Primary Agent - March 2025

Claims Made Policies – As Easy as 1, 2, 3

By Cathy Trischan

Most liability coverage is written on an occurrence form basis. In the majority of Commercial General Liability policies, for example, the policy in effect when the bodily injury or property damage occurs responds to the claim. When the claim against the insured is made does not determine whether coverage applies. Claims Made policies are different though, and while this form of coverage can create confusion for insurance professionals and their clients, it can be as easy as 1, 2, 3.

Determining whether coverage under a Claims Made policy is triggered involves three simple steps. Before we get to the steps, though, it is important to understand two concepts: retroactive date and extended reporting period (ERP). We’ll use Employment Practices Liability coverage as an example.

▲ For a claim to be covered, the wrongful employment act must occur on or after the retroactive date. The retroactive date is normally the effective date of the first policy written, and it is important that the retroactive date be maintained on any renewal or replacement policy. Some policies are written without a retroactive date; we say those policies provide “full prior acts” coverage.

▲ An ERP extends the time during which claims can be made. An ERP is often referred to as a “tail.” Many policies include a short, automatic ERP (e.g., 30-60 days). A longer ERP can be purchased within a short time after policy expiration (e.g., 30-60 days). Policies typically include options for the purchase of ERPs of various lengths, with premium expressed as a percentage of the annual premium. This longer ERP applies to claims first made against the insured during the ERP. It does not provide coverage though, for acts that happen during the ERP. Examples of situations where a longer ERP is needed include:

• Coverage is cancelled or non-renewed.

• A retroactive date is advanced on renewal.

• Claims-made coverage is replaced with occurrence form coverage.

Now, steps 1, 2, 3!

Step 1. Was the claim first made against the insured during the policy period or during any applicable ERP? If no, coverage does not apply. If yes, proceed to Step 2.

Step 2. Did the covered act take place on or after the retroactive date? If no, coverage does not apply. If yes, proceed to Step 3.

Step 3. Did the covered act take place before the expiration date of the policy? If no, coverage does not apply. If yes, the Claims Made policy has been triggered.

Keep in mind that triggering coverage doesn’t necessarily mean the claim is covered. Policy coverage must still apply to the claim presented, and all conditions must be complied with. Many Claims Made policies, for example, require that the claim first be made against the insured and reported to the insurer during the policy period. Policies with that requirement are called Claims Made and Reported policies.

Let’s use an example to illustrate the steps.

The named insured fires an employee on 6/1/2023. A claim for wrongful termination is first made against the insured on 6/1/2024, and the insured immediately reports it to the insurer.

Claims Made Employment Practices Liability policies as follows were in place:

▲ Policy A – Effective 1/1/23-24 –retroactive date of 1/1/23

▲ Policy B – Effective 1/1/24-25 –retroactive date of 1/1/23

▲ Policy B was not renewed, and no ERP was purchased.

Which policy, if any, would respond to the claim?

Step 1. The claim was first made against the insured on 6/1/2024, during the term of Policy B. Proceed to step 2.

Step 2. The termination took place on 6/1/2023, which is after the 1/1/23 retroactive date of policy B. Proceed to step 3.

Step 3. The termination took place on 6/1/2023, which is before the 1/1/25 expiration date of policy B.

As long as coverage under Policy B applies to the claim and all conditions have been complied with, Policy B covers the claim!

Let’s consider a few other scenarios using the example above.

▲ What if the termination happened on 6/1/2022? Even though the claim was first made against the insured during the term of Policy B, coverage does not apply. The termination happened prior to the 1/1/23 retroactive date.

▲ What if the claim was first made against the insured on 12/1/25? There is no coverage because the claim was not first made against the insured during any of the policy terms. Had an ERP been purchased after Policy B expired, coverage under Policy B would have been triggered.

Understanding how Claims Made policies work and explaining this to a client can be easy if you follow 1, 2, 3!

Til next time!

Cathy Trischan, CPCU, CRM, CIC, ARM, AU, AAI, CRIS, MLIS, TRIP is IA&B’s commercial lines education consultant. She works with our CIC and CISR programs, as well as our live CE webinars. Catch her at one of our upcoming courses: IABforME.com/education