Why You Must Examine Retro Dates on an Account
A retroactive date may be defined as: A provision found in many claims-made policies that eliminates coverage for claims produced by wrongful acts that took place prior to a specified date, even if the claim is first made during the policy period.
The purpose of this important detail is to exclude claims arising from any work undertaken outside of the policy dates, including any applicable retro date. The reasoning for this is two-fold: to eliminate coverage for problems known to the insured that have the potential to become a claim in the future, or preclude coverage for old claims from the past. This sets a clear understanding of what is exactly covered.
Retro dates are critical to maintaining the correct coverage and avoiding a gap in coverage. There are many considerations that come into play when reviewing an expired policy to ensure the retro dates are correct, including:
- Policy dates: Are the policy dates consistent? If not, is there a gap in coverage, or was coverage extended by endorsement and/or added midterm? Was there a lapse in coverage?
- Coverages: Do the coverages match? This is crucial to ensure the insured doesn’t have any Claims Made endorsements that will need to be addressed, especially if you are offering an Occurrence coverage form. (Example: they have Occurrence CPL but Claims Made mold)
- Claims Made versus Occurrence: It is often better to have an Occurrence coverage form versus Claims Made. It eliminates the need for a retro active date and allows a claim to be filed on the policy when the claim actually occurred.
- Entity: Make sure the retro date is on the matching/correct entity. It is not uncommon for policies to have several entities with different retro dates.
- Limits: Verify the limits on Claims Made coverages and make sure the limits were not increased or decreased during the policy term, which could lead to split retro dates.
- Conversion: If you are changing a policy from Claims Made to Occurrence, always ask for a “nose” or “tail” endorsement to prevent creating any gaps in coverage.
An example to illustrate what may happen: The agent tells the underwriter the CPL policy is on an Occurrence form, so the new policy is issued on an Occurrence form. It is later discovered that the expiring policy has Claims Made CPL coverage, therefore the new policy would not address a claim from work done during the prior policy. This could be avoided by asking for a copy of the prior policy to ensure matching coverages. The solution would be to add a “nose” endorsement that picks up the prior retro date. Without the proper coverage, this could leave the client, broker, or agent with a problem in the event of a claim.
If you have any questions about the retro date(s) on a policy, feel free to contact us. Please remember to review all documents and ask questions, and address all discrepancies you may come across.
Information for this article was obtained from the following sites: