‘Claims Made’ is the term used to describe an insurance policy which provides cover for claims notified during the term of the policy, but not necessarily the same time period when the actual incident or error causing the claim occurred.
Professional Indemnity policies, for example, provide cover on a ‘claims made’ basis because professional errors in construction, legal, accounting etc are often only discovered weeks, months or sometimes even years after services are complete.
If you made a costly mistake for a client in 2016 but your client does not discover their loss until 2020, it is your 2020 policy and insurer that deals with the negligence claim against you. Therefore a valid professional indemnity policy or ‘run-off’ policy must remain in force at all times for a claim to be met by an insurer.
So for a negligence claim against you to be covered, your professional indemnity insurance policy has to be in force at two points: when you did the work and when you report the claim.
Let’s say you cancel your cover as soon as you finish a contract. If there’s a claim against you, say, three weeks after that, it won’t be covered – even if it relates to work you did when the policy was in place.
If you want to make sure you’re still covered, you need to keep your insurance running. This could mean paying for cover years after completing your work, or after you’ve ceased trading or retired.
It’s essential you have the correct ‘retroactive date’ on your professional indemnity policy. The retroactive date is a date in the past (usually in line with when you first purchased professional indemnity insurance) which is the earliest date in the past that your cover will reach back. Sometimes, when moving insurers, if not advised otherwise, an insurance company will set the retroactive date to the start of your new policy, meaning you are not covered for any work you did before this date.
Example – XYZ Ltd buys a professional indemnity policy that they renew on the 1st January 2012. The policy has a Retroactive date of 1st January 2002. They are therefore covered for claims made against them after 1st January 2012 for any work that they have done since 1st January 2002.
Please also bear in mind that if you change your limit of indemnity, it is the limit purchased when the claim is notified that applies, not the limit purchased when the work was actually carried out.
We are Experienced Insurance Brokers and can help ensure you have the right level of cover.
If you would like us to talk you through Professional Indemnity Insurance please get in touch with us. We can offer a no-obligation quote too. You can contact us:
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