Claims-made Coverage Examples

Example:

Dr. Davis buys a Claims-made policy in year ONE with $1,000,000 per occurrence/$3,000,000 annual aggregate ($1M/$3M) limits. He continuously renews the policy for two additional years.
At the end of year THREE, Dr. Davis accepts an offer from a new employer and non-renews his Claims-made Policy. Dr. Davis personally pays for “tail” coverage.
Several years after he changed employers, “Patient A” sues Dr. Davis for an alleged malpractice incident that took place during the first year he had Claims-made coverage while with his previous employer.

Application:

Dr. Davis’ new policy with his new employer will not cover him for “Patient A’s” claim.
Dr. Davis’ coverage for “Patient A’s” claim will come from the “tail” coverage he purchased when he non-renewed his old Claims-made policy and changed employers.
If this is Dr. Davis’ first claim since he purchased his “tail” coverage, he will have access to the full $1M/$3M limits of his “tail” policy.
If a $1M payment is made to “Patient A,” Dr. Davis will have $2M in limits remaining to protect him from future claims.

CLAIMS-MADE EXAMPLE continued:

Weeks after receiving notification of “Patent A’s” claim, Dr. Davis receives two additional claims from “Patient B” and “Patient C.” The new claims allege malpractice incidents that happened during the second and third years he had Claims-made coverage while with his previous employer.
All three claims result in $1M payments.

Application:

Because he had Claims-made coverage during those years, Dr. Davis will be covered for all three claims by his “tail” policy. The “tail” policy has one set of limits. Therefore, each paid claim depletes the limits he has available to protect him in future lawsuits.
In this scenario, all three claims could be paid up to $1M each, but after the third claim is paid, Dr. Davis’ limits would be completely exhausted. He would have no coverage remaining should future claims arise from care he provided while insured under his Claims-made policy.

Claims-Made Coverage Example

$1M/$3M Policy

Patient Incident Occurred Initial Limits Award Paid Remaining Limits
Patient A Year One $1M/$3M $1M $1M/$2M
Patient B Year Two $1M/$2M $1M $1M/$1M
Patient C Year Three $1M/$1M $1M LIMITS EXHAUSTED

Retirement

The understanding of how Claims-made limits work is CRITICALLY important in retirement.
Subject to various underwriting conditions, most Claims-made carriers will offer free “tail” coverage to insureds when they retire. Just as in the Dr. Davis example above, the “tail” has ONE set of limits. Retiring with a free “tail” from a Claims-made policy is NOT the same as retiring with Occurrence coverage.

Learn More

If you are interested in learning more about Claims-made coverage in general, or would like to discuss receiving a quote for Claims-made coverage from the JUA please call or e-mail the JUA Underwriting Department. Our staff of objective, seasoned professionals is eager to help you fully understand your options and assist you in evaluating which type of coverage may best suit your needs.