It is certainly fair to say that claims-made policies have a tremendous amount of uniqueness to them. One of the key issues inherent in virtually all claims-made policies involves the issue of a “retro date”. This date will basically determine whether an error or omission can even be considered for coverage.
For coverage to potentially apply, the date of the “error or omission” must be after any applicable retroactive date as noted on the policy. In other words, there is no coverage for any wrongful act that occurred prior to the retroactive date. For the customer to have coverage for all prior wrongful acts, “full prior acts” coverage should be secured.
There can actually be times where a policy may contain both full prior acts coverage and a retro date. This will often occur when the client is securing higher limits on the coverage provided by the claims-made policy. For example, a client could have a policy for limits of $2,000,000 with full prior acts for those limits. If the client wanted to increase the limits to say $5,000,000, it is conceivable that the insurance carrier would provide those additional limits with a retro date applying to the additional limits. If that were to occur, the agency should take extra caution to make sure the policy was issued correctly. There have been E&O claims where the insurance carrier issued the policy (using the example above) with the retro date applying to all $5,000,000 of coverage. If this is not caught and promptly brought to the attention of the carrier (and fixed), there is a significant possibility that an underlying claim would not be covered.
In the world of claims-made policies, retro dates are one of the most critical issues that agents need to be focused on. When remarketing a claims-made account to a new carrier, the new carrier should not be allowed to change the retro date. If they insist on doing so, moving the coverage to that carrier should not be considered. It is vital that retro dates NEVER be advanced.
For agencies dealing in claims-made coverage, the staff should be fully trained in detail on the various key issues and the impact on coverage applying at the time of a loss. In addition, the agency should have procedures requiring extensive review of carrier proposals and policy review. This degree of detailed analysis could just make the difference on avoiding a potential E&O claim.
When agents provide the clients with a proposal involving claims-made coverage, consideration should be given to providing on the proposal additional detail to help the clients better understand the coverage as well.
Claims-made coverage is very unique and should be treated as such especially on the application of retro dates.