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Replacing or reviewing your insurance policy: look into it


March 29, 2004


Emmanuelle Poupart

The fact that you have subscribed to an insurance policy is never a guarantee that you will benefit from coverage in case of a claim against you. More often than not, a denial of coverage comes from the application of an exclusion clause but it can also simply flow from the inapplicability of the insurance policy further to substantial changes made at the time of renewal or replacement of your insurance policy.


In the context of a renewal or a replacement, you must keep in mind the trigger base of the new policy. Although, there are also hybrid policies, there are principally two (2) types of insurance policies, namely a claims made based policy and an occurrence based policy, and the change of one type of insurance to another can entail many problems.

Generally speaking, a claims made policy will cover a Claim if it is in force when the claim is made and forwarded to the insurer. On the other hand, the occurrence based policy will be triggered, if it is in force, when the Accident occurs. Because the triggers differ, the change from a claims made policy to an occurrence based policy could prevent you from having any type of coverage.


Take for example the following. You had a comprehensive general liability policy, which was claims made based for the period of January 2002 to January 2003 and decide to replace that policy with an occurrence based policy for the period of January 2003 to January 2004. In February 2002, an explosion occurred at your site and lawsuits for damages were instituted in February 2003. You will obviously attempt to obtain insurance coverage, but both your insurers 2002-2003 and 2003-2004 would be entitled to conclude to the inapplicability of the policies they respectively issued.


Indeed, the Accident, namely the explosion, occurred in February 2002 but at that date the applicable insurance policy was claims made based and would be triggered if, and only if, the claim was filed and forwarded to the insurer during the policy period. Given that the claim was only filed in February 2003, the claims made policy would never be triggered. As to the occurrence based policy in force for the subsequent period, it also would never be triggered given that the explosion did not occur during the policy period. It is therefore extremely important that you verify at the time of subscribing to a new policy or at the time of renewal, that there is no change that could bring about a situation where you would not benefit from any insurance coverage notwithstanding the existence of policies for which you have paid significant premiums.


In addition, in the context of subscribing to a new insurance policy or a renewal, you must be careful towards the application of certain exclusion clauses, namely the exclusion for prior acts. If you decide to change insurers, your new policy could contain such an exclusion clause, which excludes any claim related to acts committed before the coming into force of the new insurance policy. Therefore, you must ensure that the previous insurance policy will cover any claim related to acts committed while it was in force.


In order to avoid any problem and maximize your chances of being covered, you should consider purchasing a run-off endorsement for three (3) to six (6) years1. Such an endorsement prolongs the previous insurance coverage but only for acts committed before the coming into force of the new policy which can be specifically excluded by the exclusion for prior acts.


The review of your insurance policy by a legal counsel will allow you to identify any gap which could occur at the time of renewal or subscription to a new insurance policy and prevent that a claim falls between two chairs.



1 The term should depend on the statute of limitation applicable in the province or country where you do business.





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