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Claims-Made vs. Occurrence-Based Insurance

Judy IHSRecently we have been seeing an increase in insurance requirements for design professionals that include professional liability insurance written on a per-occurrence basis, rather than on a claims-made basis. In the past, we frequently assumed this was an error on the part of the insured’s client—confusing occurrence-based general liability and automobile coverages with claims-made professional liability coverage. In most instances, the design professional’s request to their client to change the “per occurrence” requirement to “per claim” met with little resistance. Lately, however, we are seeing clients, especially municipalities, digging in their heels. A recently reviewed state contract included the following requirement:

Consultant’s insurance shall be occurrence based and shall insure against loss or damage resulting from or related to the Consultant’s performance of this Contract regardless of the date the claim is filed or expiration of the policy.

This is an impossible requirement. All professional liability policies are written on a claims-made, not an occurrence, basis. Under a claims-made policy, the availability of coverage is determined by the date that a claim, as defined by the policy, is first made. Conversely, the availability of coverage for a claim made against an occurrence form policy is determined by the date that the situation giving rise to the claim occurred, not when the claim was made. One of the problems in creating an occurrence-based professional liability policy would be the difficulty of determining what was the “occurrence” that created the claim, and when exactly did that event occur. Insuring design services is very different from insuring automobiles. It’s easy to determine the date of an automobile accident, it’s often impossible to determine, over the course of schematic design, design development, creating construction documents, and providing construction phase services, when the event occurred that created liability for the design professional.

We can only speculate as to why clients are including such requirements. It may be that in the last hard market, some of the larger contractors were only able to obtain general liability coverage on a claims-made basis. Clients didn’t like this and are now insisting that all policies be written on an occurrence basis. Many clients, however, are unfortunately not differentiating between general liability and professional liability coverages or between the “Work” provided by contractors and the “Professional Services” provided by design professionals.

The insurance requirements of some clients reflect a misunderstanding of the nature and scope of professional liability coverage for architects, engineers, surveyors, and other design professionals. It’s imperative that clients be educated about the nuances of professional liability coverage. We can help. Schinnerer’s Intro to Professional Liability Insurance is written for your clients and can be found under Insurance Resources on the Risk Management page of the Schinnerer website at www.Schinnerer.com/AEriskmanagement.

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