A small medical practice in California is purchasing a Professional Liability policy. The practice is concerned about a claim being filed in five years for an incident that occurred last year. Which policy trigger would best suit their needs to ensure coverage for such a scenario, assuming continuous coverage is maintained?
- AOccurrence-based policy
- BClaims-made policy with a retroactive date
- CDiscovery-based policy
- DClaims-made policy with an extended reporting period
Show answer & explanationAnswer & explanation
Correct answer: A. Occurrence-based policy
An Occurrence-based policy covers claims for incidents that 'occur' during the policy period, regardless of when the claim is reported. Therefore, an incident from 'last year' (within a past occurrence policy period) would be covered even if the claim is filed 'in five years', as long as the policy was in force when the incident occurred. Claims-made policies are more complex for this scenario, as they require the claim to be made during the policy period or an extended reporting period.
Why the other options are wrong
- B. A claims-made policy generally requires the claim to be made and reported during the policy period, or within an extended reporting period, *and* after the retroactive date. If the policy is claims-made, and the claim is made in five years, it would need an ERP or be covered by the policy in force at the time the claim is made (if the retroactive date allows). The question implies the *incident* was last year, and the *claim* is five years from now.
- C. Discovery-based is not a standard policy trigger term in this context; it's synonymous with 'claims-made' in some contexts, but 'Occurrence-based' is the distinct answer here.
- D. An extended reporting period (ERP) is purchased *after* a claims-made policy expires, to cover claims reported after expiration for incidents that occurred during the policy period (and after the retroactive date). It doesn't apply to a policy that is still active for a future claim.
Occurrence-Based Policy
An Occurrence-based policy covers claims for incidents or occurrences that happen during the policy period, regardless of when the claim is reported to the insurer.
- Provides 'lifetime' coverage for incidents that occurred during its term.
- Simpler to understand than claims-made policies.
- More expensive due to the potential for long-tail claims.
Memory trick: Trigger Types: O-C-C, Occurrence or Claims-Made!