Retroactive Cover Clause

Purpose

Claims-made policies generally cover only wrongful acts committed on or after a contractually agreed retroactive date. The retroactive cover clause moves that date back before the actual inception of the policy, or removes it altogether, so that wrongful acts committed before the policy started but not yet known to the policyholder are also covered, provided the claim is first made during the current policy period.

Effect and limits

Cover is usually conditional on the policyholder having no knowledge, at inception, of the circumstance or a possible claim; corresponding statements are typically requested as a duty or warranty. Retroactive cover must be clearly distinguished from an extended reporting period: the latter extends the reporting window forward beyond expiry, whereas retroactive cover extends the period of covered wrongful acts backward into the past.

Negotiation and practice

The clause becomes particularly important on a change of insurer, in corporate transactions, and during due diligence where latent historical liability exposures are being assumed. Brokers should always align the new policy’s retroactive date with the end of the prior policy’s extended reporting period, to avoid a so-called trigger gap between the two contracts.