What is an Occurrence policy?
An occurrence policy protects you from any incident occurring while the policy
is in force. The policy then covers those incidents forever. For example, you
buy a policy in 2008, treat Client X in 2009 and terminate the policy 2010. In
2013, Client X sues you for an incident that occurred in 2009. You are covered,
because you were insured when you treated Client X. With an occurrence policy,
it does not matter if you are covered when the suit is brought.
| 2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
| Start Policy |
Treat Client X |
End Policy |
|
|
Client X Sues |
What is a “claims-made” policy?
A claims-made policy covers you for any covered claim provided it meets two
criteria:
-
You are insured when the claim is made. If you no longer need coverage, you can
purchase a “tail” to protect you for the past (see tail).
-
You have continually renewed the policy from the time the incident occurred
(the psychological service you provided that is the source of the suit) until
the time the claim is made. (See retroactive date)
In this example you buy a claims-made policy in 2008 and renew it every
year. You treat Client X from 2009 to 2010. In 2012, Client X decides to sue
for the services you provided in 2009 and 2010. You are covered because: 1) you
are continuously insured up to when the claim is made and 2) the treatment was
provided after the policy started in 2008.
| 2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
| Start Policy |
Treat Client X |
Client X Leaves |
|
Client X Sues |
|
What is a Retroactive date?
Your retroactive date is the start date of the first claims-made policy you are
actively renewing. You are covered for any covered incident as long as it
occurs on or after your retroactive date (also known as prior acts date). That
date remains the same and is not advanced as long as you renew your policy.
Using the example above, if you have a prior acts date of 2008 on your policy
and it is now 2013, your policy covers you for the last five years. Your
retroactive date is also portable. If you are currently insured with someone
else for professional liability, you can bring that coverage with you to the
Trust. The Trust will endorse your new policy with your old prior acts date.
Here is an example:
You are insured with Acme Insurance Company on a claims-made policy and you have
been with them since 2008. That means you have a retroactive date of 2008 . In
2013, you switch to the Trust and ask for prior acts coverage. We would issue
you a new policy that includes coverage back to 2008. Your policy would be
identical to someone who bought a Trust policy in 2008 and was actively
renewing.
What is the difference between prior acts and a retroactive date?
A prior acts date is the same thing as a retroactive date. The terms are used
interchangeably. A claims-made policy covers you for claims-made during that
one policy year. The retroactive date allows you to also add coverage for
incidents that happen after your retroactive date. The process of covering
those past years is called prior acts.
What is a nose?
A nose is another way of referring to your retroactive date or prior acts
coverage. Since prior acts coverage covers you for what happened prior to your
current policy, it is called a nose (as opposed to a "tail").
I am currently insured with someone else. How do I switch my coverage to
the Trust?
The Trust has worked hard to simplify switching over. If you are currently
insured elsewhere, simply submit an application and include proof of coverage
from your most recent policy that shows your retroactive date. An experienced
underwriter will review your application and your past coverage and work with
you to make sure there are no gaps in coverage. You are only eligible for this
option if you have current active coverage with another carrier. Don't forget
to take a 10% discount. If you switch your professional liability coverage to
the Trust from another company, the Trust will give you 10% off your first
year's premium. In order to qualify, you must own the previous policy. You are
not eligible for the switchover credit if you were previously covered by your
employer. Proof of coverage can be a copy of your declarations page, a
memorandum or verification of insurance, or any other valid documentation from
your previous insurance company.
How much does prior acts/nose coverage cost?
Claims-made policies have a graduated rate schedule. The first year rate is
fairly low. Each year the rate increases until it caps and levels at the
seventh and subsequent years. When you purchase a new policy from the Trust you
start at the first year rate. If you purchase prior acts, you start at the rate
that represents the number of years of prior acts you have. Here is how it
works:
-
Example 1: You started a claims-made policy with Acme Insurance in 2010. You
have renewed the policy and maintained your 2010 prior acts date. In 2013 you
apply to the Trust. The Trust starts you at the fourth year rate, because you
spent three years with Acme, plus you are purchasing a new year of coverage.
-
Example 2: You started your claims-made coverage with Other Insurance Company
in 1984 and have maintained your policy. Now you are ready to move to the
Trust. What step are you charged? Our rates mature in the seventh year, so even
though you were with the last company for more than 20 years, you pay the
seventh year step rate.
What is the tail?
The tail is actually called an Extended Reporting Period (or ERP, for
short). The tail gets its name because it becomes active after your policy has
terminated (that is, you only purchase the tail endorsement when you terminate
a claims-made policy). The "tail" endorsement allows you to report claims that
come in after the policy is terminated for covered incidents that occurred
while you were insured. For example: You buy a claims-made policy in 2008. You
terminate the policy in 2011 and buy the tail. The tail allows you to report
claims that are brought against you after you drop the policy, as long as the
incident occurred while you were insured from 2008 to 2011.
In the illustration below, you buy a policy in 2008 and renew until 2011. You
cancel the policy and buy the unlimited tail in 2011. Years later Client X sues
you for services you provided while insured. You are covered because 1) you
extended the time you had to report the claim indefinitely and 2) the service
in question was provided while you were covered by the underlying policy.
| 2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
| Start Policy |
Treat Client X |
Client X Leaves |
Buy the Tail |
|
Client X Sues |
The premium is a onetime cost of 175% of your final year's premium. Once you
purchase the tail, you retain coverage forever. You have 60 days from the time
your policy expires to purchase the tail. You cannot be denied tail coverage,
even if your policy is non-renewed or canceled.
Do I need a tail for my occurrence policy?
No. The occurrence policy already guarantees coverage for what happened
while you were insured. Since you are already covered, tail coverage is not
necessary.
Is there a way to get the tail free?
Yes. The tail is free if you retire, become disabled or die while insured with a
claims-made policy. The carrier must be notified within 60 days of the
termination of your policy to issue the free retirement tail. If you die or
become disabled, the carrier should be notified within a year.
Which coverage is better, claims-made or occurrence?
Most experts agree that the right coverage for you depends on your circumstances
both now and in the future. Both policies cover you for “the practice of
psychology.” Both policies are issued by the same insurance company, offer the
same policy limits and discounts, have the same endorsements, and provide
defense outside the limits. Some advantages you may consider:
- The claims-made policy offers greater flexibility, because your last year's
policy is the one covering your past (prior acts). Thus, you can increase your
limits or buy a new coverage that was not available when you started your
policy. Since the policy in force at the time of the claim responds (not the
policy you had when you provided the service), you get the benefit of the
enhanced coverage. Claims-made coverage is portable. You can take the coverage
from one insurance company to another.
-
The advantage to an occurrence policy is its permanence. The period of time you
are insured under an occurrence policy is protected forever by the policy you
had that year. You do not need to renew or buy the tail when you leave.
What is the difference in cost between a claims-made policy and an occurrence
policy?
The claims-made policy costs at least 35% less when you compare the cost of
buying a claims-made policy and the unlimited tail against having occurrence
coverage for the same period. The savings increase if you qualify for a free
death, disability or retirement tail.
