claims made basis vs claims occurring basis feature image

What does ‘claims made’ basis mean?

Posted on 15th July 2022 by Phil Ainley

Professional Indemnity is written on a ‘claims made’ basis meaning the policy will need to be live on the date that any claim against you is presented. If you were holding insurance at the time you completed the work/contract but allowed your policy to lapse you would not be covered in the event of a claim.

As an example: as an IT contractor, you completed an IT project for a client in 2017; however, now there is a system error which causes your client to lose money. As a result, they file a claim against you for negligent work. In this instance, the live policy you hold will respond to the claim, not the policy you held back in 2017 when you completed the work.

The length of the “run-off” as it is referred to, covers several years after you complete the work or contract. For details of run-off timescales, see the claims periods list later in this article.

Explaining the difference between ‘claims made’ and ‘claims occurring’

‘Claims made’ basis is for a claim made and reported during the period your insurance policy is live/active. It does not cover you once the insurance policy period is over. In this instance your previous insurer will not accept a claim if you have moved to another insurance provider. Once a policy that is written on a ‘claims made’ basis has lapsed, the historic cover that you paid for expires. This type of policy is increasingly common because it limits the claims exposure for insurance companies.

‘Claims occurring’ basis is for claims made during the policy period, no matter when the claim is made. You might have changed your insurance provider, but in this instance they will still accept the claim even though that period of insurance has ended.

Relevant claims periods for different types of claims

The Limitation Act of 1980 specifies the limitation periods which apply to ‘simple contracts’ and deeds. The Act allows actions for a breach of contract and tort, such as negligence, to be brought within a period of six years under a simple contract and twelve years for a more formal deed.

Under English law, a ‘simple contract’ is one which is executed with one signature only. A deed is a more formal contract or document which has more than one signature – for example, a contract that must be signed by two directors on behalf of a company.

The claims periods are as follows:

Claims in relation to:	Number of years:
Recovery of land	12
A contract	6
Awards in arbitration	6
Debt arising under statute	6
Negligence	6
Breach of trust	6
Tort	6
Personal injury	3
Defamation and malicious falsehood	1