A professional indemnity policy is a form of insurance designed to protect those who provide services to clients from the liability of negligence and damages claims. It is typically best for businesses that offer advice or professional services such as consulting.
If you’re in a services field, your business should already have a professional indemnity policy on the books.
But if you want complete coverage with a new insurance company, you’ll have to make sure that the date at which your current insurance started is also counted. This is known as the “retroactive date”.
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Defining the retroactive date
We can begin with a definition: “The retroactive date of a policy is the date after which acts, errors or omissions of the insured are covered. Any act, error or omission occurring before that date will not be covered.”
The problem with this definition is that it can be easy to confuse a retroactive date with an inception date. To illustrate the difference, let’s look at a scenario in which the difference would be crystal clear.
Retroactive date vs inception date
Let’s pretend you start up a new consultancy business, A&B Consulting. At the very outset you purchased a professional indemnity policy for immediate effect. After a while you move to a new insurance provider for your professional indemnity policy, even though you might still have the same clients and continuous business on the books.
The new policy you take out starts on the inception date.
The retroactive date refers to when your original professional indemnity insurance first started. Tell the new insurer about that existing policy so that they can include work done before the inception date. This maintains a constant flow of coverage in your professional indemnity policy.
What happens if I didn’t buy professional indemnity insurance the start?
The wisest course of action is to purchase professional indemnity insurance from the outset of your business. But what if you failed to do so? If you didn’t buy insurance on day one of your new business, your earlier work may not be insured because you can’t establish that retroactive date. Instead, your new insurance coverage will only start on the inception date.
Alternatively, you can purchase professional indemnity insurance and ask the insurance carrier to cover previous work. The underwriter has to get to work in this case, making sure that you’re not doing so because you know there are certain liabilities and potential problems down the road.
Asking for an inception date that covers previous work done might cost you more, but it can also give you the peace of mind you need to continue doing your work.
Unlimited retroactivity and dated retroactivity
In researching retroactive dates, you might find these two phrases coming up. It’s important to understand what they mean:
- Unlimited retroactivity means the policy can cover claims made/reported regardless of when the act was committed. If you need to ensure that your coverage is comprehensive, you’ll likely seek out unlimited retroactivity in your policy.
- Dated retroactivity means the claims made against you are only covered during the policy after the specified retroactive date.
With professional indemnity insurance, it’s possible to acquire unlimited retroactivity for more total, comprehensive coverage. This can be vital insurance to purchase for a growing business that previously did not have the proper insurance coverage but is willing to pay more to add retroactive coverage to a new policy.
Using the retroactive date to your advantage
A retroactive date establishes the beginning of insurance coverage regardless of the insurance inception date. If your coverage at A&B Consulting includes dated retroactivity going back a few months, then you can still file insurance claims for events that occurred within those few months. With unlimited retroactivity, you can even file claims throughout the course of your entire business regardless of the inception date.
To ensure that your business is covered properly, you can still look at retroactive dates and unlimited retroactivity as options for professional indemnity coverage. It’s vital to not only protect your business but to ensure peace of mind that even if there were claims made against you, you’ll have insurance to fall back on.