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Vulnerability of insured when insured on claims made basis

Where a person has been insured on a claims made basis (and never on an occurrence basis) he or she needs to maintain insurance on an ongoing basis (e.g. after retirement) because it is the time the claim is made that determines whether there is insurance coverage, not the time when the negligence occurred. This can be a particular problem for someone who insurers refuse to cover on an ongoing basis. For example if historical claims have been made then insurers may simply decline to renew coverage for future years, leaving the individual uninsured for claims discovered in that period:
 
A more far-reaching diminishment of coverage results from the manner in which insurers deal with known contingent liabilities of insureds (or potential insureds).  For instance, the discovery by a manufacturer, by reason of the claim of even a single consumer, that it has produced thousands of units of a product that is hazardous, raises enormous implications for future insurability of that manufacturer.  In light of the known potential for future claims of a similar nature faced by the manufacturer, the manufacturer will face either skyrocketing premiums for coverage, or a complete refusal to grant or renew coverage at all.  Alternatively, insurers may agree to grant or renew a liability insurance policy, but exclude coverage for liability arising out of the type of defect that has been discovered.  In short, "claims-made" or "discovery" policies, by placing insurers in the position of obtaining extensive information about potential claims before commencing (or renewing) the coverage of an insured, enable insurers to avoid having to indemnify insureds for a significant proportion of the potential claims that exist as of the date of commencement (or renewal) of coverage.
 
A more sweeping method used by insurers to refuse coverage for some contingent liabilities of their insureds is that of using a standard policy term that excludes coverage for claims arising out of any negligent act of which the insured was aware as of the date of commencement (or renewal) of coverage.  This is inconsistent with the theoretical basis of true "claims-made" policies.  Since it is the claim which is the focus of a true "claims-made" policy -- not the underlying negligent act -- knowledge prior to the commencement (or renewal) of coverage of an antecedent negligent act should not be a bar to coverage.  Policies with this kind of provision may be viewed more as hybrid policies than as true "claims-made" policies.  The insurer has in effect incorporated an element of an "occurrence" policy into its policy framework.
 
(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.