Intuitive Insurance Articles

Retroactive Date Explained

Reading through an insurance policy can often seem a formidable task. Laden with an involved and intricate lexicon of industry jargon, it is often difficult to decipher the important information. Amid a slew of limits and excesses, insuring clauses, and extensions, sit a series of important dates used to determine the period of coverage being offered. While the “Effective Date” and “Expiration Date” of a policy are easily recognised and understood as the dates on which the policy’s coverage begins and expires, respectively, the “Retroactive Date” is less well understood.

The retroactive date is a key term included in every liability policy written on a “claims-made” basis. A policy offering claims-made coverage will only cover claims that are reported during the policy period. Such a policy would not cover claims filed before or after the active policy period, regardless of when the loss occurred. Under a claims-made policy if the insured fails to immediately report a claim or circumstance that may give rise to a claim, they may forego their right to indemnity.

On the other hand, an “occurrence” insurance policy provides protection for claims on an occurrence basis, irrespective of the date a claim is made. Under an occurrence policy, a claim reported after the expiration date would only be covered if the alleged loss occurred during the time the policy was in force. As such, the important condition in an occurrence type policy is that the loss occurs within the policy period.

In most claims-made policies, the retroactive date eliminates coverage for claims produced by wrongful acts that took place prior to a specified date, even if the claim is first made during the policy period. As such, the retroactive date of a policy is the date after which acts, errors or omissions of the insured are covered; any act, error or omission arising from professional services provided prior to the retroactive date will not be covered under the policy. For example, a Professional Indemnity policy with a term written from the 15 January 2016 to the 15 January 2017, and a retroactive date set at inception (15 January 2016), would bar coverage for claims resulting from wrongful acts that took place prior to January 15, 2016, even if the claim was made against the insured during the policy period.

Claims-made policies may specify the retroactive date in two ways; unlimited retroactivity or, in a ‘dated’ retroactivity clause. Policies underwritten with unlimited retroactivity will respond to a claim made and reported to the insurer during the policy period relating to an act, error or omission, regardless of when it occurred. Conversely, policies underwritten with a specified date restrict cover to claims arising out of acts, errors or omissions occurring after the date specified.

The retroactive date can serve one of two purposes; to eliminate coverage for situations or incidents known to insureds that have the potential to give rise to claims in the future, and to prevent coverage for obsolete claims that arise from events far in the past.

While some insurers will limit the retroactive date to the inception of the first policy purchased by the insured, where available, it is desirable the retroactive date be no later than the commencement of professional services by the insured. Herein lies the importance of obtaining and maintaining some form of Liability insurance from the establishment of any professional practice. In addition, if you are renewing a claims-made policy or changing insurers, it is important to try and preserve your policy’s original retroactive date.

As evidenced, while the retroactive date is a technical term for the insurance industry, it is critical for business owners to understand. Do you know how far back your insurance policies cover you? If the answer is no, you may want to review your policy wording, or better yet seek advice from an experienced broker who can ensure that the retroactive date in your policy provides adequate coverage, without leaving you liable for any claims that may arise prior to the specified period. If you would like more information about the retroactive date in your policy, please drop us a comment, email, or call Intuitive on (02) 9493 6111. We’d love to hear from you!

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3 Comments

  1. p.sita
    December 13, 2017

    If there is break in In PI Policy whether retroactive period will continue in renewal policies

    • Shane Thaw
      December 13, 2017

      Generally, insurers will only maintain the retroactive date where you have had continuous, uninterrupted cover in place, however, like many aspects of your insurance contract, it can be negotiated. Where there has been a break in cover, an insurer may agree to backdate to a retroactive date on a prior policy on receipt of, for example, additional information, payment of an additional premium, etc.

  2. RAJESH C SOLANKI
    March 5, 2018

    WE HAVE ISSUED A PI POLICY WITH FRESH DATE AS 02/04/2014 TO 01/04/2015 AND WE HAVE RECEIVED A CLAIM UNDER THE POLICY. THE FRAUD WAS FROM 2003 AND IT WAS NOTICED DURING 2013 AND CONTINUED UPTO THE POLICY PERIOD. ARE WE AS A INSURER LIABLE IF YES TO WHICH EXTENT. PLEAS ADVISE.

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