What are claims-made policies in professional liability insurance?

Complete Guide to Claims-Made Policies in Professional Liability Insurance

Why This Question Matters for Colorado and Utah Residents

Professional liability insurance protects businesses and individuals providing specialized services from claims of negligence, errors, or omissions. In Colorado and Utah, many professionals—such as consultants, architects, engineers, and healthcare providers—rely on claims-made policies to safeguard their businesses. Understanding how these policies work is crucial because coverage depends not just on when an incident happens but also when a claim is made.

• Legal and regulatory environment: Colorado and Utah professionals face specific liability risks tied to state laws and industry standards, affecting claims timing and reporting requirements.
• Business continuity: Without proper claims-made coverage, a delayed claim could leave you unprotected if the policy has lapsed.
• Financial protection: Misunderstanding claims-made timing can result in uncovered claims, causing severe financial setbacks.

What Most People Get Wrong

A common misconception is treating claims-made policies like occurrence policies, believing that having a policy at the time of the incident guarantees coverage. In reality, claims-made policies require the claim to be filed during the policy period or an applicable extended reporting period (tail coverage).

Many also overlook the importance of the retroactive date, which defines how far back incidents can be covered. Without attention to this date, some claims might be excluded.

The Complete Picture

Claims-made professional liability policies provide coverage for claims filed during the policy period, regardless of when the incident occurred, as long as it falls within the retroactive period specified in the policy. This means if a professional service incident happened five years ago but the retroactive date covers that period, and you file a claim now during an active policy, coverage applies.

In Colorado and Utah, industries such as construction consulting, legal services, and healthcare frequently use claims-made policies due to the long-tail nature of liability exposures. Given Northern Colorado's dynamic business environment—where industries face evolving risks such as litigation inflation and regulatory changes—claims-made policies are a practical choice.

However, professionals must ensure continuous coverage or purchase tail insurance when retiring or changing insurers to avoid gaps. Tail coverage extends reporting rights beyond the policy expiration, protecting against future claims from past services.

FoCoIns advises all professionals to carefully review retroactive dates and consider tail coverage to maintain dependable protection.

Making the Right Decision for Colorado and Utah Residents

Question 1: Does your current professional liability insurance use a claims-made or occurrence policy?

Understanding your policy type impacts when claims are covered. A claims-made policy requires claims to be reported during the policy period, while an occurrence policy covers incidents happening during the policy period regardless of claim timing.

• Review your policy details or ask your FoCoIns advisor for clarification.
• Recognize that claims-made policies generally cost less upfront but require careful management of reporting periods.

Question 2: Is your retroactive date inclusive of all periods when you provided professional services?

If your retroactive date excludes prior years of service, claims arising from those periods might not be covered. For Colorado and Utah professionals who switch insurers or have service history, ensure the retroactive date covers all relevant incidents.

Question 3: Have you planned for tail coverage if you expect to retire, close, or change your business?

Tail coverage extends your rights to report claims after your claims-made policy ends, which is vital for protecting yourself from delayed claims common in professional liability. Discuss tail coverage options early with your FoCoIns advisor to secure continuity.