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When you buy general liability insurance, you expect to be protected if your policy is active. But what happens if someone files a claim against you after your coverage expires? That’s when an occurrence-based insurance policy can save the day.
If a blast from the past leaves you facing an insurance claim, having the right type of insurance coverage can save you a lot of stress, time, and money.
Read on as we take you beyond the basic occurrence insurance definition to show you how an occurrence-based insurance policy works and how it differs from a claim-based insurance policy.
What does an occurrence mean in insurance?
An “occurrence” in insurance is an event that may cause bodily injury or property damage that could lead to an insurance claim. Any accident or incident that can harm a person or their property may count as an occurrence.
If a third party trips over a toolbox left sitting at your building site and injures themself, that’s an occurrence. However, if the damage or injury is caused on purpose, your liability insurance won’t cover you. For example, if an angry employee drives a forklift through the front of a new shop because you didn’t pay them on time, that’s an occurrence — but not one that’s likely to be covered by your general liability insurance.
Another key thing to realize is that an occurrence isn’t always a one-time incident. Repeated exposure to the same harmful conditions or continued exposure over a period of time also qualifies as an occurrence.1 Also, an occurrence doesn’t have to cause harm to just one person or property, as multiple claims may be filed in the wake of the initial incident.
What is an example of an occurrence in insurance?
Imagine you’re an electrician working on a construction project. A few months after the new residents move in, some faulty electrical wiring puts the elevators out of commission. The residents aren’t thrilled about their new cardio routine on the stairs for a few days, but luckily, nobody was hurt.
This incident is classified as an occurrence because it was unexpected and unintentional. General liability insurance will help protect you from the financial repercussions stemming from this unfortunate event.
Another example of an occurrence in insurance can happen in a workplace where people are handling chemicals. If a customer gets hurt due to a mistake from your company, such as one stemming from an employee’s improper training or unclear signage, the incident can qualify as an occurrence. Note that the repercussions of such an incident may take some time to become apparent, but it’s still considered an occurrence.
What is an occurrence-based insurance policy?
An occurrence-based policy is an insurance contract that covers events that take place while the policy is (or was) in effect, regardless of when the claim is made. So, even if someone sues you for an incident that happened in the past, as long as you had occurrence-based insurance at the time of the event, you could be protected.
In a nutshell, your policy will provide protection for incidents stemming from when the policy is in effect, even if the claim is made after the policy period has ended.
The policy in force at the time of the occurrence may cover the claim, provide defense and investigative services, and pay any damages or costs that arise, providing there are no other extenuating circumstances to void the policy, such as exclusions or exhausted coverage limits.
One of the best advantages of occurrence-based policies is that some of them may offer you continued coverage, meaning you could switch insurance companies and remain covered for your previous work.
What is a “per occurrence limit” in insurance?
A per occurrence limit is a cap on the amount of money your insurer will pay to cover claims for a single occurrence. This limit isn’t necessarily the same as your maximum policy coverage — it might, in fact, be lower.
How’s that possible?
While there are several types of liability insurance, general liability insurance from Thimble has two coverage limits: a $1 million per occurrence limit and a $2 million per occurrence limit. The coverage for claims depends on the occurrence limit and is subject to the policy aggregate limit.
Your per occurrence limit determines the most that will be paid for a single event or occurrence, regardless of the number of other claims during your policy term.
As mentioned earlier, multiple claims can arise from a single occurrence, which brings us to the aggregate limit — the maximum amount that the insurance company will pay for all claims while your policy is in effect. The number and size of claims don’t matter as long as the combined total of all the claims is below the maximum limit on the policy.
For example, let’s say you purchase a policy with a $500,000 per occurrence limit and a $1 million aggregate limit. If you are a carpenter and the collapse of an outdoor deck you built leads to four claims of $200,000 per occurrence, you’ll be covered.
Occurrence-based insurance vs. claims-made insurance
By now, we’re sure you can see that occurrence-based insurance operates a little differently from other policies.
Whereas an occurrence-based insurance policy protects you even if the claim is filed after the policy expires, a claims-made insurance policy provides protection for accidents or incidents that occur during your coverage on the condition that claims are filed while the policy is in effect.
The critical difference is that claims-made insurance focuses on when the insurer is informed of the incident, whereas occurrence-based insurance focuses on when the event occurs.
If you have a claims-made policy, and someone makes a claim against you after your policy expires, you won’t have protection. You also don’t have coverage if the incident happens when you’ve already exceeded the coverage for the policy term. For instance, if the total paid claims cost $2 million in the first year of a two-year, $2 million policy, then you better hope lady luck is on your side for the next twelve months. (If the damages of a lawsuit exceed the coverage limits of your insurance policy, you may want to consider an umbrella liability insurance policy.)
An occurrence-based policy gives you more peace of mind because you’ll stay protected for incidents even if the claim is filed after you deactivate your policy or it expires, as long as the damage or injury occurred while the policy was active. So, you don’t have to worry about keeping your policy active or staying with the same insurance company to remain covered. If there is an occurrence, the active policy at the time of the incident will pay for the damages and defense. The payable amount will be determined by the policy’s limit when the incident occurred.
Did it occur to you to get in touch with Thimble?
See what we did there?
An occurrence-based policy can protect you and your business if someone files a claim for a historical incident, so long as you had the policy at the time. Ultimately, any incident or event that leads to unintentional physical or property damage is something you will need coverage for, even if it wasn’t your fault.
With Thimble, you can get business coverage in minutes, giving you added peace of mind and flexibility. You don’t know what’s around the corner, so make sure Thimble has your back. Click “Get a Quote” and get tailor-made coverage in less time than it took you to read this article.