The retroactive date is the earliest point in time that your insurance policy will cover an incident or dispute. It's sometimes called the retro date or retroactive date of inception.
What is a retroactive date?
A retroactive date is a feature of claims-made policies, such as errors and omissions (E&O) and directors and officers (D&O) insurance. It's generally defined as the day that your coverage begins.
Depending on whether or not you have prior acts coverage, it may or may not be the same day your business purchased its current policy.
Why is your policy’s retroactive date important?
Depending on the statute of limitations in your state, claimants might take months or years to file a lawsuit over an incident. The retroactive date will determine whether or not your current policy will cover the costs of the lawsuit. If the disputed incident occurred after the retroactive date, your policy will cover your costs. If it occurred before, you’re on your own.
Say, for example, that your tech company made a work mistake early on that led to a data breach at a client's business. You were uninsured at the time and the client didn’t sue, but now that you have E&O coverage the client files a lawsuit against your company. If the data breach occurred before your policy’s retroactive date, you’ll have to cover the costs of the lawsuit yourself.
To protect your business against situations like the one above, ask your insurance provider if it offers prior acts coverage, also called nose coverage. A prior acts amendment sets a retroactive date months or years before you purchased your current policy. This amendment can protect your business from future lawsuits over past incidents.
When should you choose an earlier retroactive date?
With a prior acts amendment, you can extend your policy’s coverage to include incidents that occurred long ago. If you want your claims-made policy to cover lawsuits over past incidents, this amendment is a must.
You might choose a retroactive date that's further in the past than the date you purchased coverage for two reasons. Either there was a period of time when your business didn’t have any insurance, or you’re switching insurance providers and want to maintain continuous insurance coverage.
Close gaps in coverage with a retroactive date
Say you accidentally miss a monthly payment on your D&O policy and your provider temporarily suspends coverage. You discover the mistake when the next payment is due, but there’s already a month-long gap in your D&O coverage.
Unless you ask your provider to add a prior acts amendment to your coverage, the provider might refuse to cover lawsuits stemming from incidents that occurred when your policy was lapsed.
To close gaps in coverage that occurred when your business was uninsured, set a past retroactive date on your policy. For best results, choose a retroactive date that closes all the gaps in your coverage, going back as far as the statute of limitations in your state.
Keep continuous coverage when you switch providers
There are plenty of valid reasons you might want to switch insurance providers. Maybe you found a better deal somewhere else, or maybe you need more comprehensive coverage or a provider with a better rating.
When you switch insurance providers, you can often choose a retroactive date that includes the period of time you held a similar policy from a previous insurer. This option ensures that your new policy covers lawsuits regarding incidents that occurred before you switched providers.
As your previous provider won’t take your claims after you cancel your policy, make sure you have prior acts coverage in place.
Why don't some policies have retroactive dates?
Only claims-made insurance policies have retroactive dates. These policies honor claims only if both the incident and the lawsuit occur while the policy is active. Policies like general liability insurance or commercial property insurance have other ways of determining whether a claim is timely or not.
Some claims-made policies don’t have retroactive dates because they have full prior acts coverage. They cover lawsuits stemming from any incident in your business’s past. This type of policy provides the most comprehensive claims-made coverage for businesses.
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