Claims made vs claims made and reported: what changes at claim time

Two forms, one word of difference

Both forms share a starting point: the policy responds to a claim that's first made against you during the policy period, not to when the underlying work was done. A demand letter or a lawsuit arrives, and the date it arrives is what matters, as long as the wrongful act happened after your retroactive date.

The split is in the reporting. A claims-made policy generally asks you to report the claim "as soon as practicable," and it lets you do that after the policy period ends without losing coverage, as long as the claim itself was made while the policy was in force. A claims-made-and-reported policy is stricter: the claim has to be made and reported to the carrier inside the same policy period. Some states add an automatic grace window of 30 to 90 days, but that's a grace period, not a second chance, and you can't count on it being there. The claims-made-and-reported form often costs less, and that lower price is a reflection of the claim reporting restriction. You're buying a narrower obligation for the carrier to pay.

A claim scenario worth sitting with

The below is hypothetical and overly-simplified to demonstrate the point that the policy type matters. Our advice in this situation is to turn the claim into both carriers and await their coverage response. Never assume.

Consider an agent insured by Carrier A from July 1 one year to July 1 the next. On June 27, four days before that policy ends, she's served with a lawsuit alleging she failed to procure the right coverage for a client. On July 1 she moves her coverage to Carrier B. On August 4, she reports the claim to Carrier A.

If Carrier A's policy was claims-made-and-reported, there's no coverage. The claim was made in the policy period but reported five weeks after it ended. Carrier B won't pick it up either, because the claim was made before its policy began. Renewing with Carrier A wouldn't have saved it: these forms don't carry the reporting requirement past the expiration date, and the reporting period is strictly enforced. Now flip one word. If Carrier A's policy had been plain claims-made, the same claim is covered, because the claim was made during the policy term and reported promptly. She was continuously insured the whole time. The gap was never in her coverage history. It was in the form.

Where the tail comes in, and what to ask

This is also where the extended reporting period, or tail, starts to matter in a way owners often miss. Both forms have ERP provisions, but they trigger differently. On a claims-made form, the basic ERP typically kicks in when the policy is cancelled. On a claims-made-and-reported form, the reporting clock effectively resets at the end of every policy period, because the claim has to be reported in the same year it's received. So whenever a policy ends, whether you're switching carriers, selling, merging, or winding down, that's the moment to ask whether anything needs to be reported before the window closes.

A few questions worth raising with whoever placed your policy:

1. Is my E&O written on a claims-made or a claims-made-and-reported basis? Read the insuring clause, not the cover sheet.
2. If it's claims-made-and-reported, how long is my reporting window, and is there an automatic grace period in my state? Read the policy or ask your broker.
3. When does my policy end and what has to be reported before it does, and what ERP options do I have and for how long?
4. If I switch carriers, does anything fall into the seam between the old form and the new one?