Claims-Made Basis

Two ways to trigger a policy

Most general insurance policies work on an occurrence basis: the policy responds to events occurring during the policy period, regardless of when the claim is made. Professional indemnity works differently. On a claims-made basis the policy responds to claims first made against the insured during the policy period, regardless of when the negligent act, error or omission occurred, provided it occurred on or after the retroactive date.

The reason lies in the nature of professional work. An error in an audit or a design may surface years later, and the policy that answers is the one in force when the client makes the claim. The date of the error and the date the client discovered it are relevant, but neither is the trigger.

The retroactive date

The retroactive date limits how far back the policy looks. A claim relating to an act before that date is excluded even though the claim is made during the current policy period.

This is where the most serious gap arises. When a professional switches insurers and the new insurer resets the retroactive date, all work done before the new date becomes uninsured. The old insurer will not respond because its policy has expired, and the new insurer will not respond because the act predates its retroactive date.

Notification of circumstances

A formal claim is not the only thing that can be reported. Notification of circumstances lets the insured report a situation likely to lead to a claim. Once notified during the current policy period, any resulting claim is treated as falling under that policy, even if the actual claim comes later.

The timing matters near expiry. An insured who learns of a client complaint in February, with the policy ending on 31 March, protects the position by notifying the insurer before that date. If the formal claim arrives after 31 March without such notice, the expiring policy may not respond.

Extended reporting and the stricter form

The extended reporting period, or tail cover, is an optional extension that allows claims to be reported after the policy expires, provided the underlying error occurred on or after the retroactive date. It matters most when a professional retires or closes a practice: no new policies will be bought, yet claims for past work can still arise years later.

Some policies are written on a claims-made-and-reported basis, the stricter version. The claim must be first made against the insured and also reported by the insured to the insurer, both within the policy period or any applicable extended reporting period.

Rules at a glance

Key points

• A claims-made policy is triggered when the claim is first made against the insured during the policy period.
• An occurrence policy responds to events in the policy period whenever the claim is made.
• An act before the retroactive date is excluded even if the claim is made in the current period.
• A reset retroactive date on switching insurers leaves earlier work uninsured.
• Notification of circumstances attaches a later claim to the policy in force when the circumstances were reported.
• Tail cover matters most on retirement or closure; claims-made-and-reported also requires reporting within the period.

Common misunderstandings

• Having a policy in force when the error was made is not enough on a claims-made basis: the claim must be first made while a policy is in force.
• A current policy does not reach back without limit: acts before the retroactive date are excluded.
• Waiting for a formal claim before telling the insurer can lose cover: circumstances known before expiry need to be notified before expiry.
• The extended reporting period does not cover new work: it only extends the time to report claims about past acts.

Questions people ask