March 29, 2017
If you are an SME (small and medium sized enterprises) then you are likely to have a business pack policy, or a liability policy. So, what does this mean for your business?
Many policies are written on an occurrence basis. Some are written adopting a combination of occurrence and claims made wordings. This can often happen with business pack policies for SME clients.
Business pack policies are ideal for SME clients. Not just for convenience, all in one location policy information, but also for cost structures for premiums and savings.
Such policies can bundle together many business cover options into the one policy, such as Business Interruption, Fidelity, Theft, Money, Property Damage, Public and Product Liability, Employer’s Liability and Statutory Liability, to name a few.
Some larger businesses also elect to take out this type of cover; again, for convenience, premium savings and complete, all in one location wordings.
What can become confusing for a business is when each component of the policy may be written in different terms and require different notification requirements by an insured.
Many insureds are unaware of this, as they may just be utilising their COC – Certificate of Currency or Policy Schedule for a summary of their cover options, not thinking they really need to be aware of the contents of the policy wording. Yes, I am talking about that large document, often 30-40 pages long, which comes with your policy schedule and COC.
Unfortunately, what insureds do not know until they have a claim, or seek to test the wording with an incident or circumstance, is that each matter is assessed on a case-by-case basis and reading the intention of not only the policy schedule (cover options selected by the insured), but the policy wording as well, (the triggers in the policy for available cover, definitions, extensions and exclusions).
There are several important differences between claims made and occurrence based policies. This article does not seek to provide an exhaustive list of the differences; however, does flag one of the key differences, which is the timing of a claim notification to trigger the insuring clause cover in the policy.
An occurrence based policy seeks to provide cover for an incident or circumstance (“occurrence”) that occurs during the policy period. This is regardless of when the claim is made (such as a demand or legal proceedings).
This means that assuming individual policy terms and conditions have been met, (which is a topic in itself), an occurrence based policy should respond to a claim that occurs, even after the policy period has expired – if the incident occurred within the period in which cover was in force.
Most insureds tune out now and think they can notify something years later (when the claim is made, i.e. legal proceedings) and all will be fine with cover. Please read on to see some common traps in an occurrence based wording.
The coverage trigger for an occurrence based policy is a defined event in the policy which must occur before the policy can be tested against the loss. Therefore, in a liability policy the occurrence of an alleged injury claim would be the trigger.
Each incident or circumstance should be tested against the policy schedule, policy wording (i.e. policy terms and conditions) and assessed on a case-by-case basis.
It is a common misconception that an occurrence based policy will respond to an event years later, when the occurrence (being a circumstance or incident which might reasonably give rise to a claim), occurred some years earlier.
There are various mechanisms in an occurrence based policy which may exclude such an event, or seek to reduce an insurers’ response to a claim, when made. Prejudice is one such argument.
Many insureds are unaware of this until a claim triggers an occurrence based policy and they seek to test the wording with a claim.
Taking preventative measures early to understand what cover your business has in place is an important step to ensure your business understands not only it’s COC and policy schedule cover; yet, also understands the policy wording and the likely response it will have should a claim or circumstance arise in your business.
Part of taking such preventative steps is identifying risks in your business, how you handle such risks and how you report and/or record details of these incidents, which may be a circumstance that requires reporting to an insurer in an occurrence based policy. There should be no penalty for notifying these on a report only basis to an insurer.
Identifying and potentially notifying an incident early enables various steps to occur to assist your business to defend a claim, if it does in fact occur years later. Such as considering the need for an investigation, speaking to key stakeholders and retaining documents to aid in a possible defence (evidence).
Taking such measures in your business early will prevent an unpleasant surprise should an incident occur and your business seeks to test an insurance policy.
To see commentary on claims made, please see my article. Demystifying insurance – what does claim made mean? published 22 February 2017. https://www.linkedin.com/pulse/demystifying-insurance-what-does-claims-made-mean-sarah-robinson?
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Sarah Robinson @SR Insurance Consulting, is the Founder and Principal. SR Insurance Consulting is a business created to provide consulting services to businesses and small to medium sized brokers. Prior to starting her own business, Sarah was Assistant Vice President Claims, at a global leader in insurance and risk advisory solutions. She has served in a variety of insurance roles over the past 18 years, working for law firms, as an in-house lawyer and as a claims management specialist.
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