Claims-Made Coverage: Understanding the Risks
Before a Claim Happens 

Many professional liability policies – including Agents' E&O, EPLI, Cyber, D&O, fiduciary liability, and numerous professional liability products – are written on a claims-made basis. Unlike occurrence coverage, which is triggered when an injury or damage occurs, claims-made coverage is generally triggered when a claim is first made against the insured and satisfies the policy's reporting requirements. As a result, claims-made policies create unique exposure issues not commonly encountered with occurrence-based insurance.

Unfortunately, many insureds do not fully understand these differences until a claim is denied. When that happens, insurance agencies often become the next target.

Common E&O Claims Involving Claims-Made Coverage

Failure to Maintain the Retroactive Date
Perhaps the most common claims-made coverage error occurs when coverage is moved from one carrier to another and the retroactive date is not preserved.

The retroactive date determines how far back the policy will respond to wrongful acts. If an insured has maintained continuous claims-made coverage for years and the retroactive date is inadvertently changed to the new policy's inception date, all coverage for prior acts may be lost.

Consider a law firm that has maintained professional liability coverage since 2016. The coverage is moved to a new carrier in 2026, but the retroactive date is incorrectly listed as the 2026 effective date. A malpractice claim is filed in 2027 arising from work performed in 2024. The claim may be denied because the alleged wrongful act occurred before the retroactive date. Although the claim was first made in 2027 while the new policy was in force, satisfying the claims-made trigger, coverage still fails because the retroactive date is a separate requirement: the wrongful act must have occurred on or after the retroactive date, regardless of when the claim is made. The law firm then alleges the agency failed to preserve the original retroactive date when placing the coverage with the new carrier.

Failure to Understand the Importance of Tail Coverage
Many insureds incorrectly assume that if they maintained coverage when the alleged error occurred, coverage will always be available. Claims-made policies do not work that way.

When a claims-made policy is canceled, non-renewed, or otherwise terminated, future claims may not be covered unless an extended reporting period (ERP), commonly known as tail coverage, is purchased. Claims-made claims are often reported long after the underlying services were performed or the alleged error occurred.

As a result, insureds can find themselves without coverage for a claim arising from prior work if they allow claims-made coverage to lapse without securing an extended reporting period. Understanding the availability and purpose of tail coverage is an important part of managing claims-made exposures.

Late Reporting of Claims and Potential Claims
Timing is critical with claims-made coverage. Many coverage disputes arise because an insured does not report a claim, potential claim, or other reportable circumstance promptly after becoming aware of it.

Some claims-made-and-reported policies require that a claim be reported during the policy period or within a specified reporting window. Late reporting can result in a complete loss of coverage even when the underlying matter would have otherwise been covered.

One of the most common misconceptions surrounding claims-made coverage is that a claim does not exist until a lawsuit has been filed. However, many claims-made policies define a claim much more broadly than formal litigation. Depending on the policy language, a claim may include a written demand for money or services, an attorney demand letter, an Equal Employment Opportunity Commission (EEOC) charge, a regulatory proceeding, a disciplinary complaint, or other written allegations of wrongdoing.

In addition, some policies permit or require the reporting of circumstances that may reasonably give rise to a future claim. These provisions can be extremely valuable because they may allow a future claim to relate back to the policy period in which the circumstance was first reported.

Common reporting issues include:

• Attorney demand letters that are not reported because the insured is waiting to see whether a lawsuit is filed
• EEOC charges or administrative complaints that are not promptly disclosed
• Cyber incidents that are not immediately reported
• Customer or client allegations of wrongdoing that are viewed as a business dispute rather than a claim
• Known circumstances that may reasonably lead to a future claim but are never reported to the carrier
• Formal claims that are set aside while the insured attempts to resolve the matter independently

When coverage is denied because a claim, potential claim, or reportable circumstance was not reported in a timely manner, agencies often face allegations that they failed to properly explain the reporting requirements of the policy.

Risk Management Tips for Agencies

Verify Retroactive Dates Every Time
Retroactive dates should be reviewed:

• At quoting
• At binding
• Upon receipt of the policy
• At every renewal

Never assume the carrier automatically carried the date forward.

Provide Written Notice Regarding Tail Coverage
Whenever a claims-made policy is canceled, non-renewed, replaced, or otherwise terminated, provide the insured with a written communication about the availability of extended reporting period (tail) coverage. The communication should clearly explain:

• The purpose of tail coverage
• The number of years available
• The cost of each option, if available
• Any deadlines for election
• The process for purchasing the coverage

Providing this information in writing can help demonstrate that the agency communicated the available options and enables the agency to document that the information was provided.

Train Agency Staff on Claims-Made Reporting Requirements
Agency personnel should have a thorough understanding of the reporting provisions associated with claims-made policies. Many E&O claims arise because a claim, potential claim, or reportable circumstance is not recognized until it is too late.

Staff members should understand that:

• A lawsuit is not always required before a reporting obligation arises
• Demand letters, administrative proceedings, regulatory actions, disciplinary complaints, and other pre-litigation matters may qualify as a claim under the policy
• Some policies permit or require the reporting of circumstances that could reasonably give rise to a future claim
• Claims-made and claims-made-and-reported policies may have significantly different reporting requirements
• Delays in reporting can create serious coverage issues, even when the underlying matter would otherwise be covered

Providing regular training on claims-made coverage can help agency personnel identify potentially reportable matters and communicate reporting requirements more effectively to insureds.

Memorialize Important Coverage Discussions in Writing
Many claims ultimately become disputes over what was or was not discussed.

When discussing claims-made coverage issues such as retroactive dates, reporting requirements, potential claims, or significant coverage changes, follow-up written communication can help create a clear record of the information provided to the client. This is particularly important when an insured elects not to report a potentially reportable matter to the carrier, as delayed reporting may result in a denial of coverage depending on the policy provisions.

When handling claims-made policies, understanding the coverage mechanics, communicating important information in writing, and maintaining consistent documentation practices can reduce the likelihood that a coverage issue turns into an E&O claim.

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