Retroactive Cover

What is retroactive insurance cover?

Retroactive cover refers to coverage for services undertaken previously i.e. prior to the policy start date.

Professional indemnity insurance will include an exclusion whereby any claims relating to services provided prior to the ‘retroactive date’, as noted on your policy schedule, are excluded.

This is important as for the majority of professional negligence claims it is possible for a claim to be brought against you for services provided up to 6 years ago. For example a bookkeeping error which is not realised until HMRC open an enquiry.

There are certain circumstances in which the time limits would differ if the negligence only becomes apparent at a later date. It is possible to bring a claim outside the six-year limitation period if the damage complained of was not discovered until after the expiry of this period. This is known as 'latent damage', and in these circumstances the claimant has three years from either the date of knowledge of loss or the date when it ought to have reasonably known about the loss. What constitutes what 'ought reasonably to have been known' depends on the circumstances of the case, and specific advice should always be sought.

There is a final time limit of 15 years from the date of the defending party's negligent act or omission.

Professional Indemnity insurance operates on a ‘claims made’ basis which means it is the policy in force at the time the claim is made, for example when the negligence proceedings are brought against you, that will react to the matter and not the policy in force at the time of the negligent act. This is not a familiar concept to most contractors as it is not applicable to all insurance policies. For example, notwithstanding the policy terms and conditions, Public Liability will cover you for incidents that occur during the period of insurance, regardless of when a claim is brought. Some policies such as Qdos Tax Liability Cover will automatically cover exposure for previous years.

Therefore if you have undertaken services prior to the policy start date, you should be sure to note the ‘retroactive date’ that will apply to the policy.