It has been several decades since the introduction of claims-made liability insurance policies. Although claims-made forms were reluctantly accepted, problems and disputes continue over the reporting of claims under these policies. An example of claims-made policy pitfalls is this real-life case involving two major insurance companies, two major insurance brokerages, and one well-meaning but unsophisticated insured.

To illustrate how claims-made policies can result in a claims fiasco, consider the following example. The insured, a large, highly regarded not-for-profit organization, had been insured under an Association sponsored D&O liability policy for several years. The policy provided a broad range of coverages, including D&O and employment practices liability written on a claims-made basis.

During the policy period, the insured became aware of certain events that could potentially become claims for wrongful termination under the policy. However, the mere existence of these circumstances did not technically represent a claim under the policy. The policy's definition of claim required that there be a lawsuit or a demand for damages. Neither of these had yet occurred and it was uncertain if they ever would occur.