For small business owners whose contract asks for claims-made coverage: Professional Liability (E&O) is almost always claims-made, so the policy active when a claim is made and reported is the one that responds.
The short answer
- Professional Liability (E&O) is almost always claims-made, because professional mistakes often surface years later, so the policy active when the claim is made and reported is the one that responds.
- Occurrence policies respond to events during the policy year, even if the claim comes years later. General Liability is usually occurrence.
- With claims-made coverage, watch two things: the retroactive date (the earliest work date the policy covers) when you switch policies, and tail coverage (extra time to report claims after the policy ends) when your work or coverage ends.
What do claims-made and occurrence mean?
Claims-made coverage responds to the claim, based on when the claim is made and reported. Occurrence coverage responds to the event, based on when the damage happened, even if the claim comes years later.
Professional Liability (E&O, for Errors & Omissions) covers claims that your work or advice cost a client money. Some groups buy a different form, such as Technology E&O, media liability, lawyers professional liability, medical malpractice or architects and engineers (A&E) coverage. Many of these are claims-made too.
Every liability policy has a trigger, the event that decides which policy year responds. Under claims-made, the trigger is the claim. Under occurrence, it is the event. Contracts often spell this out:
Illustrative contract wording
If Professional Liability is written on a claims-made basis, Consultant shall maintain it for three (3) years after completion of the Services or purchase an extended reporting period of equal length. The retroactive date shall be no later than the effective date of this Agreement.
Illustrative example only. Actual contract wording varies.
- Retroactive date: work before this date is not covered. See the timeline below.
- Tail coverage: also called an extended reporting period. It covers claims for earlier work, never later work.
How does a claims-made claim play out over time?
A hypothetical example with made-up dates: Dana runs a small consulting firm.
- 2022: Dana buys her first claims-made policy, with a retroactive date of January 1, 2022.
- 2023: Dana finishes a project. The report has an error.
- 2025: The client finds the error and sends Dana a written demand for money. That is a claim under most policies.
- Which policy responds? Under claims-made, the 2025 policy would usually respond, since the claim came in 2025 and the 2023 work is after the retroactive date. Under occurrence, the 2023 policy would generally respond instead.
The catch: Dana needs active coverage in 2025 with a retroactive date that reaches back to 2023. If coverage lapsed in 2024, or she switched to a policy with a 2024 retroactive date, the claim may not be covered.
Why is Professional Liability almost always claims-made?
Professional mistakes often surface slowly. A bookkeeping error or a design flaw may not show up until an audit or a dispute years later. Occurrence would make an insurer price today for claims that might arrive a decade later. Claims-made lets it price each year on claims reported that year.
What should I do when I switch policies?
Request quotes that keep your current retroactive date. Morrow can help you request them. That keeps prior acts coverage, which is coverage for work you did before the new policy started. A fresh retroactive date usually will not cover later claims from past projects. Avoid a gap between policies, since a gap can affect your retroactive date. Before the old policy ends, report any known incidents to your current insurer, since a new policy usually excludes matters you already knew about. See the retroactive date explained.
What should I do when my work ends?
If you close or retire, a claims-made policy stops covering new claims once it ends, but claims for old work can still arrive. Tail coverage gives you an extended period to report them. The option to buy tail often expires soon after the policy ends.
Some contracts ask you to keep coverage for two to three years after final delivery, or buy tail. See tail coverage for Professional Liability. For client requests about additional insured status, see additional insured on Professional Liability.
What will underwriters ask for?
Underwriters, the insurer staff who decide whether to offer coverage, usually ask for:
- Your current policy, including its retroactive date
- Loss runs, which are reports showing your past claims
- Any coverage gaps and incidents you know about
- Your services and revenue
What affects the cost?
- How far back your retroactive date goes
- The services you provide and your revenue
- Your claims history and any known incidents
- Your limit (the most the policy will pay) and your retention, the amount you pay on a claim before the policy pays. Many policies pay defense costs (legal fees to respond to a claim) inside the limit. To compare primary limits and excess layers, see Professional Liability limits explained.
- For tail, the length of the reporting period
Good to know
A new retroactive date may look cheaper at first, but it can leave past projects uncovered. Compare quotes on the same retroactive date.
Frequently asked questions
Can I buy an occurrence Professional Liability (E&O) policy instead of claims-made?
Usually not. Professional Liability is almost always claims-made, so plan around claims-made terms such as a retroactive date and tail.
Do I have to report a claim during the policy period?
Usually yes. Many policies are "claims-made and reported": the claim must be made and reported during the policy period or an extended reporting period.
Can my client be added as an additional insured on my Professional Liability policy?
Usually not. General Liability often lets you add a client as an additional insured, meaning the policy also protects them. Professional Liability usually does not. Your client can usually get a certificate of insurance, a one-page summary of your limit and policy dates.
Is excess Professional Liability claims-made as well?
Usually, yes. An excess layer (extra coverage above your main limit) should follow form, meaning it uses the same terms as the policy below it, including the retroactive date.
Looking for Professional Liability quotes that keep your retroactive date? Morrow can help.
Send Morrow your contract's insurance requirement and your current Professional Liability policy. We can review them and request quotes that keep your retroactive date and prior acts coverage where the market allows.
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This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.