INTRODUCTION

There are two Insurance Services Office (ISO) Commercial General Liability (CGL) Coverage Forms. CG 00 01 covers on an occurrence basis. It covers liability or damage losses that occur during the policy period, regardless of when the insurance company is notified of the loss or claim. The key to this coverage approach is the date of loss or the period of time when the loss occurs. Coverage triggers based on the date of the occurrence.

CG 00 02 covers on a claims-made basis. Coverage triggers based on the actual filing date or receipt of the claim, in addition to the date of loss or injury. It handles any insured loss or claim filed during the policy period, regardless of when the actual loss or injury occurred, subject to the retroactive date on the declarations. While the retroactive date can be any date, it should be the first date that claims-made coverage applied to the risk, because an occurrence coverage form applies to any loss or damage that occurs prior to that date. Claims-made coverage applies only to covered losses that occur after the retroactive date.

CG 00 02 was developed to help the insurance industry deal with long-tail loss development in certain types of liability claims and to enhance the claims adjusting, actuarial and ratemaking processes. In some cases, many years can pass between the date that a loss occurred and the date it is reported to the insurance company. As a result, some of the traditional statistical approaches used in the ratemaking process are not always credible. Claims-Made Coverage eliminates some of the gap in the tail and offers coverage at the time the claim is made instead of when the loss actually occurs. This results in more credible statistics, loss costs and rates, and more adequate premium charges.

Since the two coverage forms are mostly identical, this analysis briefly touches on the areas that are identical and more thoroughly examines the areas that are different.

Related Article: CG 00 01 And CG 00 02–Commercial General Liability Coverage Forms Analysis

WHEN TO USE CLAIMS-MADE COVERAGE INSTEAD OF OCCURRENCE COVERAGE

CG 00 02 has not been very popular with or well received by most commercial insurance customers. While the premium charged is usually lower than the premium charged for CG 00 01, most insurance buyers are more concerned with potential long-tail exposures. In many cases, CG 00 02 is the coverage form of last resort for customers who cannot obtain coverage under CG 00 01.

Numerous cases exist where an insured is sued for loss events that occurred 25 or more years earlier, long after the occurrence coverage's expiration date. While the insured benefits by the coverage this form provides many years after the fact, the insurance company sustains losses it never expected and that the premium charge did not anticipate.

An example is the occurrence coverage form written for a comparatively small premium charge that must respond to an asbestos claim brought for today's dollars for an incident that occurred decades earlier. In this case, all the potential exposures involved with asbestos were not known at the time when coverage was written. As a result, insurance companies are unable to recoup the huge claims and loss expenses they incurred. CG 00 02 would have been the more appropriate coverage form for these exposures and situations if they were known at the time and the coverage form was available.

CONCERNS OVER REPLACING ONE COVERAGE FORM WITH ANOTHER

Extreme caution must be taken when one of these coverage forms is replaced with the other because of the potential gaps in coverage that can result. Both the insurance agent and the named insured must be aware of these gaps and understand the possible consequences.

Gaps in coverage usually occur in one of two areas. The first is the retroactive date in every claims-made coverage form. The other area involves the type of endorsements when the change takes place.

Related Court Case: Agency And Managing General Agent Held Liable For Providing Claims-Made Rather Than Occurrence Liability Insurance

COMPARE: ISO COMMERCIAL GENERAL LIABILITY COVERAGE FORMS–CG 00 01 (OCCURRENCE BASIS) TO CG 00 02 (CLAIMS-MADE BASIS)

SECTION I–COVERAGES

COVERAGE A–BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

• Subparagraph a. is identical in both coverage forms.

• Subparagraph b. 1. is identical in both coverage forms.

• Subparagraph b. 2. and 3. and subparagraphs c., d. and e in the occurrence coverage form address events that occur during the policy period.

• Subparagraph b. 2. and 3. and subparagraph c. in the claims-made coverage form address events reported during the policy period or any extended reporting period and that did not occur before the retroactive date and the dates when a claim is considered made.

2. Exclusions

The bodily injury and property damage liability exclusions are identical in both coverage forms.

COVERAGE B–PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

• Subparagraph a. is identical in both coverage forms.

• The first part of subparagraph b. is identical in both coverage forms.

• The remainder of subparagraph b. in the occurrence coverage form states that the loss must occur during the policy period.

• The remainder of subparagraph b. in the claims-made coverage form addresses events reported during the policy period or any extended reporting period and that did not occur before the retroactive date and the dates when a claim is considered made.

2. Exclusions

The personal and advertising injury liability exclusions are identical in both forms with one exception.

• Exclusion c. Material Published Prior To the Policy Period in the occurrence coverage form states that coverage does not apply to personal and advertising injury that arises out of oral or written publication of material that first took place before the policy period began.

• Exclusion c. Material Published Prior To the Policy Period in the claims-made coverage form states that coverage does not apply to personal and advertising injury that arises out of oral or written publication of material that first took place before any retroactive date on the declarations.

COVERAGE C–MEDICAL PAYMENTS

1. Insuring Agreement

This is identical in both coverage forms.

2. Exclusions

These are identical in both coverage forms.

SUPPLEMENTARY PAYMENTS–COVERAGES A AND B

This section is identical in both coverage forms.

SECTION II–WHO IS AN INSURED

This section is identical in both coverage forms.

SECTION III–LIMITS OF INSURANCE

This section is identical in both coverage forms.

SECTION IV–COMMERCIAL GENERAL LIABILITY CONDITONS

• Condition 2. Duties In The Event Of Occurrence, Offense, Claim Or Suit, subparagraph b. in the occurrence coverage form states the requirements if a claim is made or a suit is brought against any insured. In that case, the named insured must immediately record the specifics of the claim or suit and the date received and notify the insurance company as soon as practicable. The named insured must also ensure that the company receives written notice of the claim or suit as soon as practicable.

• Condition 2. Duties In The Event Of Occurrence, Offense, Claim Or Suit, subparagraph a. in the claims-made coverage form has an entry that is not in the occurrence coverage form. It states that notice of an occurrence or offense is not notice of a claim. Subparagraph b. in the claims-made coverage form states that if a claim is received by any insured, the named insured must immediately record the specifics of the claim and the date received and notify the insurance company as soon as practicable. The named insured must also ensure that the company receives written notice of the claim as soon as practicable.

Note: The term "suit" is not in the claims-made form.

• Condition 4. Other Insurance, subparagraph b. Excess Insurance, in the claims-made coverage form has an additional provision that is not in the occurrence coverage form. It states that this insurance is excess over any other insurance written on any other basis that is effective before this coverage's effective date and that applies to bodily injury or property damage on other than a claims-made basis if:

• There is no retroactive date on the declarations

• The other insurance has a policy period that continues after the retroactive date on the declarations

• Condition 10. Your Right To Claim And Occurrence Information in the claims-made coverage form is not in the occurrence coverage form. This condition details the claims-made claim information the insurance company releases for all coverage periods, the parties it releases the information to, and the conditions related to release of this information.

SECTION V–EXTENDED REPORTING PERIODS

This section is in only the claims-made coverage form. It explains the extended reporting periods and terms available if the coverage is cancelled, not renewed, or replaced by coverage with a retroactive date later than the one on this policy. It also applies if coverage is renewed on other than a claims-made basis. It explains how the limits of insurance apply and how the premium is charged for the extended reporting period.

Related Article: CG 00 01 And CG 00 02–Commercial General Liability Coverage Forms Analysis

SECTION V–DEFINITIONS (CG 00 01) SECTION VI–DEFINITIONS (CG 00 02)

This section is identical in both coverage forms, other than the different section number used for the definitions in the claims-made form because it includes the section on extended reporting periods.

ADDENDUM

The following example illustrates the differences in triggering coverage in the occurrence coverage form versus triggering coverage in the claims-made form.

Time line to trigger coverage on an occurrence coverage form:

The claim is filed on 12/01/11 for a covered injury loss that occurred on 07/15/10 under the occurrence coverage form written for the period 03/01/10 to 03/01/11.

The date of occurrence of the covered injury loss must be within the coverage period but the date the claim is filed has no effect, other than potential statute of limitations that apply in certain jurisdictions.

Time line to trigger coverage on a claims-made coverage form:

Using the example above, the same scenario results in coverage being denied because the claim is submitted after the policy period. This assumes no extended reporting period is involved.