What is the Retroactive Date?

Professional indemnity insurance provides cover for professionals to protect them against losses from a breach of professional duty.

Professional indemnity insurance is a claims-made and notified policy. This means if the insured receives notice of a claim during the policy period, the claim must be notified to the insurer before the expiry of the policy period. If a claim notification is received after the expiry date of the policy, the policy will not respond. 

Professional indemnity policies generally have a retroactive date. This is the date after which the breach of professional duty will be covered by the policy. On the other hand, a breach of professional duty occurring before the retroactive date will not be covered.

There are three common types of retroactive date:

Policy Inception – The policy only responds to claims for professional services provided by the insured after the inception of the policy.  This type of retroactive date is usually applied when the insured is taking out professional indemnity insurance for the first time.

Specific Date – The policy covers a claim notified during the policy period for a breach of professional duty that occurred on or after the specified retroactive date. For example, assume the policy period is 1 July 2021 to 30 June 2022 and the specified retroactive date is 1 July 2015. A breach of professional duty occurring on or after 1 July 2015 will be covered if the claim is received and notified during the policy period. A breach of professional duty occurring before 1 July 2015 will not be covered. This type of retroactive date may correspond to when the insured established their business or when they first took out professional indemnity insurance.

Unlimited – The policy covers a claim notified during the policy period for a breach of professional duty regardless of when it occurred.

Unlimited retroactive dates are the preferred cover for an insured because there are no limitations on when the breach of professional duty must have occurred. However, for the policy to respond, the claim must be made and notified during the policy period irrespective of when the breach of professional duty occurred.

If an insured changes insurer, it is important to ensure their replacement policy has the same retroactive date as the previous policy. A gap in cover between the previous policy and the replacement policy should also be avoided. This is because the new insurer may refuse to apply the same retroactive date to the replacement policy that applied to the previous policy. If the new insurer does not apply the same retroactive date, it may be on the basis that any claim arising from a breach of professional duty occurring during the period of no cover is excluded.

Retroactive Cover in Practice

ABC Engineering Pty Ltd has been trading since 2010 but has not previously held professional indemnity insurance. A new contract requires ABC Engineering to have $2m professional indemnity cover. They take out an annual professional indemnity policy with an inception date of 01/06/2020 and a retroactive date of policy inception. ABC Engineering received a claim notification in January 2021 relating to a design contract started on 01/07/2020 and completed in October 2020. ABC Engineering reported the claim to their insurer in February 2021.  As the professional design services were carried out after the inception of the policy and notified during the policy period, the policy will respond subject to the terms, conditions, and exclusions of the policy.

However, if ABC Engineering received a claim notification in January 2021 for design work completed in 2018, the policy would not respond. This is because the claim relates to professional services performed before the retroactive date (i.e. 01/06/2020). The policy would only respond if it had an unlimited retroactive date or a specified retroactive date before the start of the works in 2018.

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