When you are involved in an incident that could lead to a lawsuit, the first thing that usually comes to mind is insurance. Most liability claims are handled by insurance companies because the person or business you are suing almost certainly has a policy that covers this kind of loss. But the type of insurance policy they hold can make a huge difference in whether your claim gets paid or denied. The two most common types are occurrence policies and claims-made policies. Understanding the difference between them is critical if you ever need to file a liability claim.
An occurrence policy is the older and more straightforward type. Under an occurrence policy, the insurance company is on the hook for any incident that happens during the policy period, no matter when the claim is actually filed. For example, suppose a contractor installs a faulty electrical panel in your home on June 1, 2022, and the policy covering that contractor was valid for all of 2022. If the panel causes a fire in 2023, and the contractor’s insurance was canceled in 2023, the claim still gets covered because the event—the faulty installation—occurred while the policy was active. The insurance company that wrote the policy for 2022 must pay, even years later. This is the main reason occurrence policies are considered more consumer-friendly: they provide long-term security for both the insured and the person making the claim.
Claims-made policies work differently. With this type, the insurance company only covers claims that are filed while the policy is in force. The triggering event is not when the accident happened, but when someone formally makes a claim, such as sending a demand letter or filing a lawsuit. Using the same example: if the contractor had a claims-made policy that ran from January to December 2022, and you file a claim in February 2023, the policy from 2022 will not respond because it expired before you filed. The contractor would need a new policy active in 2023 to cover the claim. Most claims-made policies also require the incident to have occurred after a certain date, often called the retroactive date. Any incident that happened before that date is excluded entirely.
Why does this matter to you as someone pursuing a liability claim? It matters because you cannot assume that just because someone had insurance when the incident happened, that insurance will pay. If they had a claims-made policy that has since lapsed or been canceled, you may find yourself trying to collect from an uninsured individual or business. In many professional liability fields—such as doctors, lawyers, architects, and real estate agents—claims-made policies are the standard. These professionals often purchase “tail coverage” when they retire or change insurers, which extends the reporting period for claims. But if no tail coverage was bought, the coverage window closes.
Another critical point is how the insurance company treats your claim after it is filed. With an occurrence policy, the insurer is obligated to defend the insured and pay any valid settlement or judgment, regardless of how long it takes to resolve the case. With a claims-made policy, the insurer may have more flexibility to deny coverage if your claim is not reported in a timely manner, even by a few days. The deadlines in claims-made policies are strict. Missing a reporting deadline by one day can mean the claim is not covered. This is a common trap for people who assume that because the incident happened when insurance was in place, they are safe.
From a practical standpoint, if you are the person bringing a liability claim—say you were injured in a car accident, slipped on a wet floor at a store, or suffered harm from a defective product—the first thing your attorney will ask is whether the defendant has insurance, and what kind. If it is an occurrence policy, the insurance company will usually handle the claim directly and negotiate a settlement. If it is a claims-made policy, your attorney will need to verify that the claim was filed during the policy period. If the policy expired before you filed, you may need to look for other sources of compensation, such as a personal assets of the defendant or an umbrella policy.
Insurance companies prefer claims-made policies because they limit their long-term risk. They know exactly how many claims they have to pay for during a given year. Occurrence policies force them to keep reserves for decades, since a claim from a policy written in 1990 could still surface in 2030. For that reason, occurrence policies are becoming rarer in certain industries, while claims-made policies dominate professions where lawsuits often arise years after services are provided.
If you are ever in a situation where you are buying liability insurance for yourself or your business, think carefully about which type you choose. Claims-made policies are usually cheaper upfront, but they come with the risk of missing a claim window. Occurrence policies are more expensive but offer peace of mind. And if you are the one making a claim, always ask your attorney to check the policy type immediately. A delay of just a few weeks could be the difference between getting paid and walking away with nothing. Insurance is supposed to protect people from liability, but only if the policy language works in your favor. Know what type you are dealing with.
