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  • Business Owner
  • General Liability
  • Commercial Auto
  • Errors and Omissions
Claims-Made and Occurrence Policies: What’s the difference, and what should your business have?

There is a wealth of information to search through when trying to find the right terms for a Commercial General Liability insurance policy. To make the best decision for a business, it’s essential to understand the difference between occurrence and claims-made policies for commercial general liability insurance.

Nearly every contract, agreement, or business transaction that requires insurance coverage will have regulations as to what that insurance policy needs to cover. In the majority of cases, the business agreement or contract will require the insurance to be occurrence-based; however, claims-made insurance can be a beneficial option in some other instances.

It is very common to see Professional Liability or E&O written on a claims-made basis. Although claims-made insurance for commercial general liability policies tends to be less popular, it shouldn’t be treated as a non-viable insurance option. The most significant difference between the two policies is what the instigating incident is for enacting coverage.

Claims-Made Commercial General Liability Insurance

With a claims-made CGL insurance policy, the policy can be used when a claim is made against the insured. The claim has to be prepared for bodily injury or property damage, as covered by the commercial general liability policy.

In this coverage type, the instigator for the insurance policy is when a claim is made. The claim or lawsuit has to be made during the period that the insurance policy is active; a claim made after the policy has expired likely won’t be covered. If bodily injury or property damage did occur during the period that the insurance policy was active, but a claim wasn’t made, there will likely be no payout for the claim.

Occurrence-based CGL Policy

A commercial general liability insurance policy that is occurrence-based is enacted when bodily injury or property damage is deemed to have occurred. The bodily injury or property damage is the event that triggers the insurance coverage, and the insurer is now obligated to respond to the claim.

One of the most significant differences between an occurrence policy and a claims-made policy is that an occurrence policy can be used to cover a claim on a policy that is no longer active. If the bodily injury or property damage was found to have occurred during the period when the policy was active, a claim can be made anytime after the fact and still have the potential to be covered by insurance.

Claims-Made Tail Policy Coverage Gap

If a business has claims-made CGL that is about to expire, they can choose to renew that policy or switch to an occurrence-based commercial general liability insurance policy. If the decision is made to switch, there will be a gap in insurance coverage between the first policy’s ending and the other’s beginning.

One way to eliminate that gap and still maintain insurance coverage is through a tail policy. A tail insurance policy enacts an additional period for claims to be reported during the gap in CGL coverage. This protection is for specific claims that could be made against a business after their CGL policy has ended and while they are awaiting a new set of coverages under a new policy.

This tail coverage protects the insured against the gap in coverage that exists when switching between a claims-made policy and an occurrence-based policy.

Reporting Requirements for Claims

There are two kinds of reporting requirements for insurance claims. These are the Basic Extended Reporting Period, or BERP, and the Supplemental Extended Reporting Period, or SERP.

The BERP protects the insured party automatically if they have a claims-made CGL policy. There are no added fees. The BERP applies when:

  • The incident is reported to the insurance company within 60 days of the end of the policy.
  • The event or occurrence involved bodily injury or property damage.

In this instance, the BERP is extended for five years after the original policy should have ended. This means that a claim made against the insured can be made within five years of the end of the CGL policy, and would be considered to be a claim made during the policy period.

The BERP will also be obligated to respond to a claim that was made against an insured party that was not previously reported. This only applies if the claim is made within 60 days of the policy ends.

SERP, or the supplemental extended reporting period, is an optional coverage that is available for occurrence-based policies. SERP requires an additional insurance premium payment, the cost of which would be set by the insurance company. SERP has to be purchased within 60 days of the end of the existing insurance policy.

SERP does reinstate previous policy aggregate limits. SERP can still apply to a claim even if other insurance coverage applies to it; SERP can be used as excess coverage in case of a claim. SERP is usually purchased because BERP leaves a more significant gap in insurance coverage.

Both BERP and SERP require bodily injury or property damage that occurs after the retroactive date of the CGL policy and before the end of the policy.

Claims-Made to Occurrence-based Coverage

There are a few risks that a commercial enterprise might face when moving from a claims-made to an occurrence-based policy. There is a gap in coverage that occurs that can be mitigated by BERP, SERP, and other forms of insurance coverage.

Occurrence-based insurance policies can have higher premiums to begin with, which could make the switch financially tricky.

Claims-Made Insurance Benefits

A claims-made policy could make sense for many different kinds of businesses. For example, it is very common to see Professional Liability Insurance or E&O to be on a claims-made basis. There are advantages to claims-based policies, just as there are aspects that might not work for everyone. Claims-made premiums are also much cheaper than occurrence-based, to begin with, giving a business that is just starting up some financial leeway.

A claims-made CGL policy that has been continuous and that still has its original retroactive date offers the same coverage as an occurrence policy does, while it is in effect. Of course, reading the fine print and choosing an insurance type that will be the most beneficial is essential.

To learn more about claims-made and occurrence insurance policies, please contact the experts at SmartInsured at 844-881-6629. Our licensed professionals will be happy to answer any questions that you may have.

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