Claims-made insurance may cover a claim first made during the current policy period, even when the underlying act happened earlier. The earlier act must fall within the policy’s coverage, including any retroactive date, and you must meet its reporting requirements.
If you are answering the multiple-choice question, the intended answer is 4. Claims-made policies. Here is what that means for your business.
How does claims-made insurance work?
A claims-made policy generally focuses on when a claim is first made against you. It can apply to qualifying earlier work, provided the policy’s timing rules and other conditions are met.
This structure is common in professional liability insurance, sometimes called errors and omissions coverage. It can help address covered allegations involving mistakes in professional services.
As The Hartford explains in its comparison of claims-made and occurrence policies, the date of the underlying event and the date of the claim serve different roles under these policies.
For a business owner, the practical question is not simply, “Was I insured?” It is, “Which policy could respond, and have I met its requirements?”
What is a retroactive date?
A retroactive date sets a boundary for how far back qualifying acts can go. Depending on the policy wording, acts before that date are generally outside coverage, even if the claim arrives while your current policy is active.
Your policy’s start date and retroactive date may be different. A policy beginning in 2027 could have a retroactive date in 2023, allowing it to address certain earlier work.
That does not mean every problem from those years is covered. Exclusions for previously known circumstances, prior claims, or other matters can still apply.
A simple example
Hypothetical example: A Springfield consulting business has a claims-made professional liability policy running from January 1, 2027, to January 1, 2028. Its retroactive date is January 1, 2023.
A client first makes a claim in June 2027 about an alleged mistake from August 2025. The business reports it within the required deadline.
The 2027 policy may respond because the claim was first made during that policy period and the alleged mistake occurred after the retroactive date. Assume the services are covered, there was no disqualifying prior knowledge, and no other exclusion applies.
If the retroactive date were January 1, 2026, the same 2025 mistake would generally fall outside that policy’s prior-acts coverage.
Why isn’t occurrence coverage the answer?
An occurrence policy generally responds based on when covered injury or damage occurred. A claim can arrive later, after that policy has ended, subject to the policy’s terms and reporting duties.
For example, if covered bodily injury occurred in 2025 and a claim arrived in 2027, the occurrence policy in effect in 2025 may respond. The 2027 occurrence policy would not respond simply because the claim arrived that year.
The Texas Department of Insurance’s explanation of these policy types describes this distinction. The general concept is useful beyond medical liability, although individual policy terms differ.
| Policy type | Main timing question |
|---|
| Claims-made | When was the claim first made, and does the earlier act fall within the policy’s coverage? |
| Occurrence | When did the covered injury or damage occur? |
Both types can address claims involving earlier events. What makes claims-made policies the intended answer is the question’s emphasis on claims brought during the policy period.
Receiving a claim and reporting it are separate steps
A client making a demand against your business is not the same as you notifying your insurer.
Some policies are claims-made-and-reported. These require both the claim and its reporting to meet specified timing conditions. Other claims-made forms have different notice provisions, such as prompt reporting.
IRMI’s explanation of claims-made reporting requirements highlights why the distinction matters. Do not assume renewing the policy gives you more time to report a claim from the previous year.
Read the policy’s definition of a claim, too. A demand for compensation may qualify before anyone files a lawsuit. Follow the required reporting method and recipient, and ask your advisor for help promptly.
What happens when you switch insurers or close your business?
Before ending coverage, ask how future claims involving past work would be handled.
Prior acts coverage under a replacement policy may cover qualifying work performed before that policy began. Check the retroactive date, exclusions, and reporting provisions. Continuous insurance alone does not guarantee the same protection for earlier work.
Tail coverage, also called an extended reporting period, generally gives additional time for qualifying claims involving earlier acts under the expired policy’s terms. It does not insure new work performed after the policy ends.
The Hartford’s tail coverage guide explains this option. Availability, purchase deadlines, length, and cost vary.
Before switching, retiring, or closing, ask:
- What is my retroactive date?
- What counts as a claim, and when must I report it?
- Will the replacement policy cover my earlier work?
- Do I need tail coverage, and when must I arrange it?
- Are there known issues I should report before the policy ends?
Frequently asked questions
Does claims-made insurance cover every past mistake?
No. Retroactive dates, covered services, exclusions, prior knowledge, and reporting requirements can all affect coverage.
Can I buy a policy after learning about a claim?
Do not assume a new policy will cover an existing claim or known problem. Disclose the circumstances accurately and ask about the applicable coverage.
Is claims-made insurance better than occurrence coverage?
Neither is always better. The right structure depends on your business, available coverage, and how protection for past work will be maintained.
Review the dates before changing coverage
For Central Illinois businesses, an insurance review should include the work already completed, not just the year ahead.
TROXELL can help you review your policy’s dates, reporting requirements, and options for earlier work before you renew, switch insurers, or close your business.