Claims-Made Policies VS. Occurrence Policies

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Posted : 01/01/1999

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Claims-Made Policies VS. Occurrence Policies

Every salon owner needs professional liability insurance. If, for example, one of your customers suffers burns from overexposure, or has a photosensitive reaction, professional liability will protect the salon against any claims he or she may make. In fact, some salon owners refer to professional liability as cancer insurance, although it actually covers many other types of accidents or negligent acts that might arise out of your professional services or the use of any products you may sell.

Since personal injury claims easily can run into hundreds of thousands of dollars, professional liability coverage must be considered mandatory for every salon owner. Without it, you could lose your home, car and literally everything you own. Fortunately, thanks to the power of risk purchasing groups such as the Association for Responsible Tanning Salons, professional liability coverage now is more affordable than ever before. However, as with any purchase, it pays to be an informed consumer. In this article, we will take a quick look at the differences between claims-made and occurrence professional liability policies, and why they are important to salon owners who hope to get better protection for their salons and, perhaps, save some money as well.

Tip: Universal Insurance Facilities, Ltd. provides automatic enrollment into A.R.T.S. for all salon owners when purchasing insurance. Discounts are available to members of A.R.T.S., which serves as the purchasing group so that discounted rates might be made available for its membership.

Claims-Made Policies

Until just a few years ago, most insurance companies only would underwrite professional liability for tanning salons on a claims-made basis. Broadly speaking, claims made means that the policy has to be in effect when the claim is made in order for a claim to be covered. It also assumes that the insurance coverage has never lapsed, not even for a day. Let's look at the implications of that kind of policy.

If a salon owner has only been in business for a short while, and has never let his or her coverage lapse, a claims-made policy should provide reasonable protection against professional liability claims. However, assume for a moment that they have had insurance in effect for the past 10 years except for a one-week period when the policy temporarily lapsed, perhaps because the salon was closed for remodeling, or because they simply forgot to send in the payment when it was due. Suddenly, the salon owner gets a call informing them that a customer who visited the salon five years ago during that lapse in coverage has developed skin cancer and has filed a $500,000 lawsuit. Now imagine the nightmare when the salon owner discovers that the claim is not covered, even though they have faithfully paid their insurance premiums for more than 10 years. This is not meant to alarm you, but such occurrences can and do happen.

Tip: Although occurrence policies generally can be considered superior to claims-made policies, note that claims-made policies can hold some advantages for certain salon owners. For example, those salon owners with larger salons or chain operations can purchase much higher limits of liability coverage at a substantially reduced cost. Also, occurrence policies may not be offered in every state through every carrier. Call your agent or broker for availability.

The Advantage of Occurrence Policies

Occurrence policies have an advantage over claims-made policies because they offer coverage for claims that include events that fall outside the "occurrence" definition. In other words, an "accident" indicates a sudden happening, while an "occurrence" could be considered an event that took place over time, before it was noticed and action was taken.

Occurrence policies offer one remarkable advantage for salon owners over claims-made policies: if a claim is made against you one year, or even three years after a policy has expired, you would still have liability protection up to the limits of insurance in effect at the time of the negligent event, even if you currently have no insurance protection at all. That's why responsible insurance agents and brokers recommend that salon owners consider purchasing professional liability on an "occurrence" basis and not on a "claims-made" basis whenever possible.

Tip: If salon owners currently have claims-made coverage for their salons and plan to change to occurrence form coverage, it is critical to get prior acts coverage for the entire time they had claims-made coverage. Many carriers include an automatic one-year retroactive date for prior acts coverage on new occurrence policies. Be sure to ask an agent or broker if this valuable protection is included.

Closing Thoughts

Today's litigious society impels every responsible salon owner to get the best professional liability coverage available. Anything less can put your financial future in jeopardy. Universal Insurance Facilities, Ltd. offers a variety of flexible and affordable coverages for every size salon, and is the only agency that currently offers claims-made coverage (both with or without prior acts coverage) and occurrence form professional liability policies.

No matter how large or small your salon may be, securing adequate coverage is essential for protecting your business and your peace of mind. Universal Insurance Facilities, Ltd. offers a complete package of coverages specifically designed to meet the unique needs of the tanning industry. Universal's program is underwritten by the American International Group (AIG), one of the world's largest commercial insurance and financial services organizations. Rated A++ (Superior) by A.M. Best Company. For more information, or to get a quick, no-obligation quote, contact Universal Insurance Facilities, Ltd., P.O. Box 40079, Phoenix, AZ 85067-0079 or call (800) 844-2101 or fax to (602) 970-6240, www.vpico.com/universal.

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