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Stake a Claim

With liability insurance, timing is everything.

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This story appears in the February 2005 issue of Entrepreneur. Subscribe »

When an incident occurs and a claim is reported immediately, the process is fairly straightforward. But what if a period of time passes after an incident? Let's say a business consultant gave a client advice in 2002. The client followed the advice and suffered economic damages because of it in 2004. But the consultant changed liability carriers in 2003--so who responds to the claim?

That depends on whether the coverage was written on a claims--made or occurrence basis, says Dana J. Coates, president of United Agencies-United Western Division, a Pasadena, California-based insurance agency. A claims-made policy protects against claims or incidents that are reported while the policy is in force, regardless of when they happened. An occurrence policy covers claims for incidents that occurred during the policy period, regardless of when the claims are reported.

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