QUESTION;
Give us a discussion of this fact pattern using alternately claims-made and
occurrence type E & O coverage. For example claims made in 1992 the other type
in 2002.
An alarm system is installed in 1992, an outright sale, the company has E & O
insurance. One of the devices is not connected/wired properly. Customer paid
for system and for monitoring & service for 10 years. No one ever had cause to
service the device, so error was never detected. In 2002 there is a
fire/burglary, the device does not activate, no CS signal and there is property
loss/damage or bodily injury and it is discovered that there was a faulty
install. When did the event occur? At the install date, or the fire/burg?
What are the implications of the different type coverages?
Tony DiVento
Sentry Watch
tony.divento@sentrywatch.com
+++++++++++++++++++++++++++++++++++++
Answer:
There are two types of coverage -- claims made and occurrence. The
difference is vital. Every insurance policy has a term, usually one year. Say
you have a policy and the term is all of 2001. There is a loss in December
2001. The subscriber sends its first claim notice (whether it be a letter or a
summons) in February 2002. Upon receipt of this claim notice you send it to
your insurance carrier. (I can complicate the analysis by giving you Insurance
Company A for year 2001 and a new Insurance Company B starting year 2002.)
So you send the claim notice to Insurance Company A in February 2002. A
"claims made policy" means the "claim" needs to be made during the policy
period, so in our example the claim letter is outside the policy period and
there is no coverage.
With an "occurrence" policy the determination for coverage is "when is the
occurrence," not when the claim is made. So if you have an occurrence policy
with Insurance Company A you will be covered for the loss that occurred during
the policy period, even though you reported it after the policy expired.
Now, how can you get screwed? You have a claims made policy with Company
A, and an occurrence policy with Company B. Since you got the claim after
policy A (claims made policy) expired there is no coverage there. Since the
claim "occurred" prior to the effective date of policy B (an occurrence policy)
there is no coverage.
Generally I think you are best off with an occurrence policy. That way
you don't have to worry about when the claim is made, only when the actual
occurrence occurred.
Getting back to your question, the loss occurred in 2002 when the burglary
occurred, and it's the 2002 policy that you would report it to. Either type of
policy still needs the occurrence to trigger coverage, and that takes an event
and loss.