Professional Liability Insurance policies are normally written on a ‘claims-made’ policy form. In its purest form, an unendorsed ‘claims-made’ policy only provides coverage for the current policy term for covered acts that occurred during and where the claim is made and reported during that policy term. For professionals this is unworkable as many claims are discovered after the end of the current policy term.
A Claims-Made Professional liability Insurance Policy will have a Retro-Active date or Prior-Acts date shown on the declarations page, in the policy itself or by endorsement. Some policies are Full Prior Acts (FPA). FPA is a ‘claims-made’ liability policy that does not contain a retroactive date (either by endorsement or policy language) and therefore it covers claims arising from covered acts that took place back to the inception date of ‘claims-made’ coverage for the entity — regardless of how far in the past. The claims-made policy may explicitly state FPA, or it may be implicit in the policy language. Care needs to be taken because not all FPA endorsements are created equal.
So how does this work?
For example, assume that an insured has a ‘claims-made’ policy that includes a January 1, 2000, retroactive date and a January 1, 2016–17, term. If a claim is made against the insured on July 1, 2016, and the claim arose from a covered act that took place on January 1, 1998, there would be no coverage under the policy. This is because the covered act took place prior to the January 1, 2000, retroactive date.
Now assume that this insured has a policy written with the same January 1, 2016–17, policy term, but the policy contains a FPA endorsement or is FPA by policy language. If a claim were made against the insured on July 1, 2016, from a covered act that took place on January 1, 1998, coverage would apply. In fact coverage would apply regardless of how far in the past a covered act took place, the claim will be covered (as long as the claim is made against the insured and reported to the insurer during the policy period that the act first became known).
To get FPA coverage normally the applicant already has had FPA coverage in place at the time it submits an application for renewal. Note some insurers do not provide FPA, but will go back to the inception date of 1st coverage. Insurers will not provide FPA coverage to insureds that have not maintained continuous claims-made coverage back to the inception date of 1st coverage. Insurers do not want to end up ‘buying’ claims for past acts where no prior claims-made coverage was in place.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080