“Prior acts” coverage is one the best (and most complicated) aspects of Errors and Omissions Insurance to help cover your business if you're sued over work you did in the past.
In order for prior acts coverage to work well, IT businesses need to set a "retroactive date" on their policy. By setting this date, you effectively start your coverage in the past, extending your lawsuit protection to include older work.
But how do you go about selecting your retro date?
What Is a Retroactive Date?
When you sign up Errors and Omissions Insurance (also called Professional Liability Insurance), your policy has a coverage start date. This is typically the inception date (i.e., the day you sign up for coverage).
A retroactive date sets your policy to begin before you signed up for coverage. That’s crucial. Why?
Say you’re a Salesforce consultant. You sign up for insurance today, but a client you worked with last week decides to sue you. From an insurance perspective, a lawsuit over work you did in the past…
- Wouldn't be covered by a policy you just started.
- Could be covered if your policy is backdated with a retro date.
Because IT professionals have years of consulting under their belt, it's important to set a retroactive date that covers past work if any ghosts of clients past decide to sue.
Some Insurers Offer Full Prior Acts Coverage
At TechInsurance, we partner with two carriers that offer full prior acts coverage. What does that mean? If you sign up for full prior acts coverage, you could be covered for lawsuits concerning your business's work from any point in time.
If a client from years ago decides to sue you, your full prior acts E&O policy could help cover it.
Your Retroactive Date May Depend on Your Prior Coverage
Say you already have E&O Insurance, but you’re applying for coverage through a new carrier – what retroactive date should you use?
The good news is that your insurance agent can guide you through this process. You’ll likely be able to factor in your prior coverage and get a retroactive date that credits your past coverage and protects your past work.
When applying for a policy with a new carrier, be prepared to give your agent details about when you first started coverage and if you had any retroactive coverage in that policy.
Why Set a Retro Date? (Hint: E&O is a “Claims-Made” Policy)
When it comes to setting a retroactive date, you only need to worry about Errors and Omissions Insurance.
What makes E&O different from other technology insurance policies? It's a “claims-made” policy, which means that your coverage must be active both at the time of the incident and the time of the associated lawsuit in order to enjoy coverage.
General Liability Insurance is not a claims-made policy, so it’s usually not necessary to backdate your coverage.
Adding a retroactive date of inception to your Errors and Omissions policy gives you the peace of mind to know that, if a client sues you today for work you completed years ago, you would have coverage.
Check out our Frequently Asked Questions if you have more questions about IT business insurance.