions
Which is better, claims-made or occurrence?
Neither is better in the abstract. Occurrence is simpler and has no tail to manage, but it is not always available for professional liability. Claims-made is the standard for malpractice, E&O, and cyber, and works well as long as you keep the retroactive date and plan for tail when you leave.
What is a retroactive date?
It is the date on a claims-made policy before which your work is not covered. When you renew or switch carriers, the goal is to keep the original retroactive date, which is how the new carrier picks up your prior acts, so there is no gap in the years you are covered for.
Can I switch from claims-made to occurrence?
Sometimes, if a carrier offers occurrence for your profession. When you switch, you still need tail coverage on the old claims-made policy, because an occurrence policy only covers work done after it starts and the years before it are otherwise unprotected.
Does my employer’s policy handle tail for me?
Not always. Some employers buy tail for departing providers; many do not, or only for certain roles. Ask before you need it, and get the answer in writing.
Nightlight Insurance Agency, LLC is an independent insurance agency serving Austin, San Antonio, and Central Texas. Texas Department of Insurance General Lines Agency License 2803067. This post is general information, not a coverage determination. Your policy language controls.
