Professional liability insurance coverage is determined on a claims made and reported basis, looking to the policy that is in place at the time the claim ripens and is reported to the insurer. There are a few other elements that factor into whether a policy covers a particular claim: one such element is the prior acts date.
What is a Prior Acts Date?
Every professional liability insurance policy includes a “prior acts date.” This is essentially the starting line after which representations and activities will be considered as covered in the future.
Usually, the first policy you buy from a carrier will have a prior acts date that corresponds to the inception date of that policy. That means that that carrier will cover only those claims arising from representations and actions that occur on or after that prior acts date. When a firm maintains continuous coverage with the same carrier going forward, all subsequent policies will relate back to that first prior acts date, so that over the years, the current policy would speak to claims that arise from activity that occurred even before the year in which the claim is made and reported, as long as they were delivered after the initial prior acts date.
However, if you change carriers, you may face a gap in coverage when your new policy with your new carrier has a prior acts/inception date that starts where your policy with your prior carrier ends. In those circumstances, if a client you worked with two years ago sues you now over a deadline you missed a year ago, your new policy wouldn’t cover it because it arises from work done before the prior acts date of the new policy.
Managing Risk With Prior Acts Coverage
To manage this risk, you should consider purchasing either some sort of gap or prior acts coverage from your new carrier or an extended reporting period (ERP) from your prior carrier. The former is a policy that is intended to cover claims arising from only those representations or actions that fall in the precise gap of concern. When purchasing such a policy, make sure it extends for an appropriate amount of time to cover, at least, likely limitations periods for any of the claims you are trying to cover. This coverage can be purchased in conjunction with your new policy, or you might buy it from a separate carrier.
ERPs are generally purchased from your prior carrier and do exactly as they say: they extend the available period in which you may report a claim under that policy. Most malpractice policies do have some sort of small grace period for reporting beyond the expiration date of the policy, even up to a few months after that expiration. But ERPs stretch those periods—for as much as several years to address applicable limitations periods—to allow for reporting of claims that would otherwise fall through the cracks. ERPs are particularly helpful for professionals who are retiring and so don’t need new coverage but still face potential liability for at least a few years after leaving practice.