Directors and Officers Insurance Retroactive Date Explained
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An Introduction to Directors’ and Officers’ Insurance
Nearly every company can benefit from Directors’ and Officers’ insurance. Directors’ and Officers’ (D&O) insurance policies can protect current, former, and future directors and officers from allegations of wrongful acts brought by stakeholders.
Directors’ and Officers’ insurance policies are written on a claims made basis. What this means is that the policy in force at the time that a claim, or first knowledge of a potential claim, brought forward in will respond. This is an important feature of D&O and E&O insurance policies, but can be limited depending on conditions set forth within the insurance policy. Regarding Directors’ and Officers’ insurance policies, it is important to note how the retroactive date can affect your coverage.
How A Directors and Officers Insurance Retroactive Date Affects Your Coverage
The dictionary definition of ‘continuity‘ is; the state or quality of being continuous. Therefore, the continuity date, as it pertains to D&O insurance policies, is the date that continuous coverage — that is coverage without any gaps — has been maintained. Often times, the continuity date is the date to which D&O insurance was first obtained.
Maintenance of the continuity date is especially important when moving an existing D&O policy with one insurance company to another. The reason for this is because of the warranty statement that is often found in D&O insurance applications. The warranty statement is an important and critical part of the D&O risk placement process as it creates the possibility that a claim could be denied by the insurer on the basis of prior knowledge. An example of what a typical warranty statement looks like is; “Is any person or entity proposed for this insurance aware of any fact, circumstance or situation which may result in a claim against the organization or any of its directors, officers or employees?” By the new insurer honouring the continuity date from the previous policy, the effective date of the warranty statement from the initial D&O insurance policy will remain unchanged.
Directors’ and Officers’ insurance policies typically provide coverage for historic wrongful acts that happened after the retroactive date, so long as the insured had no knowledge of them. The retroactive date on D&O policies specifies how far back in time the retrospective cover applies. When a retroactive date is included in a D&O policy, an insured may find themselves without cover in the event of an alleged wrongful act that took place prior to the retroactive date.
An example to illustrate the impact of a retroactive date;
John Doe Inc. has been operating for many years when they decide to purchase D&O insurance. When the D&O insurance policy is issued, it is done so with a retroactive date of inception– in this case January 1, 2010. Part way through the policy period a possible claim for an alleged wrongful act occurring in 2008 is brought to the attention of John Doe Inc., who immediately reports this to the insurance company. Because the wrongful act took place prior to the retroactive date on the policy, in this case prior to January 1, 2010, coverage for the claim would be denied. Taking the same scenario, had there been no retroactive date on this policy and no prior knowledge of the alleged wrongful act, cover for the claim would have been granted, assuming there were no other conditions within the policy that would limit cover.
Contact An ALIGNED Advocate For Directors and Officers Insurance Retroactive Date Explained and/or A Directors’ and Officers’ Insurance Quote at 1-866-287-0448 Today.
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