Unraveling Coverage Triggers: Unveiling the Discovery or Loss Sustained Options
In an ISO crime policy, regardless of whether it takes the form of a discovery policy or a loss sustained policy, the available coverages remain consistent. Just as liability policies differentiate between “claims-made” (discovery) and “occurrence” (loss sustained) triggers to determine coverage, the same principle applies here. The choice of coverage trigger can have significant implications, especially if an insured switches from a discovery policy to a loss sustained policy without acknowledging the trigger differences.
Understanding Coverage Triggers in Depth
To truly comprehend the impact of coverage triggers, it’s essential to grasp the concept behind them. The coverage trigger is the policy provision in the Insuring Agreement that outlines what needs to happen when a loss event occurs or becomes known to the insured. In a “discovery” policy, coverage applies to losses discovered by the insured during the policy period or the extended period designed to uncover loss. Conversely, a loss sustained policy offers coverage for losses directly resulting from an “occurrence” that transpired during the policy period and was discovered by the insured within the policy period or the extended period to discover loss.
The crucial distinction between the two triggers lies in the language used. A discovery form emphasizes “loss discovered during the Policy Period” or the “Extended Period to Discover Loss Condition.” On the other hand, a loss sustained form includes “loss resulting directly from an occurrence taking place during the Policy Period” and “discovered during the Policy Period” or the “Extended Period to Discover Loss Condition.”
Making the Right Choice
Traditionally, crime policies have favored loss sustained triggers, while discovery triggers have emerged as a relatively more recent option. The choice between the two triggers can be influenced by the insurer’s preference or the insured’s decision, with some insurers offering both alternatives. Generally, the premium difference between the two forms is negligible.
Both triggers provide legitimate means for an insured organization to secure crime coverage. The primary distinction lies in the fact that the discovery option permits coverage for losses that occurred before the policy’s effective date. Consequently, a current policy may provide more extensive coverage when a loss is discovered than what was in place at the time of the loss. Risk management professionals should consider this coverage enhancement when evaluating the renewal of a loss sustained policy.
Switching from loss sustained to discovery coverage may prompt the insurer to scrutinize the overall exposure more closely, including past situations that predate the policy period. Similar to how it operates in claims-made liability policies, the insurer may implement a retroactive date to limit its discovery exposure.
Navigating the Renewal Process
If current discovery coverage is no longer available at renewal and only loss sustained coverage is offered, ISO discovery forms typically include an extended period to discover loss provision. This provision allows the insured to report loss discovered within 60 days from the date of cancellation, but not after obtaining any other crime coverage with the current insurer or elsewhere.
When a loss sustained policy replaces a discovery policy, it can provide coverage for losses discovered within the loss sustained policy period, even if they occurred before the effective date of the loss sustained coverage. Nevertheless, it is crucial to meticulously review the expiring and renewal policy conditions to address all discovery and loss sustained matters before switching policy forms on the renewal date. Taking these precautions guarantees a seamless transition in coverage for the insured.