(April 2013)

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. This is 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, rates, and more adequate premium charges.

The two coverage forms are mostly identical. This analysis briefly addresses 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 insureds. While the premium charged is usually lower than the premium charged for CG 00 01, most insureds are more concerned with potential long-tail exposures. In many cases, CG 00 02 is the coverage form of last resort for insureds that cannot obtain coverage under CG 00 01.

There are numerous cases where an insured is sued for loss events that occurred 25 or more years earlier, long after the occurrence coverage form expired. 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 contemplate.

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 when coverage was written. As a result, insurance companies are not able 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 exercised when replacing one of these coverage forms 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 used 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 b. 3. and subparagraphs c., d., and e in the occurrence coverage form address events that occur during the policy period.
• Subparagraph b. 2. and b. 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.
• Subparagraph b. (1) is identical in both coverage forms.
• The rest of subparagraph b. in the occurrence coverage form states that the loss must occur during the policy period.
• The rest 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 except for exclusion c. Material Published Prior to the Policy Period.

• 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.
• 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 a. in the claims-made coverage form states that notice of a notice of an occurrence or offense is not notice of a claim. This statement is not part of the occurrence coverage form.
• Subparagraph b. in both coverage forms are identical except for the first sentence. In the claims-made coverage form, when a claim is received by an insured the rest of the paragraph applies. In the occurrence form when a claim or a suit is brought against an insured the rest of the paragraph applies.

Note: This difference is because under the claims-made coverageform, the timing of claim notice is what is important, not the type of claim.

• 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 bodily injury or property damage insurance coverage written on any other basis than on a claims-made basis and that is effective before this coverage's effective date. However, this is only if either of the following apply:
• There is no retroactive date on this policy’s 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 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 coverage form because it includes the section on extended reporting periods.

ADDENDUM

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

Time line to trigger coverage in the occurrence coverage form:

The claim is filed on 12/01/13 for a covered injury loss that occurred on 07/15/12 under the occurrence coverage form written for the period 03/01/12 to 03/01/13.

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

Time line to trigger coverage in the claims-made coverage form:

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