Most architects, engineers and contractors' professional liability policies are written on a claims-made basis, requiring a claim to be first made against the insured and reported to the insurer during the policy period. Claims-made policies typically contain a retroactive date limitation, which must be satisfied for the policy to provide coverage. What is a retroactive date, and how does it impact potential coverage?
What Is a Retroactive Date?
- A retroactive date dictates when an insured's error or omission giving rise to a claim can take place - on or after the retroactive date, which is typically listed in the policy's declarations. Some policies also may contain language prohibiting coverage of claims arising from continuous acts or a series of related acts if those acts first commenced prior to the retroactive date.
- The retroactive date limitation (the provision precluding coverage for claims arising out of acts, errors or omissions prior to the retroactive date) can be found in a policy's insuring agreement or in an exclusion or endorsement to a claims-made policy.
- The retroactive date is typically based on the date from which the insured has had (uninterrupted) professional liability coverage.
- Retroactive dates often pre-date the policy's inception, potentially providing coverage for claims that arise from acts or omissions taking place prior to the policy's inception date. A retroactive date that's the same as the policy's inception requires that the act or omission giving rise to the claim take place during the policy period (in addition to the claim being first made against the insured and reported to the insurer during the policy period). Claims-made policies with no retroactive date provide full prior acts coverage - the timing of the act or omission is not relevant for coverage purposes.
How Does a Retroactive Date Impact Potential Coverage?
- Professional liability claims may not be asserted until years after the insured's alleged error or omission. The retroactive date provides some limitation on how far back the insurer will provide coverage for the insured's errors. For example, a claim arising from design errors allegedly made by an architect prior to the retroactive date would not be covered under a claims-made policy even if the claim was first made and reported during the policy period.
- Courts in the majority of jurisdictions find that a claims-made policy's retroactive date limitation is unambiguous and enforceable as written. However, New Jersey's highest court has held that a claims-made policy providing no "prior acts" coverage (that is, the retroactive date is the policy's inception date) violates public policy if there is an objectively reasonable expectation of coverage under the circumstances.
- Retroactive dates may create a gap in coverage unless renewal policies and policies placed with a new insurer provide the same retroactive date. A gap in coverage also may arise if an insured shifts from a claims-made policy to an occurrence-based policy (which requires that the injury or damage take place during the policy period). Under these circumstances, an insured should consider purchasing tail coverage or an Extended Reporting Period under its expiring claims-made policy, which may close any coverage gap.
- An insured should fully understand the significance of the retroactive date when purchasing claims-made coverage. Insurers should clearly communicate to the insured the basis for the retroactive date (and its ramifications).
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