What is a Retroactive Date and Why Does it Matter?

January 13, 2023 | Professional Liability

In some types of work, such as providing professional advice or services, the results of an error may not come to light until well after the project is completed. An insurance retroactive date helps the policyholder by addressing claims arising from past work. The date also helps the insurance company by limiting how far back it will go in providing coverage.

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Specifics on Insurance Retroactive Dates

If your professional liability policy (also known as errors and omissions or E&O insurance) has an agreed-upon retroactive date, biBERK may still help cover the costs associated with claims that are filed after coverage begins if the retroactive date is before the effective date of your policy. That’s true even if the error, unfulfilled duty, or negligent act happened before coverage was effective and you were not aware of or notified about the error prior to the coverage being effective.

For example, let’s say your professional liability policy began on June 1, with a retroactive date of January 1. On August 12, a former client claims you made a mistake on their taxes in March. You were unaware of this claim when you purchased the policy.

Since the occurrence causing the claim took place during the retroactive coverage period (between January 1 and June 30), and the claim was made during your regular coverage period, you’ll likely be covered.

A similar concept is what’s called full prior-acts coverage. It means you’ll have professional liability coverage for all services delivered before the current policy period, provided you had coverage at the time. If you didn’t previously have a professional liability policy, claims would only be covered if the error, unfulfilled duty, or negligent act happens during the policy period.

Addressing Coverage Gaps with an Insurance Retroactive Date

Understanding insurance retroactive dates is especially important if your professional liability coverage lapses, even for a short time.

Imagine that you’ve decided to switch providers for your professional liability insurance. You cancel with your current provider, and your coverage comes to an end. However, you get busy and don’t immediately buy a new policy. As a result, by the time your new policy kicks in, you’ve been without coverage for the month of August. And let’s say you’ve decided not to have a retroactive date for the new policy.

Then, a client sues you claiming that an error you made in work for them on August 14 caused their company financial harm. Your current insurer may not cover the claim since it occurred when your old policy wasn’t in force, and your new policy hadn’t been activated.

It would be a different story if you and your insurer agreed on a retroactive date going back a year or more when you bought your new policy. In that case, the fact that the work that led to the lawsuit occurred during that retroactive period means costs related to the claim will likely be paid.

Needless to say, the addition of the retroactive date can be a game-changer. Completing the scenario, imagine that the court finds you liable for $275,000 in damages. If that amount isn’t covered by your professional liability insurance, it has to come from somewhere—such as your company’s savings or future revenues.

Unfortunately, many small businesses fold each year due to unbearable debt brought on by lawsuits for which the company didn’t have coverage.

Talk With biBERK About Insurance Retroactive Dates

If you’re unfamiliar with the concept of retroactive dates or know what they are but have never thought about how they’d affect your coverage, the best thing to do is talk with one of our licensed insurance experts.

They can explain how your coverage would be affected in scenarios involving different incident reporting, insurance activation, and retroactive dates.

Don’t hesitate to ask questions when you talk with them. While the concept of an insurance retroactive date can seem fairly straightforward in principle, it often feels less clear when you’re trying to put it into practice regarding your company’s financial protection.

Retroactive Dates and Claims-Made Policies

Not all types of insurance policies have retroactive dates. For example, the coverage of a claim is determined differently with a general liability policy. The difference has to do with whether or not a policy is what’s called a claims-made policy, which most errors & omissions policies are.

A biBERK licensed insurance expert is happy to explain that concept to you, as well.