Occurrence vs. Claims-Made: Which Policy Pays a Claim?

An occurrence policy pays for injury or damage that happens while the policy is in force, even if the claim arrives years after it expires. A claims-made policy pays for claims first made against you while the policy is in force, usually only for incidents after the policy's retroactive date. That difference, called the coverage trigger, decides which policy answers a claim: this year's or one from a decade ago.

Most buyers of general liability never have to think about it, because the standard ISO commercial general liability form (CG 00 01) is written on an occurrence basis. But professional liability, directors and officers (D&O) and other specialty lines are usually claims-made, and switching from one trigger to the other is where gaps open. If a policy renews with a later retroactive date, for example, years of past work lose coverage without any denial letter. The gap is simply there.

What is an occurrence policy?

An occurrence policy covers injury and damage that happen during the policy period, whenever the claim is made. The ISO CGL defines an "occurrence" as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The classic example is a customer tripping on a loose floor tile in a bakery. For the occurrence CGL to apply, three things must be true:

1. An occurrence caused the injury or damage, in the policy's coverage territory.
2. The injury or damage happened during the policy period.
3. Before the policy period began, no insured knew that the injury or damage had occurred, in whole or in part.

When the claim is filed is not on that list. If you sell a product in 2024, it hurts someone that year, and the lawsuit arrives in 2027, your 2024 policy responds with its 2024 limits. The third condition is the occurrence form's one firm limit: a new policy does not cover a problem the insured already knew about when it started. Continuing damage that was known before the renewal stays with the old policy.

What is a claims-made policy?

A claims-made policy reverses the trigger: coverage depends on when a claim is first made against the insured, not when the injury happened. The policy in force when the claim arrives, with its current limits, responds. Most of these policies are in lines where years can pass between the act and the lawsuit: professional liability, D&O, employment practices and cyber insurance. According to the Insurance Information Institute, most professional liability policies are written on a claims-made basis.^[1] If you need that coverage, Menlo quotes professional liability insurance for California businesses.

Insurers prefer the claims-made trigger because they can close out a year's claims sooner instead of paying claims years or decades after collecting the premium. The trigger also has a history in court. In the mid-1980s insurers pushed to move the CGL from occurrence to claims-made. Nineteen state attorneys general sued, alleging an illegal antitrust agreement to force the market onto claims-made terms, and the case reached the U.S. Supreme Court as Hartford Fire Insurance Co. v. California (1993).^[2] The occurrence CGL survived, and the claims-made CGL never became the standard.

What is a retroactive date?

The retroactive date is the earliest date of injury or damage a claims-made policy will cover. It is one of two features that keep the claims-made system within limits (the other is the extended reporting period, below). A claim for injury or damage that happened before this date is denied. Each time you renew with the same retroactive date, the window of covered past work gets longer.

Check the retroactive date at every renewal. If a new carrier moves it forward, all work done before the new date is excluded. Prior acts coverage, the stretch between the retroactive date and today, is what protects work from earlier years when a claim finally arrives. If a new carrier will not accept your existing retroactive date, the fallback is to negotiate a nose endorsement at binding that covers prior acts. The best position for a claims-made buyer is full prior acts coverage, with no retroactive date at all.

What is an extended reporting period (tail coverage)?

An extended reporting period (ERP), usually called tail coverage, gives you extra time to report claims after a claims-made policy ends without a replacement. That happens when you retire, sell the practice or business, or move to an occurrence form. Without it, a claim made after the last policy ends has nowhere to go. The ERP lets you report claims for injury or damage that happened before the policy ended.

The claims-made CGL includes a basic ERP automatically when the policy is canceled or not renewed, or when it renews with a later retroactive date. It costs nothing, and its length depends on the claim. In general it lasts 60 days. For an occurrence reported to the insurer within 60 days after the policy ends, it lasts five years.

For more time, you buy a supplemental ERP. It can be unlimited in length, but you must ask for it in writing within 60 days after the policy period ends. Miss that window and you cannot buy it later. The tail is not cheap. Under the ISO form its premium is capped at 200 percent of the annual premium, so plan for a one-time charge that can approach two full years of premium, paid up front.

How do occurrence and claims-made policies compare?

The trigger difference carries through to limits, key dates and what happens after the policy ends:

An occurrence form asks nothing of you when the policy ends: there is no tail to buy and no retroactive date to check. That is why contracts that require general liability (or workers compensation) assume occurrence forms. A claims-made program rewards discipline. A lapse at renewal, or a new carrier moving the retroactive date forward, creates a gap. Older claims also use up the current limits they share with new claims.

How do you switch between claims-made and occurrence coverage?

The main risk when switching is a claim that falls between the two programs, usually a suit filed after the old claims-made policy ended when no tail was bought. Talk to your broker before you move:

• List your triggers. For each liability policy, note whether it is occurrence or claims-made, and the retroactive date of each claims-made policy.
• Keep the retroactive date. When moving from one claims-made policy to another, make sure the new insurer keeps your current retroactive date. If it refuses (common after a claim or in a hard market), price the old carrier's tail against the new carrier's nose and buy whichever covers the same window for less.
• Buy the tail when you leave. When moving from claims-made to occurrence, or closing the business, buy the supplemental extended reporting period before the 60-day election window closes. A new occurrence policy does not cover acts from before it started.
• Check what your contracts require. Many construction and service contracts require occurrence general liability, and a certificate reviewer will reject a claims-made form before work starts.

Before you bind a switch, check how your certificate of insurance will read under the new program. For what a general liability policy actually covers once it responds, see what general liability insurance covers.

This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

Checking the trigger on each of your policies

Go through every liability policy you hold and write down two things: its trigger and, for claims-made policies, its retroactive date. An occurrence policy pays for injury that happens during the policy period and asks nothing of you after it ends. A claims-made policy pays for claims first made during the policy period, back to its retroactive date, and requires you to protect that date and buy a tail if you ever leave. Review the list with your broker before the next renewal.