What Is the Date of Loss on a Claims-Made Policy?

Insurance policies protect individuals and businesses from financial losses arising from unexpected events. These policies come in various forms, each with specific conditions that determine when coverage is activated. Understanding these conditions is crucial for policyholders to ensure they have the protection they expect.

Understanding Claims-Made Policies

A claims-made policy provides coverage for claims that are first made against the insured and reported to the insurer during the period the policy is active. This type of policy is often utilized for professional liability, such as errors and omissions (E&O) insurance or directors and officers (D&O) liability, where a significant time lag can exist between an incident and the formal claim.

In contrast, an “occurrence” policy covers incidents that happen during the policy period, regardless of when a claim is reported. If an event occurs while an occurrence policy is active, coverage will apply even if the claim is filed years after the policy has expired. The key distinction lies in the trigger for coverage: claims-made policies are triggered by the reporting of the claim, while occurrence policies are triggered by the date of the incident itself. This fundamental difference impacts how long a policyholder might be protected for past events.

Defining Important Dates

The “policy period” refers to the specific timeframe during which an insurance policy is active and provides coverage. This period is defined in policy documents, typically spanning one year, with an effective and expiration date.

A “retroactive date” is a feature found in many claims-made policies. This date specifies the earliest point in time that an incident can occur for coverage under the current policy. If an event giving rise to a claim happened before the policy’s retroactive date, coverage will be excluded, even if the claim is made during the active policy period.

An “extended reporting period” (ERP), also known as “tail coverage,” is an optional feature for claims-made policies. It provides an additional window of time after a claims-made policy expires or is canceled during which the insured can report claims for incidents that occurred while the policy was active and after the retroactive date. Tail coverage is especially important when changing insurers, retiring, or ceasing business operations.

The Date of Loss in Claims-Made Policies

The “date of loss” refers to the specific day when the damage, injury, or wrongful act that leads to a claim actually occurs. This is the precise moment the incident takes place, not necessarily when it is discovered or reported. For instance, in property insurance, it is the day a fire damages a home, or in auto insurance, it is when a car accident happens. Accurately determining the date of loss is important because it is a factor in assessing coverage eligibility.

For a claim to be covered under a claims-made policy, the incident’s date of loss must typically fall on or after the policy’s retroactive date. Furthermore, the incident must have occurred before the end of the policy period or within an applicable extended reporting period. While the date of loss determines when the event happened, the claims-made policy’s primary trigger is when the claim is reported. Therefore, even if an incident occurred within the appropriate timeframe relative to the retroactive date and policy period, the claim itself must still be formally reported to the insurer during the policy’s active term or during a purchased extended reporting period.

Consider a scenario where an error occurs on January 15, 2024, and a claims-made policy is active from January 1, 2024, to December 31, 2024, with a retroactive date of January 1, 2020. If a claim for this error is made and reported on October 1, 2024, it would likely be covered because the date of loss (January 15, 2024) is after the retroactive date and within the policy period, and the claim was reported within the policy period. However, if the claim for that same January 15, 2024, error was not reported until February 1, 2025, and no extended reporting period was in place, coverage would likely be denied as the policy had expired. This illustrates that for claims-made policies, timely reporting of the claim is paramount, in addition to the date of loss aligning with the policy’s coverage dates and retroactive date.