COMPARE: ISO COMMERCIAL GENERAL LIABILITY COVERAGE FORMS–CG 00 01 (OCCURRENCE BASIS) TO CG 00 02 (CLAIMS-MADE BASIS)

(April 2019)

INTRODUCTION

There are two Insurance Services Office (ISO) Commercial General Liability (CGL) Coverage Forms. CG 00 01 covers on an occurrence basis. This means that it covers liability or damage losses that occur during the policy period, regardless of when the insurance company is notified of the loss or claim. The key to this coverage approach is the date of loss or the period of time when the loss occurs. Coverage triggers based on the date of the occurrence.

Example: Malarkey’s Market is insured under CG 00 01 for the period 03/01/19 to 03/01/20. A customer slips, falls, and sustains injuries on 04/15/19. In this case, coverage applies because the fall that resulted in injury occurred during the policy period. However, the customer neglects to inform Malarkey or the insurance company of the injury until 04/16/20. Even though the claim is reported more than a year late and during another policy period, Malarkey’s coverage for the period when the injury occurred responds because the injury occurred during the 03/01/19 to 03/11/20 policy period.

CG 00 02 covers on a claims-made basis. Coverage triggers based on the actual filing date or receipt of the claim. It handles any covered loss or claim filed during the policy period, regardless of when the actual loss or injury occurred. If the policy contains a retroactive date (as most do) only claims for occurrences that take place AFTER the retroactive date are covered. While the retroactive date can be any date, for the most complete coverage, it should be the first date that claims-made coverage applied to the risk. This prevents there being a gap in coverage because an occurrence coverage form applies to any loss or damage that occurs prior to that date. Claims-made coverage applies only to covered losses that occur after the retroactive date.

Example: Looking at the example above, all would be the same as long as the claim was presented before the end of the year. However, because it was presented on 4/16/20, it is after the policy period and therefore not covered if the retroactive date was not properly established.

CG 00 02 was developed to help the insurance industry deal with long-tail loss development in certain types of liability claims and to enhance the claims adjusting, actuarial, and ratemaking processes. In some cases, many years can pass between the date that a loss occurred and the date it is reported to the insurance company. As a result, some of the traditional statistical approaches used in the ratemaking process are not always credible. Claims-made coverage eliminates some of the gap in the tail and offers coverage at the time the claim is made instead of when the loss actually occurs. This results in more credible statistics, loss costs, rates, and more adequate premium charges.

The two coverage forms are mostly identical. This analysis briefly addresses the areas that are identical and more thoroughly examines the areas that are different.

COMPARISON

Section I–Coverages

COVERAGE A–BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

The claims made policy only responds if the bodily injury or property damage happened after the retroactive date on the policy but before the end of the policy and the claim was first made during the policy period of the policy subject to the Extended Reporting provisions.

The occurrence policy only responds if the bodily injury and property damage actually happen during the policy period.

Both policies have explanations to clarify these statements but those are really just expansions on the above differences. This means that the coverage is the same; it is the timing that is the concern.

2. Exclusions

The bodily injury and property damage liability exclusions are identical in both coverage forms.

COVERAGE B–PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

The two policies are identical as to when the coverage starts. The occurrence policy only requires that the offense be committed during the policy period. When the claim is made is not relevant. The Claims-made policy has two requirements. First, the offense must be committed between the retroactive date of the policy and the expiration date of the policy. Second, the first claim must be presented during the policy period or the extended reporting period.

2. Exclusions

The personal and advertising injury liability exclusions are identical in both forms except for exclusion c. Material Published Prior to the Policy Period.

The occurrence coverage form states that coverage does not apply to personal and advertising injury that arises out of oral or written publication of material that first took place before the policy period began.
The claims-made coverage form states that coverage does not apply to personal and advertising injury that arises out of oral or written publication of material that first took place before any retroactive date on the declarations.

COVERAGE C–MEDICAL PAYMENTS

1. Insuring Agreement

This is identical in both coverage forms.

2. Exclusions

These are identical in both coverage forms.

SUPPLEMENTARY PAYMENTS–COVERAGES A AND B

This section is identical in both coverage forms.

Section II–Who Is an Insured

This section is identical in both coverage forms.

Section III–Limits of Insurance

This section is identical in both coverage forms.

Section IV–Commercial General Liability Conditions

There are three changes in the conditions sections

2. Duties In The Event Of Occurrence, Offense, Claim, or Suit

One additional item has been inserted with respect to the claims-made policy. This additional item states that notice of an occurrence or offense does not constitute notice of a claim in the claims-made policy.

Note: This difference is because under the claims-made coverage the timing of claim notice is what is important, not the type of claim.

4. Other Insurance

Subparagraph b. Excess Insurance has an additional provision that is not in the occurrence coverage form. It states that this insurance is excess over any other bodily injury or property damage insurance coverage if it is written on any other basis than claims-made and is effective before this coverage's effective date. However, this is only if either of the following applies:

There is no retroactive date on this insurance’s declarations
The other insurance has a policy period that continues after the retroactive date on this insurance’s declarations

This basically means that if claims-made coverage replaces occurrence coverage, the occurrence coverage form is primary, and the claims-made coverage form is excess in cases where coverage overlaps because of establishing the retroactive date.

Example: Michael’s Metals’ insurance has been written on occurrence coverage forms for the past ten years. On 01/01/19, coverage is written on a claims-made coverage form with a retroactive date of 01/01/16. On 03/01/19, Michael receives a claim for a loss that occurred on 06/01/18. The 01/01/18 to 01/01/19 occurrence form is primary on this claim, but the claims-made coverage form is available as excess over it.

Item 10. Your Right to Claim and Occurrence Information

This condition applies only to the claims-made coverage form. It details the claims-made claim information the insurance company is required to release and when it must be released.

Section V–Extended Reporting Periods (CG 00 02 only)

This section is unique to the claims-made coverage form. It explains the extended reporting periods and terms available if coverage is cancelled, not renewed, or replaced by coverage with a retroactive date later than the one on this policy. It also applies if coverage is renewed on other than a claims-made basis. It explains how the limits of insurance apply and how the premium is charged for the extended reporting period.

Section V–Definitions (CG 00 01) Section VI–Definitions (CG 00 02)

This section is identical in both coverage forms, other than the different section number used for the definitions in the claims-made coverage form because it includes the section on extended reporting periods.

WHEN TO USE CLAIMS-MADE COVERAGE INSTEAD OF OCCURRENCE COVERAGE

CG 00 02 has not been very popular with or well received by most commercial insureds. While the premium charged is usually lower than the premium charged for CG 00 01, most insureds are more concerned with potential long-tail exposures. In many cases, CG 00 02 is the coverage form of last resort for insureds that cannot obtain coverage under CG 00 01.

There are numerous cases where an insured is sued for loss events that occurred 25 or more years earlier, long after the occurrence coverage form expired. While the insured benefits by the coverage this form provides many years after the fact, the insurance company sustains losses it never expected and that the premium charge did not contemplate.

An example is the occurrence coverage form written for a comparatively small premium charge that must respond to an asbestos claim brought for today's dollars for an incident that occurred decades earlier. In this case, all the potential exposures involved with asbestos were not known when coverage was written. As a result, insurance companies are not able to recoup the huge claims and loss expenses they incurred. CG 00 02 would have been the more appropriate coverage form for these exposures and situations if they were known at the time and the coverage form was available.

CONCERNS OVER REPLACING ONE COVERAGE FORM WITH ANOTHER

Extreme caution must be exercised when replacing one of these coverage forms with the other because of the potential gaps in coverage that can result. Both the insurance agent and the named insured must be aware of these gaps and understand the possible consequences.

Gaps in coverage usually occur in one of two areas. The first is the retroactive date in every claims-made coverage form. The other area involves the type of endorsements used when the change takes place.

ADDENDUM

The following example illustrates the differences in the way coverage triggers in the occurrence coverage form versus the way coverage triggers in the claims-made coverage form.

Time line to trigger coverage in the occurrence coverage form:

The claim is filed on 12/01/16 for a covered injury loss that occurred on 07/15/15 under the occurrence coverage form written for the period 03/01/15 to 03/01/16. This claim would be accepted.

The date that the covered injury loss occurred must be within the coverage period. However, the date the claim is filed has no effect, other than potential statute of limitations issues in certain jurisdictions.

Coverage inception date	Occurrence date	Coverage expiration date	Date claim filed
03/01/15	07/15/15	03/01/16	12/01/16

Time line to trigger coverage in the claims-made coverage form:

Using the same example and scenario above, this claim would be denied. This is because the claim is submitted after the policy period. This assumes there is no extended reporting period involved.

Retroactive Date	Coverage inception date	Occurrence date	Coverage expiration date	Date claim filed
03/01/15	03/01/15	07/15/15	03/01/16	12/01/16