Professional Liability Insurance policies usually are written on a ‘claims-made’ policy form. In its purest form, an unendorsed ‘claims-made’ policy only provides coverage in the current policy term for covered acts that occurred and where the claim is made and reported during the policy term. For professionals this is unworkable as many claims are discovered after the policy expires.
The Retroactive date or Prior Acts date shown on the declarations page or on an endorsement from the policy addresses this issue. 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 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. (See When is FPA is not FPA)
So how does this work?
For example, assume that an insured has a ‘claims-made’ policy that includes a January 1, 2010 retroactive date and a January 1, 2020–2021 term. If a claim is made against the insured on July 1, 2020 and the claim arose from a covered act that took place on January 1, 2009, there would be no coverage under the policy. This is because the covered act took place prior to the January 1, 2010 retroactive date.
Now assume that a different insured has a policy written with the same January 1, 2020-2021 policy term, but the policy contains a FPA endorsement or is FPA by policy language. This insured has had ‘claims-made’ coverage in place since they started their firm, which could have been in the 70’s or 80’s. If a claim were made against the insured on July 1, 2020 from a covered act that took place on January 1, 2009, coverage would apply. In fact coverage would apply regardless of how far in the past a covered act took place (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 that some insurers do not provide FPA but will go back to the inception date of the firm, which matches FPA. Insurers will also 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.
Make sure to head over to our Common Terms section of the L Squared Website to review this and other important professional liability insurance terms.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
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