Protecting yourself if you have a claims-based policy

In my last post I discussed the difference between claims-based and occurrence-based policies. I stated that if you have a claims based policy, your insurance provides coverage only if you receive and report to your insurer the claim during the policy period.


Claims can be brought years after you close out a project. The statute of limitations (the time period in which the law allows someone to bring a claim) for a negligence case in Massachusetts is three years. Other claims that might be covered by insurance have longer statutes of limitations. And there can be exceptions to statutes of limitations if, for example, the injured person was a minor or the injured person had no reason to learn of the injury at the time it occurred (for example, a misdiagnosis of an illness by a doctor).


Insurance companies deal with this by selling you "tail" insurance. Tail insurance covers claims that are brought against you in the future and is usually purchased by people who are closing down their businesses. You need to negotiate the terms of tail insurance, such as the period of time it will be in effect, based on your personal situation.