Two key aspects of claims-made policies like CPLIC, RRG’s E&O policy are the retroactive date and the need for continuous coverage.
What is a Claims-Made Policy?
Claims-made policies cover claims that are first reported during the active policy period. This is different from occurrence based policies which only covers claims that first occur during a policy period, even if the claim is reported after the policy is no longer active.
Coverage for claims made policies is only provided if the policy is active at the time of the claim and the alleged incident occurred on or after the retroactive date.
What is a Retroactive Date?
The retroactive date is the date after which an incident must occur to be covered under a claims-made policy. It defines the earliest point in time for covered activities, ensuring you are protected for work done prior to the current policy period.
Why is the Retroactive Date important?
- Covers past work
- It allows coverage for claims arising from work you did in the past, as long as the policy is in force and the incident occurred after the retroactive date.
- Without a retroactive date, only incidents that happen after the policy’s start date are covered, which could leave a significant gap in protection.
When moving to a new insurer, you want to carry over the same retroactive date to maintain coverage for your previous work. To carry over the same retroactive date, there must be continuous insurance coverage in place for the performance of your professional services.
Continuous Coverage: What does it mean?
Continuous coverage ensures that there are no gaps in your insurance.
If your claims-made policy lapses or is canceled, you lose protection not only for new claims but also for incidents that occurred before the lapse, even if the event took place during a previous policy period.
Why is maintaining continuous coverage crucial?
- No gaps in protection
- If your policy lapses and you don’t renew in time, you risk losing coverage for claims from work done in the past.
- Claims might not arise until years after the incident.
- Continuous coverage ensures those claims will still be covered as long as they occurred after the retroactive date.
What happens if you cancel or fail to renew?
- If your coverage lapses, any claim reported after the lapse won’t be covered—even if the incident occurred during a period when you were insured.
- Extended Reporting Periods: This can extend your protection after the policy ends and allows an extended period of time in which to report a new claim.
What is the benefit of a claims made policy?
- Claims-made policies offer more control and affordability, especially for businesses mindful of cost and risk management.
- Claims-made policies often have lower initial premiums compared to occurrence-based policies, making them more cost-effective for businesses and professionals.
- Claims-made policies allow for flexibility with retroactive dates and extended reporting periods, which can extend protection for past incidents even after the policy ends.
- Premiums and coverage limits can adjust over time as the risk environment changes, giving policyholders the ability to manage their protection as their business evolves.