What Does a Retroactive Date in an Insurance Policy Do?
When past dates appear in claims-made policies, they are an exclusion
A retroactive date is a feature found in many “claims-made” liability insurance policies for businesses, which eliminates coverage for incidents before that date. The retroactive date serves as an exclusion, so when such a date appears in the policy declarations, no coverage will apply to claims arising out of acts committed before the specified date, even if the claim is made during the policy’s effective period. The retroactive date is usually (but not always) the inception date of the insured's first claims-made liability policy.
How It Works
This hypothetical example demonstrates how a retroactive date applies. Divine Designs is an architectural firm that is insured under a claims-made errors and omissions (E&O) policy. The company has been in business for 15 years, and has had continuous claims-made insurance coverage since 2010. The current policy runs from Jan. 1, 2020, to Jan. 1, 2021. The retroactive date on the policy is Jan. 1, 2010, the start date of the firm’s first claims-made policy.
Two claims are filed against Divine Designs in September of 2020. One relates to an incident that occurred in June 2010. The other claim resulted from an act that was committed in February 2020. Assuming the claims aren't subject to any policy exclusions, both should be covered under the current policy. Both were made during the policy period and both arose from incidents that occurred after Jan.1, 2010 (the retroactive date).
Now suppose instead that the first claim stems from an act that was committed on Dec. 15, 2009. The claim would not be covered because it is related to an incident that occurred before the retroactive date. If Divine Designs was insured under an occurrence policy in December of 2009, that policy may apply to this claim.
An occurrence policy covers claims that arise from events that occur during the policy period, so the date on which the claim is filed doesn't matter.
The purpose of a retroactive date is to encourage businesses to maintain their claims-made insurance without any interruptions. Here are some reasons why your insurer might choose to include a retroactive date in your policy:
- You have not maintained continuous claims-made coverage
- Your expiring policy includes a retroactive date
- You are starting a new business.
- You are covered under an extended reporting period provided by a prior policy
- You conducted operations in the past that your insurer doesn't want to cover—for example, your consulting firm used to provide services to mining companies but stopped doing that on June 1, 2015. Because your insurer doesn't want to insure mining-related claims, your policy shows June 1, 2015, as the retroactive date.
E&O Versus General Liability
In most E&O policies, the retroactive date applies to previous “wrongful acts,” which are defined as an act, error, or omission that takes place in the course of performing professional services. For instance, consider the Architects and Engineers Professional Policy offered by the AIA Trust. The policy covers claims made against the insured for wrongful acts arising out of the performance of professional services for others. But for a claim to be covered, it must arise out of a wrongful act that took place on or after the retroactive date listed in the declarations.
Like with E&O policies, the claims-made version of the Insurance Services Office (ISO) commercial general liability (CGL) policy includes a retroactive date, as one example. However, the retroactive date in some CGL policies applies only to bodily injury and property damage, not wrongful acts. Such a policy covers claims arising from those two categories, as long as the injury or damage did not occur before the retroactive date.
Insurers refer to acts committed before the retroactive date as prior acts. When your E&O policy contains a retroactive date that is earlier than the inception date, it covers prior acts that occurred on or after the retroactive date. A policy that does not include a retroactive date affords full prior-acts coverage. This means it covers claims arising from acts that happened before the inception date of the policy, even if the acts occurred long ago.
If you switch D&O insurers, your new insurer may change your pending or prior date to the inception date of your first policy with the new company. However, this date should remain the same when your D&O policy expires and is renewed with the same insurer.
Pending or Prior Date
Most executive liability policies (which provide directors and officers [D&O] and other coverages) contain a pending or prior date, rather than a retroactive date. Sometimes called a continuity date, the pending or prior date serves a similar purpose as a retroactive date: to eliminate coverage for past or current litigation. However, a pending or prior date typically applies to when claims are made, rather than when offenses occur. This date is usually cited in an exclusion.
The Bottom Line
Remember that many claims-made policies include a retroactive date, which limits the types of claims that are covered. Claims are covered only if they arise from acts that occurred on or after that date. If your policy includes a retroactive date, be sure you know what it is, and that you understand how it will affect your liability coverage for potentially costly claims.