8.3 Occurrence vs. Claims-Made Triggers

What a Coverage Trigger Is

A coverage trigger is the event that activates a liability policy. Because liability claims can surface years after the act that caused them (a contractor's faulty work, a drug's side effect), the industry uses two trigger systems. The ISO CGL is sold in both forms: occurrence (CG 00 01) and claims-made (CG 00 02). Knowing which trigger applies — and which dates matter — is one of the most heavily tested national topics.

Occurrence Trigger

An occurrence policy covers a loss if the bodily injury or property damage happens during the policy period, no matter when the claim is reported — even years after the policy expires.

• Advantage: long-tail protection; the policy in force when the injury occurred responds.
• Risk to insurer: "stacking" of limits across many years; uncertain reserves (the long tail).

Claims-Made Trigger

A claims-made policy covers a loss only if the claim is first made during the policy period (or an extended reporting period), and the injury happened on or after the retroactive date.

Three dates control claims-made coverage:

ISO claims-made CGL provides a Basic ERP (a short automatic mini-tail — typically 60 days for reporting, with a 5-year window for incidents reported within 60 days) and an optional Supplemental ERP (purchased, often unlimited duration).

Worked Scenario: Which Policy Pays?

A product injures a user on June 1, 2025. The claim is filed on March 1, 2027.

• Occurrence policy in force on June 1, 2025 → pays, because the injury occurred during its period (the 2027 report date is irrelevant).
• Claims-made policy in force in 2027 with a retro date of January 1, 2024 → pays, because the injury (6/1/2025) is after the retro date and the claim is reported during the current period.
• Claims-made policy in force in 2027 with a retro date of January 1, 2026 → does NOT pay, because the injury occurred before the retro date.

Maintaining Claims-Made Coverage

Because claims-made depends on continuous reporting, gaps are dangerous. Insureds avoid gaps by never advancing the retro date on renewal and by buying a tail (ERP) when switching insurers or retiring. The first year of a claims-made program is Year 1 (maturity 1); premiums step up each year until the policy is mature (about 5 years), reflecting the growing pool of reportable past incidents.

Why Claims-Made Was Created: The Long-Tail Problem

The insurance industry developed claims-made coverage in the 1980s in response to the long-tail liability crisis — asbestos, pollution, and pharmaceutical claims that surfaced decades after the harmful exposure. Under occurrence forms, insurers were paying claims in the 1980s on policies written in the 1950s and 1960s, when premiums and reserves never anticipated such losses.

Claims-made forms let an insurer close out an exposure year once the policy expires (subject to any tail), making reserves far more predictable. This is why claims-made dominates in professional liability, medical malpractice, and D&O — the lines with the longest reporting tails.

Step Factors and Premium Maturity

A claims-made program prices up over its first several years using step factors. In Year 1, the policy can only be hit by claims reported that year for incidents on or after the retro date — a small pool — so the premium is low. Each renewal year widens the pool of reportable prior incidents, so the premium steps up until the program is mature (typically the 5th year), after which it behaves much like an occurrence rate. A common worked idea: a mature claims-made policy and an occurrence policy of the same limits should cost roughly the same, all else equal, because both ultimately cover the full reporting tail.

Tail vs. Nose Coverage

Two terms describe how an insured bridges a transition. Tail coverage (the Supplemental ERP) extends the reporting window of an expiring claims-made policy so that incidents occurring during its term can still be reported after expiration — the insured buys this when retiring, going out of business, or switching to a carrier that will not match the retro date. Nose coverage (prior acts coverage) does the opposite: the new insurer agrees to honor the old retro date, covering incidents that occurred before the new policy began. Buying nose coverage is usually cheaper than buying a full tail.

Exam Traps

• Trigger confusion: For occurrence, the injury date controls; for claims-made, the report date controls (subject to the retro date). Distractors deliberately swap these.
• Retro date erased or advanced: If a question advances or deletes the retro date on renewal, all prior-period injuries lose coverage — a classic wrong-answer setup and the reason insureds insist on a non-advancing retro date.
• Tail vs. nose: Tail extends reporting on the old policy; nose (prior acts) extends backward on the new policy.

Do not confuse them.

• Defense erosion: Claims-made professional/D&O forms often pay defense costs inside the limit, unlike the standard occurrence CGL whose supplementary defense payments sit outside the limit.