A retroactive date on professional indemnity insurance is the date the insurer has agreed to retrospectively cover a business from. Claims occurring from the policyholder’s work carried out after the retroactive date will be covered by the insurance. Claims occurring from work carried out before the retroactive date will not be covered.
Renewal date vs retroactive date
The date of inception or renewal of the insurance policy refers to the date when the insurance policy goes into effect. From the renewal date until the date the policy expires or is cancelled, the insured is covered by the policy.
If a new policy is taken out when the previous policy ends, the start date of the new policy is the ‘inception date’, but the retroactive date is the date that the professional indemnity insurance was first taken out (as long as there was no break in cover).
Suppose there is a period when a business does not have any professional indemnity insurance at all. In that case, a claim for an event that took place during this period is likely to be declined by the insurer, even if the business has insurance when it makes the claim.
There may be a delay between completing work and a client pursuing the business for compensation, as it can take a while for errors to become apparent. For example, an architect may take out professional indemnity insurance while working on a year-long project for client A. When the contract finishes, they begin working for client B and cancel the insurance policy. A little while later, they decide to take out professional indemnity insurance again, as another client requires them to have it. The architect then receives a letter from client B saying that they’re suing them for a flaw in an architectural drawing that has resulted in a building being constructed incorrectly. When the architect contacts their insurer, the insurer tells them that as they weren’t covered when they completed the work in question, it can’t pay the claim.
If the policy schedule doesn’t show a retroactive date or states Full Retroactive Cover, then the policy is probably providing cover for all work undertaken from the date the insured business was established.
Can you backdate insurance?
If you didn’t originally take out professional indemnity insurance, but you want to later on, it may still be possible to cover previous work done. For example, you could take out your first professional indemnity policy on 1 June 2021, but agree a retroactive date of 1 January 2021, when the business began trading. However, the underwriter will want to verify that you are not buying the policy with an ulterior motive. For example, if they believe that a claim may be coming your way.
If they are satisfied it was an oversight and (with hindsight) a mistake, you may be offered terms to cover work previously done, with an agreed retroactive date prior to the start date of your new policy. You should, however, expect to pay for this. The insurer is taking on additional risk, so this is likely to be reflected in the premium.
It is important to remember that there is no guarantee that this option will be available to you. It depends on the insurer, what the business is, and individual circumstances, which is why you should remain on top of your professional indemnity insurance.
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This guidance note is intended for information purposes only. It is not and does not purport to be legal or accountancy advice. Whilst all care has been taken to ensure the accuracy of the guidance note it is not to be regarded as a substitute for specific advice. This guidance note shall not be reproduced in any form without our prior permission. © 2021. All copyright is owned by Professional Indemnity Insurance Brokers Ltd