March 2013 13 example, the claimant may send a demand letter prior to the filing of a suit. A plaintiff may initiate an administrative proceeding in a state or federal agency, e.g., filing a discrimination complaint with the Equal Employment Opportunity Commission (EEOC). The parties may mediate or arbitrate a dispute prior to the filing of a lawsuit. Any number of actions that are pre-cursors to litigation may trigger coverage under a claims-made policy. In assessing which policy period is invoked the policy language is paramount. Some policies define the term ‘claim’ as any demand for money or services. Evaluation of the action taken by a claimant long before suit is filed is needed to determine whether it may qualify as a claim which invokes the policy at issue. Not surprisingly, brokers and insureds many times overlook the earlier types of claims and report a ‘claim’ only when a suit is filed. Claims handlers should beware and, upon receiving notice from the insured of a new claim, should request all communications regarding the loss to determine the date the first ‘claim’ was actually made against the insured. Otherwise, a file may be opened under the incorrect policy, the ramifications of which can be significant, including failure to have the appropriate decision-makers involved in handling the loss, failure to have the proper subscribers reserve and ultimately respond to the loss and delay in resolving the claim. One other factor uniquely impacting claims-made policies is the effect of the retroactive date. Through claims-made policies, coverage extends only to claims made within the policy period; however, the retroactive date provision further restricts coverage to claims based on incidents that ‘happened’ or occurred after the retroactive date specified. The policy wording should be examined to determine whether any retroactive period is in place which may further restrict the available coverage under a claimsmade policy. Responding to the loss: be wary of mismatched policies in different years When a single claim implicates more than one layer of coverage, some occurrence based and some claimsmade, it is entirely possible that differing policy periods could be invoked. For example, assume the insured has $5m in primary liability coverage written on an occurrence basis and $20m excess coverage on a claimsmade form. An accident occurs in December 2010. The injured plaintiff sends a letter to the insured in October 2011, demanding $15m to resolve the matter. Suit is filed in November 2012. For the first $5m in occurrence based coverage, the 2010 policy, in effect when the accident happened, would be triggered. However, the 2011 claims-made excess policy would be invoked for the same loss, since the first ‘claim’ was made at the time the demand letter was sent. One should also be mindful that the terms and even the structure of an insurance program can change from year to year, such that a primary policy from one year and an excess from the next can result in unintended consequences. In the above example, if the insured had gone from a $5m occurrence primary and a $20m claims-made excess policy in 2010 to a $10m occurrence primary and a $20m claims-made excess policy in 2011, a gap in coverage could result. If the claim were worth $15m, the $5m occurrence 2010 primary policy would respond, but the 2011 excess policy may not pay until the $10m underlying amount is exhausted, leaving a $5m uninsured gap in coverage. In these instances, the insured may seek to avoid a gap in coverage and extra care should be taken by the claims © 2013 Xchanging