Understanding what a retroactive date is, is important for businesses that are required to have a Professional Indemnity policy in place.
Professional Indemnity policies provide cover to businesses that offer advice or professional services. This is because clients of these types of businesses expect the advice they are given to be accurate and so, if it is not, the client may hold the company liable for any costs incurred due to any errors or omissions made.
The importance of time
If your business offers these kinds of services, ideally you would purchase a Professional Indemnity (PI) policy on the day you started trading and continuously have this in place uninterrupted. This is important to ensure that you are covered for all the work you carry out.
If you start up a business without a PI policy and choose to take one out later, or your PI lapses for any reason between policy periods, you need to understand the significance of the term “retroactive date”.
This is because if a client that you advised before having your PI policy in place were to decide they were unhappy with the advice given, and were to take action against the company, you would not be covered.
When arranging your Professional Indemnity insurance, you will be asked when you would like your policy to start from. If you already have a PI policy in place, the new insurer should be made aware of the date that the current policy started on – the retroactive date.
The new policy will then start at the “inception date”. Work done before the inception date of the new policy, all the way back to the retroactive date will then be covered.
Why a claim could be declined
If you do not decide to buy PI cover from the first day you start trading, insurers will usually give you cover from the date the policy starts, i.e. “retroactive date from inception”. This leaves previously completed work unaccounted for meaning that claims for work done in this period would be unaccepted, even if the claim is first made during the policy period.
What can be done
Obviously, buying PI cover from the first day of trading is the ideal scenario but if for whatever reason this isn’t the case and you choose to start a policy at a later date, or there was a lapse in cover for some reason, you are able to ask that the policy covers previous work.
If it is clear to the insurer that you did not purchase PI cover previously mistakenly or that is was an oversight, you could be offered a policy which will cover you for previous work. However, this is likely to come at an increased premium, which is understandable as the insurer is then covering you for a greater risk.
Make sure you’re aware of what your Professional Indemnity policy is actually covering you for by checking with your insurer/broker. It is important that you are aware of what you are covered for to prevent any nasty surprises.
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