Claims-made insurance policies are designed to provide coverage for covered acts that a claim is made and reported during the policy period. An unendorsed claims-made policy only provides coverage for the current policy term for covered acts that occurred during the policy period and where the claim is made and reported during that term. An unendorsed Claims-made policy provides no further coverage once the coverage has lapsed. This can be a big problem if the covered error is discovered and then reported after the policy expires. There are 2 options to resolve this issue:
1. Purchase an Extended Reporting Period Endorsement (ERP or Tail) at the end of each policy term. Cumbersome and potentially expensive, at least in the short run.
2. Have subsequent Claims-made insurance policies endorsed with a prior acts or retroactive date that provides coverage for acts that occurred prior to the current policy period.
By convention, the accepted method of extending Claims-made coverage beyond the current policy year is through the use of a prior acts or retroactive date.
During the 1st year of Claims-made coverage the policy is issued with a prior acts date that equals the inception date of coverage. With a policy that the Prior Acts Date equals the Policy Effective Date there is no coverage for any acts that occurred prior to the effective date of the current policy even if reported during the policy period. The 1st Claims-made policy commonly called a retro date inception (RDI) policy.
At subsequent anniversary dates, the renewal policy continues maintaining the prior acts date that was established at the inception date of coverage. If this date is changed than the insurance coverage opens covered acts no coverage. It is important to maintain your Prior Acts Date once established to prevent coverage gaps. To lower the price insured might request renewal offerings with a shorted prior acts date. The coverage offered maybe another RDI policy that wipes out coverage for all past acts. An RDI policy is significantly cheaper than a “fully rated policy” with prior acts coverage because it offers no protection for past acts coverage.
With prior acts coverage shorted it is exceedingly difficult and expensive to get prior acts coverage back.
L Squared Insurance Agency LLC specializes in professional liability insurance Claims-made insurance policies. If you have a problem or question about Claims-made coverage let us know. We will be happy to help you.
Note: The above is general information about a Claims-made Insurance policy concept. Different insurance policies and different situations may or may not treat these concepts in a similar manner.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080