A guide to claims-made insurance
Claims-made vs claims occurring insurance
Insurance policies are typically either ‘claims-made’ or ‘claims occurring’. Claims occurring policies cover incidents that occur during the current period of insurance, whereas claims made policies cover incidents first discovered and reported to insurers within the current period of insurance. This article focuses on claims made insurance and highlights some of the key points you should be aware of.
What is claims-made insurance?
Claims-made insurance covers claims made against the policyholder during the current period of insurance. Claims are typically written or verbal demands for compensation, rectification work, or notice of a regulatory investigation, but it depends on what's covered by your policy and detailed in the policy wording.
It's usually a condition of claims made policies that all claims are promptly reported to the insurer, and in most cases, this condition also extends to potential claims (known as circumstances).
Circumstances are things that could be covered by the insurance which you become aware of during the current policy period but before any formal claim has been made against you. For example, it could be a mistake you realise you've made (regardless of whether anyone outside of your organisation is aware of it) or an issue reported to a sales rep or someone in your customer service team alleging that you've done something wrong.
Note that most claims made policies won't cover claims or circumstances you were already aware of (or should reasonably have been aware of) before the current policy period started.
What to do if you become aware of a claim or circumstance
If a claim has been made against you, you shouldn't admit any liability, appoint a lawyer, incur any costs or offer to make any payments without your insurer's written consent.
If you feel that you need to acknowledge an email or letter received from the other party, keep it brief. Something along the lines of ‘We confirm receipt of your letter and will respond to it as soon as possible’ is usually sufficient.
When to notify your insurer about claims and circumstances
As a general rule, you should notify your insurer of all claims and circumstances that may lead to a claim as soon as you become aware of them.
Your policy will specify a procedure and timeframe for making these notifications. This could be:
- Within a fixed number of days of becoming aware of them
- Within the policy period
- Within a set amount of time after the policy expires
Policy language is critical here. If your policy says that you need to report circumstances that are likely to result in a claim, you need to tell your insurer about things reasonably likely to result in a claim. If your policy requires you to report circumstances that may result in a claim, then you need to tell your insurer about all circumstances, regardless of how likely.
Who needs to become aware of the claim or circumstances?
Your policy will also define who needs to become aware of the claim or circumstances to trigger the notification condition. Generally, if the policy says "you", the "insured" or "policyholder", it needs to be reported when anyone in your business becomes aware of it, regardless of their role or seniority. However, some policies may specify that a specific person needs to become aware of it, such as a director, risk manager or legal counsel.
If you don't follow these notification conditions, your insurer might not be liable to pay your claim. If you have cover with Superscript, we can help you decide whether you should notify something, but we can only do this if you make us aware of what happened at the earliest possible opportunity.
What happens after you've notified your insurer of a claim or circumstance?
Once you've notified your insurer, all covered costs related to the claim or circumstance will be paid from that policy period (even if the final legal bill comes in five years later).
Your insurer will usually request a copy of all communications between you and the other party about the matter, and any documents relating to it, such as a copy of any contracts or agreements between you.
Who will defend me in the event of a claim?
Your policy may specify who is responsible for defending you in the event of a claim. Usually, your insurer will either have a duty or a right to defend you.
Both have pros and cons, but if you're expecting your insurer to appoint your legal defence and pay the costs on your behalf, you should ensure that your policy says they have a ‘duty to defend’ you. If they have a right but not a duty, it means that they can take control of proceedings if they want, but – ultimately – it's your responsibility to appoint your defence and seek reimbursements from your insurer.
Tips to understand more about claims-made insurance
With all the jargon that surrounds insurance, it can be tricky to understand your policy sometimes. But to make sure you’re fully aware of what you need to do if a claim was made, it’s important to understand claims-made policies. It could be the difference between a successful and unsuccessful claim.
Here are some things you can do to help:
- Review your policy documents and understand what you need to do when you become aware of a claim or circumstance
- Implement a process for recording potential claims and ensure that the relevant people are made aware of it
- Make sure you follow the claims notification procedure detailed in your policy wording
- Get clued up on making a successful claim
- And if you’re unsure, speak to Superscript!