Is my claim covered? Understanding claims-made insurance
By Stephanie Jaynes
Most errors and omissions (E&O) insurance is claims-made. That means inspectors need to carry continuous coverage for protection from claims. Why is it so important to avoid a lapse or gap in coverage? And how do you continue coverage after you leave the business or retire? Read on to find out.
Not Occurrence Coverage
To define a claims-made policy, let’s first tell you what it’s not. Claims-made isn’t occurrence coverage. Occurrence coverage responds to claims that occur during your policy period no matter when the claim is filed. It continues to respond to covered claims even after the policy expires.
On the other hand, claims-made coverage relies on two dates when ruling whether it covers a claim: your retroactive (retro) date and claim filing date. Covered inspections are ones you perform on or before your retro date. That date is when your uninterrupted insurance began. Claimants control your claim filing dates since they’re the ones filing claims. Covered claims occur while your policy’s active.
Take a quick look at the claims-made timeline below. Notice that the covered claims (red) fall between your retro and expiration dates.
Avoiding a Lapse
A lapse occurs when you don’t renew your policy on time or when you fail to pay your premium. The day your policy expires or cancels, it lapses. To avoid a lapse, you have to bind your renewal with an insurance provider before your expiration date.
Does it really hurt to wait a few days, weeks, or months before you renew?
Yes! Letting your policy lapse often means losing your retro coverage. Without retro coverage, your claims-made policy doesn’t cover your past inspections.
Let’s say you’ve been insured and inspecting since 2009. You decide to take a break from inspecting in 2015 and let your insurance lapse. A few months later, you pick your inspection business back up and buy insurance again.
Out of nowhere, a claim comes in for an inspection you performed in 2013. You carried insurance then, but that lapse in coverage reset your insurance clock to 2015. Your claims-made home inspection insurance no longer covers inspections you performed before 2015. You lost your retro coverage in the lapse.
Maintaining Coverage with Tail
If claims-made policies require continuous coverage, how do you ever stop inspecting? You don’t want a claim to come back and haunt you after you leave the business or retire.
Ask your broker about adding an extended reporting period to your policy. Often nicknamed “tail” coverage, the extended reporting period endorsement protects inspectors leaving the business by insuring their previous inspections alone. Inspectors can buy packages of one or more years for less than what an active inspector would pay.
Knowing Your Claims-Made Home Inspection Insurance
Know what your insurance does and does not cover. Be sure to ask questions when you shop, read your policy after you sign up, and continue to use your broker as a resource when unfamiliar situations come up. When it comes to safeguarding your business, it helps to understand your claims-made home inspection insurance policy.