Claims Made v. Claims Made and Reported

It seems that most professional liability policies today are written on a claims made and reported basis, but some carriers still cling to the older claims made format in which the report itself is not a coverage trigger. Instead, those companies may treat the report of the claim to the carrier as a condition of coverage.

Let’s briefly review the key elements of each form. We’ll call them CM and CM&R forms.

CM policy

This form requires that the claim first be made during the policy period. The report can be made after the policy period, but it generally must be reported to the insurer in compliance with a standard such as “immediately” or “as soon as practicable” after the claim is made. What those standards mean is a matter of state law and so may vary with each jurisdiction. Some jurisdictions are more generous than others.

CM&R policy

This policy, like the CM form, requires that a claim first be made during the policy period. In addition, it requires that the claim be reported to the insurer during the policy period, but it usually provides a grace period for claims made during the last month or two of coverage. The length of that grace period can vary, with some policies offering 60 or 90 days. Unlike the CM policy, this form defines the acceptable timing parameters of a report rather than leaving it to an insured to guess or a court case to determine. A court case interpreting a CM policy may be more or less generous, but it may also offer a less precise measure of what the insurer will accept.

Both kinds of forms can have a prior acts/retroactive date feature. Both forms can offer a basic and an optional extended reporting period.

Because professional liability policies do not follow an accepted standard, each feature of the policy may have its own characteristics. For example, is a claim made when a lawsuit is filed or when it is served? Does a claim need to be in writing or is an oral claim counted? How long is the grace period? How does the basic extended reporting period work?

There are enough differences in professional liability policies that all features need to be weighed, and there is no perfect insurance policy. But some policies clearly are better than others in providing coverage.

CM and CM&R policies share many common features. The differences between them should be considered, but that consideration must go along with the fundamental coverage provided, apart from the coverage trigger. Does the policy cover personal injury and some key intellectual property exposures? And especially today, does it cover breach of security risks?

As one broker said to us: “What difference does it make when a claim is reported if the policy doesn’t provide good coverage to begin with?”