One should understand the importance of retroactive dates in liability insurance since the date determines how far back in time, an incident occurred that could be covered by the liability insurance. Further, one must avoid gaps or lapses in insurance coverage. In order to obtain coverage, one must allocate the premium amount timely. In addition, the insurer must not stop paying the premium for the liability policy.
An insured, if deems fit, may update or switch the insurance policy if he believes that he may obtain more coverage at the same price he pays to his current insurer. Upon changing the insurer, he may still maintain the existing or the same retroactive date. However, he must clarify the same with the new insurer.
He may show his premium receipt to the insurer and request him to set the retroactive date at the earliest. It shall offer broad safety and save a significant corpus of the insured.
Let us understand this with an example.
An individual purchased D&O insurance on 1 April 2005. He continued paying a premium at the beginning of every financial year till 2007. Later he discovered that he may obtain the same coverage at a less price from the ABC insurer.
Hence, on 1 April 2008, he switched the insurer and opt the ABC insurer and pay the premium amount. He showed his premium receipt from the former insurer and requested him to set 1 April 2005 as the retroactive date.
One may understand the importance of retroactive dates in liability insurance from the case law given below.
First Condo Group Ltd. v. Lloyd's Underwriters (2020)
It is a case of commercial general liability insurance that comes under the purview of professional negligence and deals with the exclusion of retroactive dates. It also expresses the importance of retroactive date in liability insurance.
An engineering firm purchased liability insurance and allocates the premium from March 2010 to March 2014. Later, it switched its insurer in September 2015. However, the policy included a provision that exclude coverage that occurred on or before 11 September 2015. Hence, 12 September 2015 became the retroactive date for claims of negligent acts, misrepresentation and error or omission.
On 30 October 2015, a victim was injured and suffered from a brain injury. The tragedy was caused to him due to the act of the insured who is covered under professional liability insurance. The victim instituted the lawsuit for negligence in Court.
The court passed the decree in favor of the victim and asked the defendant to pay the appropriate sum for the loss suffered by the victim. In this case, the insured approached the insurer and settled the claim.
Conclusion
One must understand the advantages and importance of retroactive dates in liability insurance before buying or switching the insurer. The retroactive date determines how far back the policyholder should be covered for the act that has occurred in past.
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