Understanding Completed Operations Coverage: Claims-Made vs. Occurrence Policies
John Hubbard
Property & Casualty Producer that helps employers reduce their insurance costs I Reduce their WC injury rates I Avoid the loss of $1.4M in sales/profits for the average disabling WC injury. ?? CRIS Certified.
As a contractor or business owner, it's crucial to have the right insurance coverage to protect your company from potential liabilities arising from completed projects. One aspect that can be confusing is the distinction between claims-made and occurrence policies when it comes to completed operations coverage.
The Occurrence Trigger
Completed operations coverage is designed to protect your business from liability claims that arise from work you've already completed. The occurrence trigger determines when the policy will respond to a claim. In the case of an occurrence policy, coverage is triggered when bodily injury or property damage occurs, regardless of when the claim is made. This means that if an incident occurs during the policy period, the policy in effect at that time will respond to the claim, even if the claim is made years later. For example, let's say you completed a construction project in 2022, and in 2024, the roof you installed collapsed due to improper spacing of support beams. If you had an occurrence policy in 2024, that policy would cover the damages and injuries resulting from the roof collapse, even though the work was completed two years earlier.
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The Claims-Made Trigger
On the other hand, a claims-made policy provides coverage based on when the claim is made, rather than when the incident occurred. This means that for a claim to be covered, it must be made during the policy period or any applicable extended reporting period. Claims-made coverage, however, applies only if there is a policy in force when the claim is made, and even then, it may place restrictions on coverage with respect to operations performed before a specified date. With a claims-made policy, if an incident occurs before the policy's effective date or after its expiration, there would be no coverage, even if the claim is made during the policy period.
Why Both Triggers Matter
The occurrence trigger sometimes makes completed operations coverage a confusing concept. If expired policies will pay for injuries arising out of past projects, why do contractors need coverage for completed operations under their current policies? The answer is that sometimes, injury or damage arising out of past projects does not occur until well into the future. By covering injury or damage that occurs during the current policy period but is the result of work that has already been completed, the policy is providing coverage that would not exist under prior policies.
Choosing the Right Coverage
When selecting completed operations coverage, it's essential to understand the differences between claims-made and occurrence policies and choose the one that best suits your business needs. Occurrence policies may provide broader coverage, but they can be more expensive. Claims-made policies may be more affordable, but they can leave gaps in coverage if not properly managed.