Navigating the Professional Liability Policy Maze: Unveiling the Importance of Policy Dates
Why Is It Important to Remember Dates for an Insurance Policy?
Remembering the dates associated with your insurance policy helps you get the most out of your coverage. Suppose you missed the policy renewal date. A client hits you with a lawsuit a month later. You go to your insurer to file a claim. Turns out you re not insured anymore. Who’s responsible? Not the insurer. It’s your responsibility to remember important dates so that you can renew your policy, file a claim, use the grace period, and pay your premiums.
Important Dates for a Professional Liability Insurance?
Besides the standard dates like the start and expiration dates, you must also remember other important dates, such as the split retro date. Here are some important dates to mark on your calendar.
The effective date of your professional liability insurance policy is the date from which the insurer starts insuring you. The insurer will assume the risk for your covered entity or individual from this date. Suppose you’re a medical professional. You get medical malpractice insurance with the effective date of February 1st, 2023. Your insurancecompany will cover all lawsuits or claims arising after this date. Its essential to keep in mind that the effective date is not always the date you bought the policy. For instance, you may have purchased the insurance policy on January 25th, 2023, but that doesn’t automatically become your effective date.If a patient sues you on January 28th, your insurance policy will not cover the legal costs even though you bought the policy. Similarly, the effective date often differs from your first premium payment date. Instead, the effective date depends on the policy terms agreed upon by both parties.
The expiration date is the last day of your professional liability insurance coverage. For instance, if your law firm gets a professional liability insurance policy on January 1st, 2023, with an expiration of January 1st, 2024, the coverage will no longer be effective after the expiration date. You must repurchase or renew the policy after this date to continue coverage.
Retroactive Date/ Prior Acts Date
The retroactive date determines if – and if yes, how far back in time – your professional liability coverage will cover past losses. Well, isn’t that just the effective date, you may wonder? Not really. Let’s explain with an example. Company X is a pharmaceutical organization that makes a popular diabetic drug. The company has a professional liability insurance policy with an effective date of January 1st, 2022. Now, users of the company’s drug have come forward with lawsuits claiming that the drug caused severe side effects like heart failure. Usually, these side effects would have occurred before January 1st, 2022. Will the insurance company cover these claims? If yes, how far in time should the coverageextend? That’s what the retroactive dates determine. For instance, if Company X’s policy has aetroactive date of January 1st, 2016, the insurer will cover all claims resulting from heart failures after this date, even though the effective date is six years later.
Split Retro Date
In some professional liability insurance policies, the insurer divides the coverage period into two parts. The first segment covers claims with certain limits from retro date through the date when limits have been changed. Meanwhile, the second covers claims with different limits from the date when limits were revised through the current date. Let’s suppose the client has a retro date of January 1st, 2015, and has limits of $1 million per claim. Later, the insured increases their claim limit from $1 million to $3 million per claim on June 1st, 2023. In this case, the retro date for the $3 million coverage will be June 1st, 2023, while $1M coverage will still apply for claims arising from period of January 1st, 2015, through June 1st, 2023. For example, if a claim arises after June 1st, 2023, the insurance company will cover
settlements and court costs up to $3 million. But for any claims arising due to circumstances before this date but after January 1st, 2015, the client will only get coverage up to $1 million.
Let’s say a company was insured by Insurer A. Instead of renewing the policy after expiration; the company switches to a new insurer, Insurer B. A new effective date is set for January 1st, 2023. A claim arose on December 10th, 2022, when Insurer A still insured the company. But the company did not file the claim despite knowing about it. Does that mean Insurer B inherits this claim? No. The knowledge date excludes professional liability coverage for situations resulting in claims or already established claims you knew before the policy’s effective date. It is of utmost importance, therefore, to report the claims promptly to the current carrier to avoid that neither of the carriers take responsibility for it.
Prior and Pending Litigation Date
The prior and pending litigation exclusion is a part of most professional liability insurance policies. It is the date before which the insurance company does not cover any prior or pending litigations. Here’s an example. Company A buys D&O insurance with an effective date of March 1st, 2023. The company tells the insurer that it does not know of any claim or a situation that could result in a claim. The insurer sets the prior and pending litigation date the same as the effective date. So, they will not accommodate any litigations filed or pending before this date. On August 1st, 2023, a lawsuit naming the company’s directors arises. It’s not a new lawsuit. It was filed in 2020, and the company’s insurer at the time knew about it. But this is the first time the lawsuit has named the directors. The D&O insurance policy will not cover this lawsuit because it was filed before the prior and pending litigation date.
Policy Hire Date
When a law firm or a medical clinic gets professional liability insurance, the policy covers errors,
omissions, and negligence by all employees in the organization. But the coverage only starts from the hire date. It is usually when an employee completes the new hire paperwork, such as the state forms, Form I-9, and other documents. The hire date is not always the same as the start date. For instance, a law firm might hire a junior lawyer. Although the hire date is January 1st, 2023, the recruit comes into the firm two weeks before to get familiar with the team. The insurance policy does not cover errors or omissions during these two weeks.
Remembering and knowing all these dates isn’t exactly a hassle. Most insurance companies
send you reminder emails when an important date is approaching. These dates are also mentioned on your insurance paperwork. But if you have any queries, do not hesitate to contact your insurer or agent for clarification and advice.