What is a claims-made-and-reported policy?
The following is a sidebar to the article ‘Here Today, Gone Tomorrow: Insurance Implications of Lawyer Transfers and Practice Structures’, which appeared in the January 2012 edition of LAWPRO Magazine.
Not all insurance policies work the same way. One factor that differs is how a policy that is renewed annually “matches” claims to policy years.
A policy that matches claims to the policy in force when the facts giving rise to the claim occurred is sometimes called an “occurrence” based policy.
LAWPRO’s standard policy, by contrast, is a “claims-made- and-reported” policy.
A claims-made-and-reported policy provides coverage under the present policy for claims that arise out of past and present services. With this type of policy, two developments together trigger coverage:
- a claim is made against an insured; AND
- the insured reports the matter to the insurer (LAWPRO) as a claim.
The focus is on when the claim is made and reported, not the year in which services are provided and the alleged error or omission is said to have occurred. If a claim is made against an insured this year for services provided in 2008, the policy that responds is this year’s policy. If the insured had similar coverage in 2008 as he or she has in 2012, it may not make much difference from a coverage perspective.
However, it is possible to have quite different coverage in different years:
- The insured may have retired since 2008 and now have only basic run-off insurance that provides coverage of $250,000 per claim and in the aggregate;
- The insured may have been practising real estate law in 2008, and would have had specialized coverage under the Real Estate Practice Coverage Option at the time, but discontinued the practice of real estate between 2008 and 2012;
- The insured may have been practising in a firm in 2008 and have had the benefit of innocent party coverage and excess insurance coverage, but is now a sole practitioner without either (or vice versa – the insured may have moved from sole practice in 2008 to a firm in 2012); or
- There may be general changes to the policy provisions, terms and conditions, and the scope of coverage expanded or reduced between the time the services were provided and the time a claim is made and received.
Clearly, changes in coverage between the year in which the error was made (and when factors leading to the possible liability of other parties are relevant) and the year in which the claim is made and reported can have significant coverage implications. The LAWPRO policy is available at www.lawpro.ca/standardpolicies.