Claims Made and Reported Insurance Policies

May 25, 2012

Professional liability insurance coverage is known as a Claims Made and Reported coverage. What does this mean and how does it affect your coverage?

Professional liability insurance (also known as errors and omissions insurance) protects your business from claims made by third parties that allege they suffered damages due to your negligence in providing your professional services. Even if you haven’t made a mistake, if coverage applies, Hiscox will pay for an attorney to defend you in the event you are sued. There are three important aspects that determine if coverage applies: When the claim is made against you, when the alleged mistake happened, and what knowledge (if any) you had prior to purchasing your policy. How does each of these affect your coverage?

When the claim is made

For your professional liability coverage to apply, a claim must be made against you during the policy period. This is the “claims made” part. If a claim is made against you before the policy period, it would not be covered. You must report the claim to us as soon as practicable, but before the end of the policy period. There are some reporting exceptions by state, so please check your policy for details. Also, if a claim is made against you during the last 60 days of your policy, you have an additional 60 days after the policy period expires to let us know.

Claims made against you after the policy period are also not covered. But, there is a way to obtain coverage for this by purchasing an Extended Reporting Period (ERP). An ERP allows you a window of time to report to us claims made against you after your policy expires, that were unknown to you at the time you purchased the ERP. The alleged mistake must have happened after your retroactive date and prior to the end of your actual policy, not during the ERP itself. ERPs are available for one, two, or three year intervals. Think of an ERP as a way of buying the right to tell us about unknown future claims, even after you’ve ended your coverage.

When the alleged mistake occurred

A second aspect in determining if coverage applies is when the alleged mistake occurred. This is related to the retroactive date and the expiration date of your policy. The retroactive date is how far back in time your policy covers. Any alleged mistake must have occurred on or after that date, but before the policy period ends (the expiration date). The reason for this retroactive coverage is that in many professional service businesses, there is a gap in time from when a mistake happens until it is discovered. For example, suppose you have a professional liability policy in force with Hiscox with a retroactive date of January 1, 2008 and expiration date of January 1, 2013. If a claim is made against you today that alleges a mistake was made on June 1, 2009, then the claim is eligible for coverage because the alleged mistake happened after the retroactive date, but before your policy expired. However, if the claim alleged a mistake occurred on August 15, 2007, then it would not be eligible as it would have occurred before the retroactive date. Hiscox policies will provide this retroactive coverage back to your business begin date in most instances. However, there are some classes of business and other situations where this does not apply so please review your policy documents carefully.

What knowledge you had

The last aspect in determining when coverage applies is what you knew at the time you purchased your policy. Like other insurers, Hiscox only provides coverage for unknown claims and unknown circumstances. Known claims or known instances that could result in a claim (even if the claim hasn’t been made against you yet) would not be covered. As with all insurance policies, other terms and conditions of your policy will influence coverage, but for the purposes of outlining Claims Made and Reported, we’ve stuck to the principles outlined above. If you have any questions about your Hiscox professional liability policy, please contact one of our licensed advisors at 866-283-7545.