What does "retroactive date" mean in an E&O policy ?

The "retroactive date" is crucial in claims-made Errors & Omissions (E&O) policies. It plays a fundamental role in determining the extent of coverage the policy offers. Here is a detailed explanation of this concept :

Definition :

The retroactive date is when incidents are covered under a claims-made policy. Any incident occurring before this date will not be covered, even if the claim is made during the policy's validity period.

Importance of the retroactive date :

1. Coverage delimitation establishes a clear boundary for policy coverage in the past. This enables the insurer to manage its risk exposure by excluding ancient incidents.
2. Continuity of coverage : For professionals who change insurers, maintaining the same retroactive date (or an earlier date) is crucial to avoid gaps in coverage.
3. Pricing : The retroactive date has a direct impact on the cost of the policy. The older it is, the higher the premium will generally be, as the insurer covers a more extended period.
4. Long-term protection : This allows professionals to be covered for errors or omissions committed in the past as long as the claim is made within the policy's validity period.

How it works in practice :

• If an incident occurs after the retroactive date but before the start of the current policy, and a claim is made during the policy period, that claim will be covered.
• It will not be covered if an incident occurs before the retroactive date, regardless of when the claim is made.

Important considerations :

1. Choosing the retroactive date: Ideally, it should correspond to the commencement date of professional activity or the date of the first E&O policy taken out.
2. Maintaining the retroactive date: When renewing or changing insurers, it is crucial to keep the same date to avoid gaps in coverage.
3. Unlimited retroactive date policy: Some policies offer an "unlimited" retroactive date, covering all past incidents, regardless of their age.
4. Impact on premiums: An older retroactive date may increase premiums but offers more comprehensive protection.
5. Disclosure of known circumstances: When taking out or renewing a policy, it is essential to disclose to the insurer any known circumstances that could give rise to a claim.

Understanding the retroactive date is essential for professionals and companies taking out E&O insurance. It ensures that coverage is adequate and continuous without leaving any periods unprotected. It is advisable to discuss this aspect in detail with an experienced insurance broker to optimize coverage according to the specific needs of each situation.