What is a retroactive date on professional indemnity insurance?
If you’re working as a contractor, consultant or freelancer, the chances are you’ll hear the phrase ‘retroactive date’ at some point when arranging your professional indemnity insurance cover.
A retroactive date is generally the date from which you have held uninterrupted professional indemnity insurance cover. It is applied to all professional indemnity insurance policies and its purpose is to exclude claims arising from any work undertaken prior to date shown.
As a result, if you have held professional indemnity insurance continuously (with no breaks in cover) since you began contracting, you’ll be covered for all work you’ve done in the past – even if you’ve switched insurer since.
If, however, there has been a period of time when you did not hold professional indemnity insurance (for example, you cancelled your policy following the end of a contract or chose not to renew it), you will only be covered for work since the start of your new insurance policy.
Why does professional indemnity insurance operate this way?
Professional indemnity insurance is provided on what’s known as a ‘claims made’ basis. This means you are covered against claims arising and notified to your insurer during the term of your policy. In practice, this means you must have been insured at the time the alleged incident took place (i.e. when you did the work), and also when you tell your insurer your client is making a claim against you (in most cases, when you receive a complaint from your client or a threatening solicitors letter).
To give an example, let’s assume an IT contractor needs professional indemnity insurance for a six month contract. They arrange cover and complete the contract as planned.
As everything seemed to go to plan on the contract, the contractor cancels their professional indemnity insurance as they don’t think they need it any more.
However, three months after they have cancelled their insurance, the client they did the work for sends them a solicitor’s letter alleging that the work was not fit for purpose and demanding thousands of pounds worth of compensation.
No live policy = no cover
In this instance, the IT contractor would not be covered.
Although the claim has arisen from work undertaken during the term of the insurance policy, it was notified to the insurer outside of the term of the insurance policy (because the IT contractor cancelled it at the end of the contract).
Unfortunately, this means the IT contractor is uninsured and would have to to settle the client’s claim out of their own personal finances.
Had the IT contractor chosen to leave his professional indemnity insurance live following the end of the contract, the claim would have arisen and been notified to the insurer during the term of the policy, meaning they would be fully covered by their policy.
How do I stay insured for past work?
The answer is simple: keep your professional indemnity insurance cover live at all times. Although it may seem like an inconvenient expense, the cost of the premium is small compared to the cost of a claim, and a large number of claims are brought against contractors several months (or even years) after the negligent act took place. If you don’t maintain cover, you could be left with a bill for thousands of pounds in legal fees just to defend yourself, plus further costs payable to your client as compensation.
How long should I keep professional indemnity insurance live if I enter full time employment or retire?
There’s no definitive answer here and it’s entirely down to your own judgement. If a contract has gone entirely to plan, you may choose to keep your professional indemnity insurance live for only three years after the contract finished. If it was a particularly large contract, you may want to keep it longer. The important thing to remember is that keeping a professional indemnity insurance policy live throughout your contracting career (and beyond) will ensure you’re covered for any mistake that could come to light in the future.