How It Works
This hypothetical example demonstrates how a retroactive date applies. Divine Designs is an architectural firm that is insured under a claims-madeerrors 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.
Purpose
The purpose of a retroactive date is to encourage businesses to maintain their claims-made insurance without any interruptions. Here are some reasons why yourinsurer 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 tobodily 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.
Prior-Acts Coverage
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.
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.
