The damage happened last year, the claim came this year: will the liability policy pay? Occurrence and claims-made terms
A design firm's error happened in 2024, and the client made a claim in 2025. Which year's policy responds, and does it respond at all? The two main principles of liability policies, the retroactive date and the extended reporting period, with a table of four situations.
In property insurance the question is simple: did the fire happen on a day the policy was in force? In liability insurance there are two dates: when the damage was caused and when the injured party made the claim. Months, sometimes years, pass between them. For example, an error in a design becomes visible once the building has been completed. Which date the policy looks at is decided by the principle in the contract.
Key rules
- Occurrence policy: if the damage occurred during the policy period, that policy responds even if the claim arrives after the policy has ended
- Claims-made policy: the claim must be made during the policy period. When the damage happened is checked only through the retroactive date
- The retroactive date is the "look-back" limit of a claims-made policy: damage that occurred before this date is not covered even if the claim arrives during the policy period
- Extended reporting period: an additional period after a claims-made policy ends during which a claim may still be made for damage that occurred during the policy period (and after the retroactive date). Whether it exists, how long it is and what it costs is set only in the contract
- A claims-made policy works well if it is renewed without a break. The risk arises mainly at three moments: when changing insurer, when the policy is not renewed, and when the business is closed down
- On renewal, moving the retroactive date forward is the most often overlooked trap: if the new policy moves it to today, claims arising from work done in earlier years are left unprotected
- With an occurrence policy, keeping the documents of old policies matters: for a claim that arrives several years later, you will need the policy of exactly that year
- Find out three things from the contract: which principle the policy is based on; which day is the retroactive date; whether there is an extended reporting period and how much it costs
Example: the "Chizma Plus" design firm
The firm took out liability insurance for 2025: policy period from 1 January to 31 December 2025 (dates hypothetical, compiled by the author). The insurer offered two options: an occurrence policy or a claims-made policy with a retroactive date of 1 January 2023. Assume the firm did not renew the policy for 2026.
| Situation | Damage occurred | Claim arrived | Occurrence policy (2025) | Claims-made policy (2025, retroactive date 01.01.2023) |
|---|---|---|---|---|
| 1 | April 2025 | September 2025 | Covers | Covers |
| 2 | October 2025 | March 2026 | Covers: damage within the policy period | Does not cover: the claim came after the policy ended (unless there is an extended reporting period) |
| 3 | June 2024 | May 2025 | Does not cover: damage before the policy period (if there was an occurrence policy for 2024, that one responds) | Covers: claim within the policy period, damage after the retroactive date |
| 4 | November 2022 | July 2025 | Does not cover | Does not cover: damage before the retroactive date |
Situation 2 depends on the firm's decision: had the policy been renewed with the new policy's retroactive date remaining 1 January 2023, the 2026 policy would have covered the March claim. If on renewal the insurer moves the retroactive date to 1 January 2026, claims arriving in 2026 for work done in 2025 and earlier, including the claim in situation 2, are left unprotected.
The firm's conclusion: if it chooses a claims-made policy, it must renew it without a break, check the retroactive date every time and ask for an extended reporting period before closing down the business.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
Bakery equipment with an actual value of 50 000 000 soum is insured for 40 000 000 soum. The contract has a proportional liability system and an unconditional deductible of 500 000 soum; the deductible is subtracted from the proportionally calculated amount. The loss is 10 000 000 soum. How much does the insurer pay?
A large factory facility is insured under coinsurance by one contract between two insurers: the first took 60% of the liability and the second 40%; the loss is shared in proportion to these shares (hypothetical terms). The loss from the event was 25 mln soum. How much does the second insurer pay?
An insurer has an excess of loss contract with a reinsurer: in each event the insurer covers losses up to 15 mln soums itself, and the reinsurer covers the excess within a limit of 50 mln soums per event (hypothetical terms). The loss in one event was 42 mln soums. How much does the reinsurer pay?
The insurance contract sets a coverage limit of 30 mln soum per event and an unconditional deductible of 2 mln soum (the deductible is subtracted from the loss, then the limit is applied; hypothetical terms). The loss from the event was 45 mln soum. How much does the insurer pay?
A bakery's insurance contract for its tandoor oven sets an unconditional deductible of 1 500 000 soums. In an insured event the loss was 9 000 000 soums. How much does the insurer pay?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- Fundamentals of insurance (general concepts) · the two principles that trigger cover in liability insurance: the event (damage) occurs during the policy period (occurrence) and the claim is made during the policy period (claims-made); retroactive date; extended reporting period; general knowledge. Which principle, dates and periods apply is set in each contract
- Example, company name, dates and situations · compiled by the author, hypothetical; not real insurance terms