Retroactive date

Retroactive date - the date specified in the insurance contract, after which the events that led to the damage and the establishment of the policyholder's liability during the term of the policy are covered by insurance (Kealy D. 2015, p.48). Practically retroactive date is the starting point in the past, before the conclusion of the insurance contract, to which the insurance conditions apply.

But there exist sitiations, in which the insurance coverage can't be applied to, even if the claim for damages is received during the term of the policy - if the event that caused the damage and which caused the liability of the policyholder, occurred before the retroactive date.

Retroactive date is a start date of retroactive period. It is the time from the retroactive date to the day of the conclusion of the insurance contract (Ershow-Levenberg L., Sheahan Knee P. 2013, paragraph 8.6). The contract provides protection in case of negative events, the causes of which have arisen in the past, before the date of the conclusion of the contract. Therefore, such addition to the contract will be practically meaningless in case of personal insurance. Because even if a citizen suffers from a disease, it will be extremely difficult to prove that it began in the past period and was asymptomatic at the time of the medical examination.

The contract with retroactive period and, of course, retroactive date can be often found in the:

• Agriculture business insurance contracts,
• Construction sites and developer in general,
• Survey works and etc.

In case of construction works, it also popular to insure the building and materials itself. The developer insures the risk of destruction of the building not only against external factors or poor-quality construction work, but also because of the use of poor quality raw materials, chosen by external constraction company. Such insurance is beneficial to the developer, since it saves him from paying compensation to the end user. It is important to note that the owner of the built property will have to independently prove the fact of poor-quality construction (Sido K. 2006, pp. 50-52).

Examples of Retroactive date

• Retroactive dates are often used in professional indemnity insurance to cover professionals for negligence that occurred prior to the policy being in force. For example, an architect may take out a policy that retroactively covers any mistakes made in their designs from the date specified in the insurance contract.
• In workers’ compensation insurance, the retroactive date is the date from which the policy covers the costs of any injuries that occur to employees, regardless of when the policy was taken out. For example, an employer may take out a policy with a retroactive date of January 1, 2020, meaning that all injuries that occur to employees from that date onwards are covered.
• In property and casualty insurance, the retroactive date is the date from which the policy covers the costs of any damage to property that occurred prior to the policy being taken out. For example, a homeowner may take out a policy with a retroactive date of June 1, 2020, meaning that any damage occurring to their property from that date onwards is covered.

Advantages of Retroactive date

The positive side of this clause in the insurance contract is an additional opportunity to avoid the risk that arises before the date of the contract, which can save a lot of money, if the incident takes place. Also, it helps to attaract investors, because it lows risks related to the project and it's effects (Mesnooh C. 1994, p. 108).

A retroactive date in an insurance policy can have several advantages.

• Firstly, it provides the policyholder with coverage for an event that occurred before the policy was taken out.
• Secondly, it can provide the policyholder with a sense of security when unforeseen events arise as they know they are insured as of the retroactive date.
• Lastly, it allows the policyholder to have a certainty that their policy will respond to any claims that arise from the retroactive date.

Limitations of Retroactive date

The disadvantages include an possible gap, especially in recurring insurance contratcs, when insurance agency can provide reproactive date which goes ahead of contract's inception date. In that case, retroactivity of the contarct is much shorter, than it supposed to be (Jerry R., Richmond D. 2012, paragraph 65). A possible drawback for the insurance company is the possibility of fraud on the part of the insured. For example, the agricultural businessman during the winter period did not ensure the safety of seed material. So when he concludes an insurance contract with retroactive date, he is sure in advance that he will receive compensation without additional investment.

• Retroactive date cannot be applied to certain types of insurance, such as health insurance, life insurance, liability insurance, and workers’ compensation insurance.
• Retroactive dates may also be limited in terms of the amount of time that can be covered by the policy.
• If an incident occurred prior to the retroactive date and the policyholder was aware of it, the insurance company may not cover the claim.
• Retroactive dates may be subject to changes in the law and may need to be updated periodically to remain valid.
• Retroactive dates may not be applicable in cases where the policyholder has made a misrepresentation or fraudulent statement on the application.

Other approaches related to Retroactive date

Introduction: Apart from the definition given above, there are several other approaches related to the concept of the retroactive date.

• In the context of liability insurance, retroactive date is the date prior to the inception of the policy, when the claim or suit is filed against the insured. Anything that happened before that date is not covered by the insurance.
• In the context of property insurance, retroactive date is the date prior to the inception of the policy, when the property was damaged. Anything that happened before that date is not covered by the insurance.
• In the context of health insurance, retroactive date is the date prior to the inception of the policy, when the medical condition was diagnosed or the medical procedure was done. Anything that happened before that date is not covered by the insurance.

In summary, retroactive date is the specific date in the past, before the commencement of the insurance policy, which determines if the claim or the damage is covered by the insurance or not.

Conclusion

In conclusion, the retroactive date is an important element in the insurance agreement. It determines the exact date after which the events that led to the occurrence of damage and the establishment of liability of the insured during the term of the policy (contract), are covered by insurance compensation. If it is being used wisely, it will help both sides to benefit from such clause in the contract.

Retroactive date — recommended articles

First party insurance — Period of indemnity — Indemnity principle — Average clause — Runoff Insurance — Assignment clause — Exculpatory Clause — Subrogation waiver — Indemnity bond

References

• Ershow-Levenberg L., Sheahan Knee P. (2013). LexisNexis Practice Guide: New Jersey Elder Law 2013 Edition, LexisNexis, New Jersey, paragraph 8.6;
• Fleischhaker K. (2008). The Savvy Businessperson's Guide to Property & Casualty Insurance: Applications and Practices, AuthorHouse, Bloomington, pp. 21-26;
• Jerry R., Richmond D. (2012). Understanding Insurance Law, LexisNexis, New Jersey, paragraph 65;
• Kealy D. (2015). Understanding the Commercial General Liability Policy, Lulu.com, paragraph 8.6;
• Mesnooh C. (1994). Law and Business in France: A Guide to French Commercial and Corporate Law, Martinus Nijhoff Publishers, Dordrecht, p. 108; p.48;
• Sido K. (2006). Architect and Engineer Liability: Claims Against Design Professionals, Aspen Publishers, New York, pp. 50-52.

Author: Veronika Tomilova

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