Most of the insurance policies that we know start their cover from a given date as stated in the policy document. Otherwise, insurers would run out of money paying past claims.
However most professional indemnity insurance work a bit different. These professional indemnity insurances can cover incidents from the past as well. The use of retroactive date mentioned in the insured person’s policy covers for such past claims.
The retroactive date on the professional indemnity insurance is the date from which the insured has held uninterrupted professional indemnity insurance. Anything that has happened before the retroactive date is usually not covered by your insurance company.
The retroactive date is added to the insured’s policy to cover the claims of his work done before the policy started. Thus, it extends a backward cover to a specified retroactive date mentioned on the policy schedule.
Having a retroactive date cover is necessary because it can take weeks, months or even years to discover problems with any work. For any mistake done in the past work which has taken years to surface, a person can be sued for that as well.
Engineers, Legal officers, Doctors, Architects, and Surveyors are particularly prone to these problems. In case of Engineers and Contractors, materials deterioration, and cracks appearances are the significant issues why clients spare no time to blame them. Another form of issue that takes time to surface is the copyright infringement issue.
Having a professional indemnity insurance is a ‘claims made’ policy. You are insured for the time when you did the work and when the claim is made. But the saving factor here is the retroactive date that offers you coverage even if you didn’t have insurance back when you should have. Thus, a retroactive date allows the policyholder to go back in time and fix the mistake done.
Some points to remember:
- Keep the professional indemnity insurance cover live at all times by using the retroactive date coverage
- Although the expense is more, look at the bigger picture, the cost of the premium is small compared to the price of a claim
- After a negligent act taking place, professionals receive many claims. Hence they need to make sure that the retroactive date factor is active all the time
- If you don’t maintain a retroactive date cover, you will have to shell out lakhs of rupees in legal fees to defend yourself, along with costs payable to your client as compensation.
Ashish started with his financial consultancy business in the year 2010. The firm was small, with Ashish handling all the factors of the same with just five employees in the beginning. He thought that since the business had just started, and the clients were few, he does not require a professional indemnity insurance policy.
After a year, Ashish took on a new and significant client. It was a big corporate firm which required Ashish to have a mandatory professional indemnity insurance as part of the contract. After buying the policy, Ashish felt more secure and could sleep well at night knowing that if anything should go wrong, he will be protected.
A few months later, a claim came to Ashish’s Consultancy firm from one of his early clients regarding work that he did for them during his first year of trading. Ashish called his insurer to notify them.
As Ashish had a retroactive date coverage in his policy for all the work that he did in his first year of business also, his mind was calm.
This is where the term retroactive date became important for Ashish’s small consultancy businesses. When buying the policy, Ashish was asked the question, “from when he wants the policy to run”? Ashish asked them to cover him and his business from the start date of his consultancy and add that as the retroactive date in his policy.
Hence Ashish was able to get the cover for the raised claim without any difficulty. The retroactive date factor in his professional indemnity insurance came to his rescue and saved him against the claim.