Overview
Most insurance policies use an occurrence form - if the loss happens during the policy period, you're covered. But for Commercial General Liability (CGL) policies, insurers developed an alternative: the claims made form. Understanding the difference between these two forms is critical for the exam.
Exam Alert!
The exam loves testing whether you know WHEN coverage triggers under claims made vs occurrence forms. Key point: Claims made forms are used ONLY for Commercial General Liability (CGL) policies - all other policies use occurrence forms.
1. The Problem with Liability Insurance
Why Insurers Needed a Solution
Liability losses often aren't discovered until years after the harmful event occurred. This creates huge problems for insurers.
The Four Problems
1. Late Discovery
Liability losses often aren't known until years after the event. A defective product sold in 2020 might cause injury in 2025, with a claim filed in 2026.
2. Expired Policies
Insurers must pay claims on policies that expired years ago. The premium collected in 2020 must still cover the 2026 claim.
3. Inadequate Rates
It's difficult to set adequate rates for unknown future losses. How much should 2020 rates be if claims won't emerge until 2026?
4. Inflation Risk
Original policy limits may be inadequate due to medical cost increases and inflation over time. A $1 million limit in 2020 doesn't go as far in 2026.
Real-World Scenario: The Asbestos Problem
The Setup: ABC Manufacturing installed asbestos insulation in buildings from 1960-1980. They had liability insurance during those years covering their operations. Their policies were occurrence-based.
What Happens: In the 1990s and 2000s, workers who were exposed to the asbestos decades earlier develop cancer and file lawsuits. Hundreds of claims emerge, each worth hundreds of thousands or millions of dollars.
The Result: The insurance companies that insured ABC in the 1960s-1980s must pay these claims - even though those policies expired 20-40 years ago. The premiums collected decades earlier were nowhere near sufficient. Many insurers went bankrupt from asbestos claims. This kind of "long-tail liability" crisis led to the development of claims made policies.
2. The Solution: ISO Claims Made Form
How Claims Made Solves the Problem
The Insurance Services Office (ISO) developed the claims made form to address these issues. Under claims made policies, coverage is based on when the claim is made, not when the injury occurred.
The KEY RULE for Claims Made Policies
For the insurer to pay under a claims made form, the CLAIM MUST BE MADE DURING THE POLICY PERIOD
It doesn't matter when the injury happened - what matters is when the claim is filed.
How This Benefits Insurers
Predictable Claims
Insurers know all claims during the policy year. No surprise claims years later.
Accurate Pricing
Rates can be set for current claim costs, not future unknowns.
Current Limits
Policy limits apply to today's claims at today's costs, not inflated future costs.
Real-World Scenario: Medical Malpractice Claims Made
The Setup: Dr. Martinez has a claims made malpractice policy from January 1, 2024 to December 31, 2024. On March 15, 2024, she performs surgery on a patient. The surgery appears successful, and the patient goes home.
What Happens: On August 20, 2025 (over a year later), the patient develops complications and discovers Dr. Martinez made an error during the March 2024 surgery. The patient files a malpractice claim on September 1, 2025.
The Result: Dr. Martinez's 2024 claims made policy does NOT cover this claim because the claim was made in 2025, outside the policy period. The injury occurred in 2024, but that doesn't matter under claims made - only the claim date matters. If Dr. Martinez has a 2025 policy, that policy might cover it (depending on the retroactive date).
3. Claims Made vs Occurrence: The Key Difference
| Feature | Occurrence Form | Claims Made Form |
|---|---|---|
| Coverage Trigger | When the injury/damage OCCURS | When the claim is MADE |
| What matters? | Date of the accident/event | Date the claim is filed |
| Time limit? | No limit - claims can be made years later | Claim must be made during policy period |
| Used for | Most liability policies (auto, homeowners, workers comp, etc.) | ONLY Commercial General Liability (CGL) policies |
| Tail coverage issue? | No - covered forever once policy is active during the loss | Yes - need extended reporting period for claims after policy ends |
| Premium cost | Generally higher (unknown future claims) | Generally lower initially (known claims only) |
Visual Timeline Comparison
OCCURRENCE FORM
Jan 1, 2024
Policy Start
June 15, 2024
Injury Occurs
Dec 31, 2024
Policy Ends
March 20, 2026
Claim Filed
Result: COVERED! The injury occurred during the policy period. Doesn't matter when the claim was filed.
CLAIMS MADE FORM
Jan 1, 2024
Policy Start
June 15, 2024
Injury Occurs
Dec 31, 2024
Policy Ends
March 20, 2026
Claim Filed
Result: NOT COVERED! The claim was made AFTER the policy ended. Doesn't matter that the injury occurred during the policy period.
Example: Occurrence Form
The Setup: A restaurant has occurrence-based liability coverage in 2024. A customer slips on a wet floor in March 2024.
What Happens: The customer suffers back pain but doesn't realize it's serious. Three years later, in 2027, the customer's condition worsens and they file a lawsuit.
The Result: The 2024 occurrence policy covers this claim because the slip (the occurrence) happened in 2024 during the policy period. The restaurant is covered even though they may have different insurance now.
Example: Claims Made Form
The Setup: A law firm has claims made CGL coverage in 2024. A client claims the attorney gave bad advice in March 2024.
What Happens: The client doesn't realize there's a problem until 2027. They file a malpractice claim in 2027.
The Result: The 2024 claims made policy does NOT cover this claim because the claim was filed in 2027, outside the policy period. The law firm would need their 2027 policy to cover it (assuming they have one with the right retroactive date).
4. Where Claims Made Forms Are Used
CRITICAL EXAM POINT
Claims made forms are used ONLY for Commercial General Liability (CGL) policies. All other policies use occurrence forms.
Can Use Claims Made Form
- Commercial General Liability (CGL) - the main one
- Professional liability (some policies)
- Directors & Officers liability (some policies)
Always Use Occurrence Form
- Personal Auto Liability
- Homeowners Liability
- Workers Compensation
- Commercial Auto
- Property insurance (all types)
Real-World Scenario: Multiple Policies Comparison
The Setup: XYZ Company has multiple insurance policies: CGL (claims made), commercial auto (occurrence), property insurance (occurrence), and workers comp (occurrence).
What Happens: In 2024, four separate events occur: (1) A customer slips in their warehouse, (2) A company truck hits a pedestrian, (3) The warehouse burns down, (4) An employee is injured on the job. All injuries/damages occur in 2024, but claims aren't filed until 2026.
The Result: Only the CGL claim (customer slip) is NOT covered by the 2024 policy because it's claims made and the claim was filed in 2026. The other three claims (auto, property, workers comp) ARE covered by the 2024 policies because they're all occurrence-based and the events happened in 2024.
Exam Trap Alerts
1. Claims Made ONLY for CGL
If the question involves auto, homeowners, workers comp, or property - it's ALWAYS occurrence. Claims made is used ONLY for Commercial General Liability (and some professional liability policies).
2. What Matters: Occurrence = Event Date, Claims Made = Claim Date
Occurrence form: "When did the injury happen?" Claims made form: "When was the claim filed?" Don't mix these up on the exam.
3. Claims Made Has a Gap Problem
If you switch insurers or let a claims made policy lapse, you can lose coverage for past events. Occurrence policies don't have this problem - you're covered forever for events during the policy period.
4. Why Insurers Like Claims Made
Claims made policies let insurers know their exact exposure - all claims must be filed during the policy year. No surprise claims decades later like with occurrence policies.
5. The Long-Tail Problem
"Long-tail liability" means claims that emerge long after the event. This is WHY claims made forms were developed - to protect insurers from unknown future claims on expired policies.
Quick Reference Summary
The Problem
Liability losses discovered years later, expired policies, inadequate rates, inflation risk
The Solution
ISO developed claims made form for CGL policies
Coverage Trigger
Occurrence = when injury occurs. Claims made = when claim is filed.
Where Used
Claims made: ONLY CGL. Occurrence: everything else.
Key Difference
Claims made = claim must be filed during policy period. Occurrence = no time limit on claims.
Why It Matters
Protects insurers from long-tail liability and unknown future claims