Claims-Made Policies and the Professional Liability Sweet Spot
Nearly every Professional Liability policy is a claims-made policy. That means the policy must be active when the alleged incident occurs and when the claim is filed in order for a claim to be covered.
Let’s say you’re a freelancer with Professional Liability coverage. You contract with a client, complete the project, and go on your merry way. Later, you decide that you don’t want your insurance, so you cancel the policy.
But what happens when that same client claims you made a mistake that cost them money? Even though you were covered when the alleged mistake happened, your insurance provider won't pay because your Professional Liability policy is no longer active.
If that’s not clear, check out this chart:
The solid line represents the policy term – let’s call that the “sweet spot.” The dotted lines show when the policy is not active. Take a look at Incident A and the corresponding Claim A. Both occur on the solid line (i.e., during the policy term) so Claim A is covered.
Now look at Incident B and its claim. Incident B happens occurs during the policy term, but Claim B is not in the sweet spot. It’s outside of the policy term, on the dotted line, so Claim B is not covered.