What is Prior Acts Coverage
& Why is it Important?
Every business that purchases a claims-made insurance policy needs to understand what prior acts coverage is.
Prior acts coverage is an insurance policy feature. It covers claims made on insurable events that occurred prior to a claims-made policy’s retroactive date.
Claims-made policies have distinct limitations on occurrences that happened:
A. Before the policy’s inception (starting date).
B. After policy coverage ends.
To understand this concept, let us start with claims-made policies.
What is a Claims-Made Policy?
The first step to understanding prior acts coverage is knowing what a claims-made policy is.
A claims-made insurance policy provides coverage for an incident that occurs and has a claim made during the active dates of the insurance policy. These policies are best when you know you are going to renew the coverage.
Because both the accident and the claim have to occur during the same policy period, it is important to make sure you renew these policies in time so there are no lapses in coverage.
Prior acts coverage becomes important when you do not renew a policy in time or if you have concerns about events that happened before the claims-made coverage.
What is Prior Acts Coverage?
Prior acts coverage is for situations where you have a claims-made policy in place, but you think an event that happened prior to the coverage could bring up an insurance claim.
According to IRMI Insurance Dictionary, Prior Acts Coverage is “a feature of claims-made policies that have either no retroactive date or a retroactive date earlier than the inception date of the policy. Such a policy covers claims during the policy period arising out of events that precede the policy period. Without such a feature, the policy’s retroactive date would preclude coverage with respect to these ‘prior acts’.”
The retroactive date on your claims-made policy is the most important part of your prior acts coverage. This is the date your claims-made policy goes into effect.
Again, according to IRMI, the retroactive date on your claims-made policy defines where coverage begins. This means if an event occurred before the retroactive date on your policy and down the line, there is a claim, you will not receive coverage.
What Does Prior Acts Insurance Cover?
Prior acts insurance covers you for events that occur before the retroactive date on your claims-made policy.
For example, you buy a claims-made policy with a retroactive date of December 15. Down the line you have a client come in and make a claim against you for malpractice. The event they are claiming occurred on December 2, but they are making the claim on December 20.
You will receive coverage for this claim if you have prior-acts coverage. But if you only have a claims-made policy, you will not receive coverage because the act sparking the claim occurred before the retroactive date on your insurance policy.
Now You Know the Importance of Keeping Up with Renewals
Every insurance policy you buy for your business has a prior act, or retroactive coverage, date. The best way to avoid missing out on coverage is by renewing all your policies before they expire.
Renewing your policies is the best way to protect your organization because no matter how many renewals you have, the retroactive date will always stay the same. This means if there is a claim made ten years down the line and there have been no breaks in your coverage, you have coverage as long as the claim happened after the retroactive date in your policy.
Although this is the best way to protect your business, things do not always go as planned. There may be a time where you have to reassess and do not renew your insurance policy in time. This is where prior acts coverage comes in handy.
In a situation like this, you would want to buy prior acts coverage to protect against an event that occurred during your previous coverage or the time where you did not have coverage.
How to Keep Up with Multiple Policies
It is not a secret that keeping up with multiple insurance policies is a lot of work. If you do not have a system in place to keep up with your insurance policies, you may find yourself in a situation where you have to buy prior acts coverage.
While having to buy this coverage is not a bad thing, there is a simple way to avoid this extra expense.
By implementing a Certificate of Insurance (COI) tracking and management system into your risk management program, you can track all your insurance policy start and end dates.