Liability insurance coverages that protect religious institutions are typically written on an occurrence coverage basis. In simple terms, occurrence coverage means that as long as the coverage was in force at the time, a covered occurrence (claim-producing event) took place, coverage will apply for the insured organization’s benefit regardless of when the claim or lawsuit is brought, even years after the policy has expired.
Unfortunately, some insurance companies – including those that write special insurance programs for religious institutions – occasionally introduced claims-made coverage forms into their policies. It is common for some insurers to include claims-made forms in directors and officers liability coverage, pastoral counseling liability coverage, employment practices liability coverage, and sexual acts liability coverage.
Claims-made forms are not as broad as occurrence-based forms and can leave the customer with a significant uninsured exposure. Claims-made coverage means that the policy will provide coverage for an occurrence (claim-producing event) only if both the event and the claim is made during the policy period. Should you ever decide to replace the policy that includes a claims-made coverage, you could create an uninsured gap in coverage. It is quite common for liability claims/lawsuits to be made years after the occurrence/claim-producing event has occurred.
Insurance companies that use claims-made forms may sell you tail-coverage to extend the coverage beyond the expiration date of the current claims-made form. The purchase of tail coverage is important, especially if you have concerns that some previous event might result in a lawsuit after the claims-made policy period is over. Unfortunately, while the purchase of a claims-made tail coverage is recommended, it can be expensive – creating a classic “pay me now or pay me later” situation.