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Insurance Policies… Are you really covered?

Most nonprofits carry hefty amounts of insurance to shield them from liability. Carefully developed, they should be adequate. But more and more organizations are finding out that what they thought was adequate did not protect them at all.

In general, most liability insurance policies fall into one of two categories, “claims made”, or “occurrence” policies. The difference in coverage can be significant. A “claims made” policy limits coverage to claims made against the insured during the policy period. Under a “claims made” policy, the insurer is responsible for loss resulting from claims made during the policy period no matter when the liability-generating event took place. In contrast, an “occurrence” policy provides coverage for any acts or omissions that occur during the policy period, even though the actual claim may be made after the policy has expired. It is critical that your ministry understand the difference between the two and what it can mean for your organization.

Occurrence policies: these only cover injuries that occur during the policy period, regardless of when a claim is made. For example, a wrongful death claim against a ministry filed in 2018 for an incident that occurred in 2016 would be covered by the policy in effect during the time the occurrence was alleged to have occurred. And then, only if the coverage in place in the prior period was an “occurrence” policy.

Claims made policies: these only cover injuries for which a claim is made during the period for which the policy was in force. And then, only if the insured has continuously been covered with “claims made” policies with the same insurer since the time the injury occurred (e.g. if coverage is allowed to lapse for any reason, coverage is lost). If you switch carriers with this type of insurance be sure to insist that the new carrier include coverage for “prior acts” so that claims made in the current period for prior acts will be covered.

The main disadvantage of “claims made” policies is that it only covers claims that are actually made while the insurance is in force. When such a policy expires or is terminated for any reason, coverage ceases (even for claims made for injuries that occurred during the coverage period). Additionally, coverage for prior claims is lost if the organization switches from a “claims made” to an “occurrence” policy, since coverage ends at policy termination.

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