How do claims-made policies work?

Claims-made policies are the standard form of coverage for legal malpractice insurance. Unlike occurrence policies, which cover incidents that happen during the policy period regardless of when the claim is filed, claims-made policies are triggered by the date the claim is first reported to the insurer. Understanding this distinction is essential for maintaining continuous protection.

A claims-made policy has two critical dates: the retroactive date (or prior acts date) and the policy expiration date. For a claim to be covered, two conditions must be met. First, the alleged wrongful act must have occurred on or after the retroactive date. Second, the claim must be first made and reported to the insurer during the active policy period. If either condition is not satisfied, the claim falls outside the policy's coverage.

One of the most important features of a claims-made policy is the duty to report. Most policies require you to report a claim as soon as practicable after you become aware of it. Many policies also allow or encourage you to report circumstances that might reasonably give rise to a future claim, even before an actual demand is made. Reporting potential claims early can be strategically valuable because it locks in coverage under the current policy period, even if the formal claim is not filed until a later date.

Claims-made policies typically include what is known as a maturing premium structure. In the first year of coverage, the premium is lower because the policy only covers acts committed during that single year. As the policy renews and the retroactive date remains fixed, the insurer's exposure grows because the policy now covers an ever-lengthening period of prior acts. Premiums increase annually until they reach a mature rate, usually after five to seven years of continuous coverage.

This maturing structure means that the true cost of a claims-made policy is not apparent from the first-year premium alone. When comparing quotes, always request a multi-year premium projection that shows how rates will develop over time. A policy with a low first-year premium but aggressive step factors may ultimately cost more than a competitor with a higher starting price but more moderate annual increases.