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Overview of the difference between occurrence based and claims made insurance policies

An occurrence policy obligates the insurance company to pay for claims arising out of occurrences occurring during the policy period regardless of when the claim is reported:
 
Every insurance policy must provide a mechanism for determining the claims for which the insurer is liable in a temporal sense.  The traditional way has been to focus on the occurrence giving rise to the claim.  For example, most automobile insurance liability policies provide coverage for accidents caused by the insured's negligence during the policy period.  Provided that the negligent act occurred in the policy period, the insurer is required to indemnify the insured for all loss arising from it, regardless of when a claim is made against the insured for that loss.  This type of insurance policy is called an "occurrence" policy.
(Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 SCR 252).
 
Occurrence based policies are often appropriate where the harm manifests soon after the event or action that caused the harm (such as a motor vehicle accident), and a claims made policy more appropriate where the harm might arise many years after the triggering event:
 
“Occurrence” liability insurance policies work reasonably well in covering insureds such as automobile owners and drivers.  Where an automobile operator is negligent and thereby causes damage, the nature of the negligent act and the resultant damages are in almost all cases known upon the happening of the negligent act or shortly thereafter. 
(Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 SCR 252).
 
In some situations a claim covered under an occurrence policy might be made many years after the careless act which created the defect leading to the eventual loss:
 
But for insureds who are professionals such as doctors, lawyers, engineers, etc., damages can result (or be discovered) many years after a negligent act is committed.  This is even more the case for manufacturers and other types of insureds who can cause damages by producing hazardous products or toxic waste.  Therefore, for each of these types of insureds, insurers are at risk for an unknown number of claims that may be made many years after the expiry of a particular policy of "occurrence" liability insurance.
(Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 SCR 252).
 
Indeed, it was the risk of large, but slow developing, liability which caused insurance companies to rethink how they wrote policies for certain types of risk:
 
The expanded utilization of "claims‑made" and hybrid policies was resorted to by insurance companies in response to serious problems that had developed in the use of "occurrence" policies.  These problems were rooted in the “long – tail” nature of liability claims against some types of insureds.
(Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 SCR 252).
 
One tool used to deal with “long – tail” liability problems were claims made policies. A claims-made policy protects an insured against claims or incidents that are reported while the policy is in force:
 
Under a "claims-made" policy, the insurer is liable to indemnify the insured for claims made during the currency of the policy, regardless of when the negligence giving rise to those claims may have occurred.  Liability for negligent acts predating the policy is covered provided a claim arising from any such negligent act is made during the policy period.  On the other hand, liability for negligent acts which occur within the policy period is covered only if a claim is made against the insured on their account within the policy period.
(Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 SCR 252).
 
However, it is important to keep in mind that not all policies will fit neatly into the two categories (“claims made” and “occurrence”), and in every case the wording of the particular policy being dealt with must be considered:
 
These disagreements can perhaps be resolved by recognizing that there may be different types of "claims-made" and "occurrence" policies, as well as hybrid policies that have some features of "claims‑made" policies and some features of "occurrence" policies.  The essential is not the label one places on the policy, but what the policy says.  The courts must in each case look to the particular wording of the particular policy, rather than simply attempt to pigeonhole the policy at issue into one category or the other.  Construction of policies at issue in these kinds of cases depends much more on the specific wording of the policy at issue than on a general categorizing of the policy.
(Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 SCR 252).

 

 
This book was written by Michael Dew, a Vancouver lawyer who practices civil litigation, including representing persons who have been denied coverage under property insurance policies, or liability insurance policies. If you have been denied insurance coverage and require assistance with making a claim against your insurer call Michael at 604 895 3160.