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A Jardine Lloyd Thompson Information Article

EXPLAINING CLAIMS MADE PROFESSIONAL LIABILITY INSURANCE POLICIES

This article has been written in an attempt to explain the principals of "Claims Made" basis policies vs. "Occurrence" basis policies. Since 1968 most Design Consultants Professional Liability Insurance policies have been written on "Claims Made" forms. On the other hand most General Liability policies have continued to be written on an "Occurrence" form, however some high risk General Liability policies are also being written on "Claims Made " forms.

Claims Made Basis Wordings as they relate to Land Surveyors

If the Owner of a project makes a claim against the Surveying Firm, or the Surveyor reports to his Insurer, a potential incident that may later result in a claim, against an Insured, the report then triggers this class of policy to respond to the claim. The Plaintiff (Owner) will usually make the Surveyor (Insured) aware that they have a problem either in writing or verbally. To respond to the claim the Surveyor must have or be able to conform to the following:

  1. The Insured must have a valid policy of insurance in place at the time the claim or reported incident is made against him/her. The policy must not have lapsed or expired. Too frequently we see Owners asking our clients to obtain Professional Liability insurance for a project at the commencement of the survey and the contract states that they have to carry the insurance until the project is completed (substantial completion). In these scenarios, there is obviously a lack of understanding of this class of insurance by the Owner, of what he is requesting of the Surveyor. 
  2. The Surveyor must not be aware of any potential problem with the project prior at the inception date of the policy.
  3. The Surveyor must not make any admissions of guilt or make any statements that may impair the ability of the Insurer to provide the Insured with a defence.
The advantages of Claims Made policies are:
  1. The Insured has today's limits to respond to today's claims.
  2. Insurers are able to quantify their exposures at the end of each year, as at the end of each policy year they would have received all the reports of potential claims.
  3. Any policy issued, will pick up the Land Surveyor's past work right back to when he/she first started, even though there was no policy in place at the time some of the work may have been done. Consultants should be cautious and ensure that the policy they have bought does not have a "retroactive limitation date" on the policy that would limit the period back to a specific date that the insurance would respond to.
  4. Professional Liability Claims Made policies are substantially less expensive than policies issued on an Occurrence basis.

The Disadvantages of Claims Made Basis policies are:
  1. The Insured has to continuously maintain a valid policy to ensure continuity of cover and protection. 
  2. Most Professional Liability claims made wordings have not only a limit per claim but also an aggregate limit amount available for all claims made in any one policy period.

Occurrence Basis wordings

As mentioned above, Occurrence Basis wording for Consultants have not been issued since 1968. History tells us that prior to this period, Insurers were issuing Consultants policies for the limits and premiums of the day and claims were coming in twenty or more years later for damages in figures that were never anticipated by the Insurer. The premiums the Insurer had received for the risk when the policy was written, were totally inadequate to meet the claims of today. Further most Occurrence based wordings have a limit per claim and no aggregate limit except in the case of General Liability policies, which have an aggregate limit applicable to "Products and Completed operations". (Some USA Insurers also have aggregates under their General Liability policies, but this is usually an exception to the rule).

Jardine Lloyd Thompson Canada Inc. is part of the worldwide Jardine Lloyd Thompson Insurance Brokerage Group. Jardine Lloyd Thompson and its subsidiaries specialise in professional liability insurance, handling of professional liability insurance claims and arranging captive insurance companies.


The information contained herein is believed to be accurate, but individual circumstances, local business and insurance practice and the Law can vary extensively and Jardine Lloyd Thompson and its associated and subsidiary companies are not responsible for any errors and omissions or any loss or damage arising from the use of this information. In the event of situations such as are described in this bulletin, the reader should seek legal counsel and specific advice from Jardine Lloyd Thompson or your Insurance Broker.

© 2001 Jardine Lloyd Thompson Canada