PI Insurance: The retroactive date explained
- 12 Jul 2023
- Markel Direct
If you’ve ever called an insurance company to arrange your professional indemnity insurance, then it’s likely that you’ll have heard the ‘retroactive date’ mentioned. But what exactly is the retroactive date?
In this blog we look to make this part of professional indemnity insurance a little bit clearer to understand.
What is the retroactive date?
In brief, a retroactive date is the date from which you have held ‘uninterrupted’ professional indemnity insurance. It’s applied to all professional indemnity insurance policies to exclude claims arising from any work that the policyholder has undertaken prior to the date shown when you took out the policy.
As a result, if you’ve held ‘uninterrupted’ professional indemnity insurance, without any breaks in cover, since you began contracting or freelancing, then you can rest assured that you’ll be covered for all the work you’ve completed in the past.
It’s important to remember, that if you’ve had a break in cover for any length of time, and for any reason, then you’ll only be covered for the work you’ve undertaken since you took out your recent PI policy.
Why is PI insurance set up in this way?
Professional indemnity insurance is written on a ‘claims made’ basis. This means you are covered against claims that have arisen and been notified to your insurer during the term of your policy.
This means you must have been insured at the time the alleged incident took place (when you did the work), and also an the time that you told your insurer your client is making a claim against you (when you receive a complaint from your client or a solicitors letter).
No live policy = no cover
An example scenario of how retroactive cover works could be:
An IT contractor works on a client project for six months. They arrange PI insurance to meet the terms of the contract and once the contract is finished, the contractor terminates their PI policy thinking they don’t need it any more.
After a few months, the client makes a compensation claim against the contractor alleging negligent work and stating that the work is not fit for purpose and has cost them money.
Even though the work was delivered during the period the contractor’s PI insurance was live, the claim and subsequent notification to the contractor’s insurer were made after the cover was cancelled. Therefore, the contractors is not covered for the claim.
This can be where professional indemnity insurance can be difficult to understand for many people.
Had the IT contractor chosen to continue his professional indemnity insurance following the end of the contract, the claim would have arisen and been notified to the insurer during the term of the policy, meaning the contractor would have been fully covered by their PI policy.
How long should you retain your PI cover for past work?
It’s important to be aware that even if your company has stopped trading and you’ve gone back into full time employment you can still be pursued for a mistake or financial loss suffered by one of your clients.
This can be for up to 6 years after your business closed. See below for details of ‘claims in relation to’ for timescales. That’s where professional indemnity run off cover comes in handy.
Run off cover is a particularly important for self-employed people who are entering retirement. The cover is usually a fraction of the premium of full PI insurance and in some cases the premium will decrease year-on-year. Run off must be taken at your renewal date as part of your continuous cover. If you cancel your cover or take a break in cover, then run off will not be offered to you.
The relevant limitation periods for different types of claims set out in the Limitation Act of 1980 are as follows:
Claims in relation to:
- recovery of land: 12 years
- a contract: 6 years (most relevant to freelance contractors)
- awards in arbitration: 6 years
- debt arising under statute: 6 years
- negligence: 6 years
- breach of trust: 6 years
- tort: 6 years
- personal injury: 3 years
- defamation and malicious falsehood: 1 year
The key point to remember is that keeping your professional indemnity insurance live throughout your contracting career (and beyond) will ensure you’re covered for any mistake that could be raised in the future.
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