Retroactive Dates In Liability Insurance: 3 Things You Need To Know
Dan Levenson March 08, 2016
In the past, the liability insurance that many small businesses carried was occurrence coverage. This means that when someone filed a claim against the business for an event that occurred while an active policy covered the business, that claim would be processed, even if the policy was no longer active by the time the person made the claim.
More recently, however, due to industry-wide changes, most policies no longer offer occurrence coverage. Instead, they are usually claims-made policies.
A claims-made policy offers coverage only for claims that are actually filed during the time that the policy is in effect, provided that the incident in question also occurred at a time that the policy was active.
So how can a business protect itself against claims an entity makes about incidents occurring prior to the start of a new policy, since the previous claims-based policy that was in place when the incident occurred will not cover the claim filed after the policy expired?
By paying close attention to the new policy’s retroactive date!
What is a retroactive date in insurance? Here are 3 things everyone needs to know about retroactive dates when looking for liability coverage.
1. Most claims-made insurance contracts include a retroactive date.
The retroactive date is the date on which a business’s liability coverage begins. For a new business without a previously existing policy, the retroactive date is usually the date on which the insurer writes the policy, and as long as the policy is continually rewritten with no lapse in coverage, this date will remain the same for as long as the policy remains in effect.
2. A new policy written for an existing business what is switching insurance providers may honor the previous policy’s retroactive date.
When switching insurance providers, a new provider will often agree to write a policy that honors the previous policy’s retroactive date. This will protect the business from exposure to liability for occurrences that happened during the active period of the previous policy but for which someone files a claim during the life of the new policy.
This is called prior-acts coverage. It is imperative for that the business owner is upfront with the insurance provider writing the new policy about the prior occurrence of any events that may be likely to lead to a future claim being made. If the insurance provider decides that the risk of a future claim related to an incident that occurred prior to writing the policy is too significant, the provider may not honor the previous policy’s retroactive date.
This is important to take note of since it opens up the possibility of businesses being forced to pay untold amounts of money out-of-pocket should someone submit a claim in the future for an event that occurred on a date earlier than the current retroactive date.
3. If a business’s liability insurance policy does not list a retroactive date, the business has full prior-acts coverage.
Full prior-acts coverage guarantees that a provider will process any claim made after coverage begins, no matter how far in the past the incident that the claim refers to took place. In order for this to be legally binding, it is important that the business owner inform the insurance provider if it knows of any claims that will be made related to past incidents prior to the signing of the contract for the new policy.
4. An insurer may move a business’s retroactive date forward when writing a new policy.
It is important to pay close attention to a new policy’s retroactive date even if the policy is simply a continuation of an existing policy with the same insurance provider. This is because a provider may choose to move the retroactive date ahead rather than honoring the existing date in some instances.
The decision to advance the date of a new policy is usually made when an event or set of circumstances took place after the original retroactive date that make it likely that someone will file a claim against the business during the time frame that the old retroactive date covered. This serves the purpose of limiting the insurer’s vulnerability to claims which in turn exposes the business itself to risk for any claims made for the time period prior to the new retroactive date.
Paying close attention to the retroactive date on every policy prevents expensive surprises if an uncovered claim is made down the road.
5. Retroactive dates do not extend past the life of the policy.
Once a policy is expired, any claims made for the time period during which it was active will not be responded to. In the event that a business decided to terminate a liability coverage policy, it may be possible to extend protection from claims made in the future to a later date.
To do this without purchasing a new policy, a business owner should purchase an extended-reporting-period endorsement, often referred to as a tail. There is a limited time period during which the business owner can decide to purchase a tail, typically within 30 days of the termination date of the policy.