A Retroactive Date forms a very important feature in a ‘claims-made’ insurance policy.
It specifies a date from which an insurance policy will cover an incident or dispute, and can therefore also be viewed as the date upon which coverage “starts”. This is typically earlier than the start date of the policy.
As claimants may not file a claim for some time after an incident or dispute has taken place, the effect of a Retroactive Date can be critical. For a policy to respond, the claim must be made and notified under the active policy, but any Retroactive Date must be sufficiently far in the past, that it encompasses when the work (which is the subject of the claim) was done.
In essence, a Retroactive Date precludes cover for any claim arising from work that took place prior to that date, even if the claim is first made during an active policy period. This is a critical point to understand and manage with your broker.
Why is this important?
Mind The Gap
Insurance cover, once purchased, should ideally remain in place and not be interrupted. Any interruption would potentially give rise to a ‘gap’ in cover. If the Retroactive Date is after the gap, there will be no cover for work which took place during that prior gap, even if the claim is made during an active policy period.
Different Insurers
An issue can also arise when changing insurers if the Retroactive Date is not backdated to the same date as referenced in the previous policy. This is because coverage under a prior policy will cease upon cancellation of that policy (subject to some specific additional provisions).
Fixing the Problem
To mitigate these issues, potential solutions may include:
1. prescribing a Retroactive Date as far back as possible to encompass all work;
2. referencing ‘Full Prior Acts’, within the context of Retroactive Date; or
3. a ‘run-off’ cover (to be explained in a future post!).
These solutions may necessitate a “no known or reported claims” declaration to insurers.
NOTE: In directors’ and officers’ insurance policies a Prior and Pending Date (P&P Date) is usually applied, sometimes in addition to the Retroactive Date. A P&P Date acts in a similar fashion to the Retroactive Date but excludes any litigation brought prior to the P&P Date.