The Hidden Ingredients - Find out about the PI Cover small print that you really need to know – Don’t let the past come back to haunt you!
Insurance can be a technical business and in our “Hidden Ingredients” articles we explore some of the potential pitfalls to look out for when you compare Professional Indemnity Insurance, such as the basis of cover (negligence only or full civil liability) and the different indemnity options (aggregate or any-one-claim limits).
Another key area where we have seen many businesses fall foul is retroactive cover.
What is Retroactive Cover
More Insurance jargon I’m afraid, but this one can have major consequences on your PI Insurance and the cover provided. Professional Indemnity Insurance is written on a “claims made” basis, which effectively means you need a policy in force when you receive a potential claim, i.e. when the claim is "made" against you.
Retroactive cover makes provision to cover work you have carried out in the past and your current Insurer will indemnify you against claims received in the current policy period relating to negligence from prior advice or services.
How does Retroactive Cover work in practice?
For your current insurer to provide you with cover for previous work, the current policy will need a retroactive date.
Once this is agreed with your PI Insurer and written into your policy schedule or wording, the underwriter will indemnify you for losses relating to work carried out from this date.
Any contracts, advice or services provided before this date will not be covered.
Where can I find my Retroactive Date?
If you have an existing business with current Professional Indemnity Insurance and you are looking to move Insurers (perhaps to improve cover or obtain a cheaper premium), then your existing policy will include the current retroactive date.
This will generally relate to the time your business started trading, and you purchased your PI cover.
If you’re struggling to locate this in your documentation, a specialist Professional Indemnity Insurance Broker will be able to assist you.
What if I have been trading and have not previously purchased PI cover?
Most off the shelf policies will include a standard exclusion in terms of work carried out in the past and will only cover you for advice or services provided from the inception of the policy.
However, it should be possible to purchase cover for past work (Retroactive cover) by payment of an additional premium, subject to provision of full details of the contracts undertaken and the date you started trading or require cover from.
Your PI Broker will be able to assist in arranging this for you.
Why is this important?
If you purchase a policy without the correct retroactive cover you could be exposing your business to significant financial risk as any claims relating to past contracts, advice or services will not be covered.
While some PI claims are apparent and are receiving almost immediately, others can take months or even several years to come to the surface, and you could, unwittingly, be making a huge gamble.
Is Retroactive Cover expensive?
If you have had continuous PI cover, the majority of Insurer will not make any additional charge beyond their standard underwriting of the risk, effectively the same basis as your current Insurer.
If you have not previously purchased Indemnity Insurance, then the cost will depend on the nature of your business and the period of retroactive cover required.
This need not break the bank. Your PI Broker will be able to advise you and obtain some options for you to review, it’s better to have the cover in place than take a chance on a cheap professional indemnity policy that omits to cover the majority of your risk.
Acquisitions and new Partners
If you purchase a rival business or take on a new partner, it’s vital to explore your exposure to the past advice and services which the firm or individual has provided.
Legally you could find that you are now responsible for this advice and any negligence claim will fall into your lap.
Your solicitor or legal advisor should be able to provide definitive advice, which may be standard practice for a significant acquisition.
Still, we have often seen this missed when a single partner joins a firm from their own practice. Usually, this can be included within your current policy subject to payment of an additional premium.
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