SDV Insights

Interpreting "Prior Knowledge" Clauses in Claims-Made Policies: When Knowing Too Much Can Hurt You

Claims-made insurance policies are designed to protect policyholders from liability for claims brought during the relevant policy period. From the perspective of the insurer, these policies have the distinct advantage of providing certainty that when the policy period ends without a claim having been made, the insurer will not be exposed to any further liability. However, the major drawback for the insurer is that it may face liability for the insured’s wrongful acts that took place well before the policy period began. One way that insurers limit this exposure is to agree to provide coverage for past wrongful actions, but only where the insured did not know that it was likely to face a claim prior to the inception of coverage. Although the language varies among insurers, claims-made policies typically provide coverage only to the extent that “the insured had no knowledge of any suit, or any act or error or omission, which might reasonably be expected to result in a claim or suit as of the date of signing the application for this insurance.

 

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