A small manufacturing company in California has its Commercial General Liability (CGL) policy set up on a 'claims-made' basis. A product manufactured and sold by the company in 2020 caused bodily injury to a consumer. The claim for this injury was first reported to the insurer in 2023. The policy in effect during 2020 was an 'occurrence' policy, while the 2023 policy is the 'claims-made' policy. Assuming no extended reporting periods, which policy will likely respond to this claim?
- ABoth policies will share the claim equally.
- BThe 2023 'claims-made' policy.
- CThe 2020 'occurrence' policy.
- DNeither policy will respond due to the different policy types.
Show answer & explanationAnswer & explanation
Correct answer: C. The 2020 'occurrence' policy.
An 'occurrence' policy covers incidents that occur during the policy period, regardless of when the claim is reported. A 'claims-made' policy covers claims that are first made and reported during the policy period, provided the incident also occurred on or after the retroactive date. Since the injury (occurrence) happened in 2020 when an occurrence policy was in effect, that policy would respond.
Why the other options are wrong
- A. Liability policies are generally either occurrence or claims-made; they do not typically share claims based on different policy types for the same incident.
- B. A claims-made policy requires the claim to be made and reported during its policy period, but also that the occurrence happened after its retroactive date. Even if the claim was reported in 2023, the occurrence happened in 2020, outside the scope of the 2023 claims-made policy's 'occurrence' trigger.
- D. An occurrence policy will respond as its trigger is the date of the occurrence, which falls within its policy period.
Occurrence vs. Claims-Made Policy
Two different triggers for Commercial General Liability (CGL) policies: 'Occurrence' covers incidents that happen during the policy period, regardless of when reported. 'Claims-Made' covers claims first made and reported during the policy period, provided the incident occurred after a retroactive date.
- Occurrence policy: 'When did the injury/damage occur?'
- Claims-made policy: 'When was the claim first made and reported?'
- Retroactive date is crucial for claims-made policies.
Memory trick: Occurrence asks 'When did it happen?', Claims-Made asks 'When was it a-happenin' and reported?'