For most small businesses, your policy coverage form is going to be an Occurrence policy, but for Contractors, Some Consultants, and others, you may be offered coverage on a Claims Made or Manifestation form. At first it sounds confusing, but in layman’s terms these forms allow an insurance carrier to offer quotes they may not have offered by restricting the occurrence form to a more specific coverage trigger. By offering these options, they’re able to keep the premium for the policy much lower than if it were a full occurrence form policy.
For Starters, What is an Occurrence Policy?
With an Occurrence Policy, the coverage “Trigger” is the date the damage occurs. It provides liability coverage only for injury or damage that takes place or “occurs” during the policy period, regardless of when the claim is actually made. For example, a claim made in the current policy year could be charged against a prior policy period, or may not be covered, if it arises from an occurrence prior to the effective date. It doesn’t matter when damage first manifested. What matters is when the occurrence took place. The occurrence policy insuring agreement states that they will pay for COVERED occurrences that take place during the policy period. PERIOD. If an insurance agent ever tells you that you are covered in the future with your occurrence policy, ask for this in writing along with a copy of the agent’s own professional liability insurance policy because this may be the only policy that will provide you with future coverage.
You guessed it! The coverage trigger is when the claim is made, and the claim must be MADE during policy period. The policy provides liability coverage only if a written claim is made during the policy period or any applicable extended reporting period (also known as a tail). Also, a claim made in the current year could be charged against the current policy even if the injury or loss occurred many years in the past except when the policy has a retroactive date, this restricts coverage only to occurrences after that date. Most policies have a retroactive date.
The manifestation clause restricts the Occurrence coverage by stating that the damage must manifest during the policy period to be considered an occurrence. The DAMAGE is the coverage “Trigger” rather than the completion of an operation. The bodily injury or property damage must first manifest during the policy period. The insurance does not apply to any bodily injury or property damage that is continuous or progressively deteriorating and that first manifested prior to the effective date of the policy or after the expiration of the policy, even if such injury or damage continued or deteriorated during the time of the policy, and whether or not such occurrence is known to any insured. If the date of the first bodily injury or property damage cannot be determined, then usually the date of first damage or injury shall be deemed to be the earliest date on which the process, which led to the bodily injury or property damage began.Regardless of the policy’s exact definition, the damage can only FIRST manifest once and so only the policy in which it first manifests will have an obligation to pay.
What is the Sunset Provision?
The Sunset Provision sets a limit on the amount of time that a claimant has to submit or report a claim on a policy. The policy will not provide any coverage, regardless of the other terms and conditions of the Policy, including the definition of “occurrence” for any claim or “suit” or demand for damages made against an insured unless the claim or “suit” or demand for damages is reported in writing within the specified number of years after the Policy Period or the state statute of limitation applicable to work performed, if that statute is less than the specified number of years in the sunset.
Why Do Brokers Offer Policies With the Above Restrictions?
We know that in today’s economy, insurance consumers must be very cost-conscious. As a way to reduce the cost of insurance, carriers have developed these Sunset and Manifestation Provisions to reduce their risk exposure. This in turn, provides our clients with the ability to choose basic general liability coverage at a significantly REDUCED COST!