A farm fertilizer company has four claims-made policies with a retro-date of 1995: policy W went into effect in 1995; policy X went into effect in 1996; policy Y went into effect in 1997; and policy Z went into effect in 1998. Under a claims-made policy, if a loss occurred in 1995 generating a claim in 1997, which policy will pay the claim?

Rationale

Policy Y (1997) will pay the claim.

Under a claims-made policy, coverage is triggered when a claim is made during the policy period for a loss that occurred after the retroactive date. Since the loss occurred in 1995 and the claim was made in 1997, the only policy in effect at the time the claim was made that covers losses from after the retroactive date is policy Y, which went into effect in 1997.

A (W (1995)) YOUR ANSWER

Policy W went into effect in 1995, but it is a claims-made policy with a retroactive date of 1995. Therefore, while it covers losses that occurred from that date onwards, it does not provide coverage for claims that are reported after its expiration, which would be before the claim in 1997.

B (X (1996)) YOUR ANSWER

Policy X began in 1996 and also has a retroactive date of 1995. However, since the claim was made in 1997, and policy X was not in effect at that time, it cannot cover the claim, as it only covers losses reported during its active period.

C (Y (1997)) CORRECT

Policy Y is the correct choice as it was in effect when the claim was made in 1997. This policy can cover losses that occurred after the retroactive date of 1995 when the claim was submitted, meeting the criteria for claims-made coverage.

D (Z (1998)) YOUR ANSWER

Policy Z went into effect in 1998, which means it was not in effect at the time the claim was made in 1997. Therefore, it cannot cover the claim related to the loss that occurred in 1995.

Conclusion

In summary, the claims-made policy mechanism dictates that coverage is based on when claims are filed rather than when the loss occurred, provided the loss is after the retroactive date. Given the timeline of policies and their respective effective dates, policy Y is the only option that meets the criteria for covering the claim made in 1997 for a loss that occurred in 1995.

Policy Y (1997) will pay the claim.

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