Retroactive Date in a Professional Indemnity Policy

For a professional, regardless of expertise or knowledge, mistakes can still be inevitable. A single mistake can cause enormous losses and impact the goodwill or reputation built over the years. This is when a professional indemnity cover comes into the picture. To understand this business policy thoroughly, one is needed to learn about some of its terms, including professional indemnity retroactive date.

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Understanding Professional Indemnity Insurance

Professional indemnity insurance, also sometimes known as Errors & Omissions Insurance, is a common type of business insurance. This insurance indemnifies the professional or a service-providing firm if they commit some mistake, negligence or error within their professional paradigm.These errors may also lead them into legal trouble, thus professional liability insurance covers legal expenses. Generally, it covers the legal cost of defending the claim and the financial aid in paying compensation to the client who raised the claim.

The core importance of professional indemnity insurance includes:

  • Mitigating the risk of litigation arising out of unintentional errors
  • Lowering the chances of loss and risks, businesses or professionals may face
  • Protecting professional’s assets and safeguarding the reputation of their practice

Professional Indemnity Retroactive Date

A professional indemnity retroactive date is a date from which a professional holds the indemnity cover or the insurer agrees to cover the professional (insured). It mentions the date from which the claims are taken into consideration and is mentioned in the policy documents. The retroactive date can also be a date prior to the date of inception of the cover.

Thus, retroactive date helps one avail cover for their past work and errors that have occurred in the past even before the policy start date. However, any claims arising from work done before this specified retroactive date are not covered by the insurer. Professional indemnity retroactive date is based on the concept of ‘backward’ cover.

Let us consider an example to understand better. An architect is held financially and legally responsible for the work completed a year ago. The basis of claims was the usage of poor-quality material leading to cracks etc. Now, if the architect would have opted for professional indemnity cover, and mentioned the retroactive date accordingly he might get covered such past works as well.

Why is Retroactive Date Important?

When you buy a new policy, after the old policy expires, the start date of the new policy becomes the inception date. However, the retroactive date can be the date when you first bought the policy (if there is no gap between the two covers).

Now if there is a period between which you did not have any professional indemnity policy, and a claim arises for the work done during that period, your claim is most likely to be rejected if it doesn’t fall under the retroactive date. Thus, the claim would be rejected even if you are currently insured. A retroactive date hence fills this gap.

For example, as a doctor, you purchase your first professional indemnity insurance for doctors cover on 01st Jan 2020 for six months. After a gap of 4 months, you purchase the next cover, dated 01st Nov 2020. However, with the inception date of the second cover being 01st Nov 2020, the retroactive date can be mentioned as 01st July 2020 to cover for the gap between the policies.

Conclusion

The professional indemnity retroactive date covers the work completed before buying an insurance cover. It is to be taken note that the claim arises after the mentioned retroactive date, and the policy is in place while making the claim. The retroactive date can be a technical term that not many people would be aware of, but it truly is an important aspect of professional indemnity insurance.

Written By: PolicyBazaar - Updated: 15 November 2022