The Supreme Court of Texas decided a case this year wherein the distinction between “claims made” policies and “occurrence” policies was discussed. This case is, Prodigy Communications Corp. v. Agricultural Excess & Surplus Insurance Company.
As discussed in an earlier case on this blog, the PAJ case, the main issue was whether or not the inusrance company was still responsible under the terms of the insurance policy even though the insured person or entity did not timely notify the insurance company of the claim. As in PAJ, the court ruled that because the insurance company could not show it was harmed by the delay in being informed of the claim, the court ruled that the insurance company must provide coverage.
The difference in this case, Prodigy, as compared with PAJ, was the different types of policies at issue. When dealing with insurance policies it is important to understand the distinctions between these two types of policies.
Policies written on a “claims made” basis, means that the policy only covers those claims first asserted against the insured during the policy period. In other words, the event used as the basis for the claim could have arisen in, let’s say January of 2001, the policy was purchased in April 2001 and covered til October of 2001. Now, the claim that had its basis arise in January, is asserted against the insured in June of 2001. Under a “claims made” policy the claim should be a covered claim.
Policies written as “occurrence” policies, which is the type for most policies, covers only claims arising out of occurrences happening within the policy period, regardless of when the claim is made. Using the prior paragraph example, there would not be any coverage because the event occurred prior to the policy period. Using this same policy period, purchased in April 2001 and providing coverage til October 2001, lets say the event happened in July 2001. The claim would be covered even it the claim was not asserted until December of 2001, a time after the policy had expired.
All the above can be confusing and illustrates why a person needs to seek the advice of an experienced Insurance Law Attorney when confronted with a claim being denied. Most people will not understand the differences between these two types of policies and the different rules that apply to them. Further, just because the words in a policy say something, that does not mean those words legally mean what they say. Too often, insurance companys put language in their policies that are not legally enforceable and rely on your lack of legal knowledge to get away with denying benefits wrongfully.