Claims Occurring and Claims Made Insurance Policies – A Guidance Note for Insolvency Practitioners
It is common market practice for Insolvency Practitioners in the UK to arrange immediate open insurance cover on appointment. A review of the pre-appointment policies is then undertaken by the Insolvency Practitioners broker who advises on the options available based on the particular factors of the appointment.
As part of this process, it is important that both the Directors and the Insolvency Practitioner have an understanding of the implications of cancelling pre-appointment policies particularly where there are policies on a ‘claims made’ basis where there would be no cover should a claim arise in the future.
What is a Claims Made Policy?
Most UK insurance policies are insured on a “claims occurring” basis, where coverage is triggered at the date the incident, e.g. the injury or damage occurs, even if the claim is not made until years later. Thus if the policy is cancelled, that insurer will still deal with any future claims as long as their policy cover was valid on the date the claim occurred. A good example of this Employers Liability Insurance where a claim can be made years in advance but it is the responsibility of the insurer at the time of the accident to respond.
Some insurance policies, however, provide cover on a “claims made” (or “claims discovered”) basis i.e. the coverage is triggered at the date the claim is first made against the insured, even if the incident occurred years earlier during a previous insurance period. So the insurer dealing with the claim is the insurer whose policy is in force at the time the claim is made (or discovered), even if the incident which gives rise to the claim occurred in the past. This basis of cover has the effect that if a “claims made” policy is lapsed or cancelled, there is no insurance policy in force to deal with any future claims.
Types of policies which are on a “claims made” basis include Directors and Officers Liability, Pension Trustee Liability, Charity Trustee Liability, Employment Practices Liability, Professional Indemnity and Crime. However some overseas jurisdictions also require other policy types to be on a “claims made” basis e.g. General Liability insurance in France.
It is therefore necessary to ensure that all parties are aware of the implications and adequate coverage arrangements are made.
Full details of this topic can be found by downloading the detailed article here
Written by: Richard Roe on Monday 17/11/2014