The retroactive date is where timing matters! Can you imagine that despite buying insurance, it is possible that your claim is denied because the date of the accident was before your claims made policy started? Or maybe, there is a coverage gap, which resulted in your coverage being denied. The retroactive date makes this big difference between claims being accepted or rejected. And this is where the importance of retroactive date in liability insurance lies!
Let’s dive deeper!
What Is A Retroactive Date?
There are two types of policies- Claims-made and occurrence-type policies. The retroactive date comes into the picture in a claims-made policy.
A professional liability policy, also called Errors & Omissions insurance, is usually bought as a claims-made policy.
A claims-made policy is a type of policy that covers you from the time you buy your policy. For example, you purchased a policy from 1st January 2022 till the following year. But the accident you are being sued for occurred on 1st December 2021. Now, if you file a claim, your claim will be denied.
But only if you had a claims-made policy with a retroactive date of, let’s say 1st January 2021. Then, my friend, you stand a chance of getting your claim accepted.
So, a retroactive date is the earliest date in time that a loss can occur for your policy to cover it! That is, if any loss occurs before this date, your insurance provider will not cover it!
If you buy a policy for the first time, your retroactive date is automatically the day you bought it. But if you are renewing your policy, ask your insurance agent to set your retroactive date to a date in the past from which you had continuous cover.
The learning: claims-made policies do not automatically cover you for the previous year unless you take care of the retroactive date!
The issue comes where you change your insurance provider or do not renew your policy for a while.
Let’s learn more about these issues!
What Is The Importance Of Retroactive Date In Liability Insurance?
The retroactive date coverage is essential because that is how far back in time your coverage is applicable.
#1: Insurance Coverage Gaps
As you know, professional liability insurance is a claims-made policy. So, you are covered for only the time your policy is active. But retroactive coverage to rescue! But you are safe only if you do not have any gaps in insurance coverage.
Therefore, an important thing to note here is not dropping your insurance coverage for even a week! If any event occurs during this week, you might end up paying for claims associated with that event out-of-your-pocket!
#2: New Insurance Provider OR New Policy
Another tricky situation occurs when switching your coverage to another insurance provider or taking up a new insurance policy.
People often switch providers or take up a new policy to get a better deal there. But the question arises whether you can still maintain your old retroactive date with the new insurance provider?
It is essential to know. After all, otherwise, all your previous premiums could go into the drain because without retroactive coverage, you might not be covered for them.
And the answer is yes!
Also read: What is Employment Practices Liability Insurance (EPLI)?
Yes, you can get retroactive coverage for those years you had a policy with other insurance providers.
You need to clarify with your new insurer about your retroactive date. Just make sure that your retroactive date is set to the earliest date you have maintained continuous cover!
For example, you had a policy with ABC for three years, but now you got a better deal with XYZ provider. You switched. But before you finalize the deal, you need to clarify with the insurance agent about the retroactive date. What would it be, and how much would the policy cost with it?
When taken care of, these two small steps can ensure that you do not land up paying thousands in legal costs like settlements, judgments, and attorney fees, etc.
Do I Even Require The Retroactive Date Coverage?
Yes, you absolutely do!
Professionals from all fields tend to land up in suits even years after the project was delivered. Yes, some mistakes take longer to surface, and when sued for them, you would need retroactive coverage.
Professionals like Engineers, Architects, Legal Officers, Doctors, and more can get into trouble even years after the project is over.
For example, a civil engineer or contractor can be sued for faulty construction if cracks occur in walls after a few years.
Other issues that take time to surface are copyright infringement issues.
Whatever it be, if you work, you must consider having retroactive coverage and not dropping your policy for even a day!
Does Liability Cover With Retroactive Date Cost More?
Professional liability policies generally tend to cost a little more with a retroactive date. And the premium keeps on increasing as the years pile up!
And they should because it increases the risk for the insurance provider. Now the provider has to cover more incidents, and if anything has to occur during those previous years, the insurance provider would have to pay.
But it makes sense to shell out those extra bucks as otherwise you lay exposed to all those risks! Paying for hefty lawsuits would not be a great idea when you can save yourself from it by paying a little extra premium.
In A Nutshell…
The retroactive date is an essential aspect of a claims-made policy, and it is necessary to understand it because you might lose your savings to hefty lawsuits without it.
I hope this discussion about the retroactive date was helpful to you and you could clear your doubts. But if you have any doubts, please leave a comment below. I will be more than glad to answer!
I am all ears!
