Opinion ID: 2823833
Heading Depth: 3
Heading Rank: 2

Heading: Occurrence vs. Claims-Made Policies

Text: Â¶28Â Â Â Â Â The conceptual differences between occurrence and claims-made liability policies lie at the core of this case. The Colorado Division of Insurance defines an occurrence policy as âan insurance policy that provides liability coverage only for injury or damage that occurs during the policy term, regardless of when the claim is actually made.â 3 Colo. Code Regs. 702-5:5-1-8 (2014). A claims-made policy, by contrast, is âan insurance policy that provides coverage only if a claim is made during the policy period or anyapplicable extended reporting period.â Id. Thus, occurrence policies and claims-made policies are almost the mirror image of each other: an occurrence policy provides coverage for events that happen during the policy period, even if the claim is brought many years in the future; a claims-made policy provides potential coverage for claims brought against the insured during the policy period, even if the underlying event giving rise to liability occurred many years in the past. See 1 Steven Plitt, Daniel Maldonado & Joshua D. Rogers, Couch on Insurance Â§ 1:5, at 15â16 (3d ed. 2009 & Supp. 2014). With an occurrence policy, an occurrence entitles the insured to benefits under coverage that already exists, and timely notice is merely a condition of retaining that coverage. 3 Allan D. Windt, Insurance Claims and Disputes Â§ 11:5 (6th ed. 2013). Claims-made policies, on the other hand, provide only potential coverage because timely notice of the claim to the insurer is a prerequisite to coverage under such policies. Id. In other words, coverage is triggered only if the insured provides timely notice of the claim. Â¶29Â Â Â Â Â This conceptual difference has important practical implications for the risks that insurers undertake and the premiums that insureds pay. Claims-made policies proliferated in the 1970s as a solution to the problems many insurers were facing in writing professional malpractice insurance policies. See Sol Kroll, The Professional Liability Policy âClaims Madeâ, 13 Forum 842, 849â50 (1978). In setting premiums for occurrence policies, underwriters had difficulty predicting decades into the future considerations such as inflationary trends, jury verdicts that outpaced inflation, and new theories of liability. Id. at 846, 848. Faced with increasing costs of doing business,the typical insurer either had to raise premiums, offer fewer products, or withdraw from the professional liability insurance market altogether. Id. at 847. With claims-made policies, however, the risk to the insurer passes when the policy period expires. Given this limitation, âa more predictable rate structureâ could be assembled and justified for such policies, and, thus, rates bore a âmore reasonable relationship to the current fiscal situation in a given state.â Id. at 848. 2 Â¶30Â Â Â Â Â Having sketched out the basic workings of occurrence and claims-made policies, we proceed to examine the notice provisions that each type of policy typically contains, as well as the functions that these provisions fulfill. The date-certain notice requirement âunique to claims-made policiesâis integrally related to the nature of such policies, a fact that guides our resolution of the question presented in this case.