Professional Liability Insurance
Claims-Made vs. Occurrence Policies — What Contractors Need to Know
Claims-Made vs. Occurrence Policies — What Contractors Need to Know — what contractors need to know to protect against professional liability claims.
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The Policy Structure That Determines Whether You’re Actually Covered
Professional liability insurance (also called Errors & Omissions or E&O) protects contractors when a client claims your professional advice, design input, or project management decisions caused them financial harm. It covers legal defense costs and settlements — gaps that general liability leaves wide open.
How Occurrence Policies Work
An occurrence policy covers any incident that happens during the policy period — regardless of when the claim is filed. GL is typically occurrence-based. If you cause property damage in 2023 on a policy that expires December 31, 2023, and the client sues in 2026, your 2023 policy still covers it.
How Claims-Made Policies Work
A claims-made policy covers claims filed during the policy period, not incidents that occur during it. Professional liability is almost always claims-made. The claim must be made while your policy is active — or during a tail coverage period — for coverage to apply.
The Retroactive Date
Claims-made policies have a retroactive date — the earliest work date that’s covered. Claims arising from work done before the retroactive date are excluded. When you first purchase PL, your retroactive date is typically the policy start date. Continuous renewal keeps the retroactive date the same, giving you an ever-growing coverage window.
What Happens When You Cancel
If you cancel a claims-made policy without purchasing tail coverage, you lose protection for past work the moment coverage ends. Any claim filed after cancellation — even for work done years earlier — goes uninsured. This is why professional liability should never be cancelled without a transition plan.
Tail Coverage (Extended Reporting Period)
Tail coverage extends the reporting window after a claims-made policy ends. A 3-year tail gives you 3 additional years to report claims for work covered under the prior policy. Tail coverage is essential when changing carriers, retiring from professional services, or closing your business.