Which one is which? It’s a common case of mistaken identity. The question of the difference between, and application of, the prior and pending litigation date (“P&P date”) and the retroactive date (“retrodate”) is a frequently visited conversation and can sometimes be difficult to decipher.
The context is heavily connected to the concept of “continuity” on claims-made policies. The ambition of the contract architects is to use triggers to help determine which specific insurance policy should apply to a given claim and identify the circumstances under which a policy will not respond. Continuity can also enable underwriters to discriminate amongst exposures, such that we can provide coverage for certain aspects of risk, whilst not covering others. Fundamental to all of this is the understanding that more than one policy is never intended to apply in a claims-made context.
The P&P date is an ever-present feature on D&O policies. The simple purpose is to preclude cover for prior or existing litigation. As with many other lines of cover, insurance is never intended to apply to known or current problems, it is meant for future claims and proceedings, all of which is quite straightforward. Some general principles also exist:
- if the cover is purchased for the first time, underwriters will rarely change the P&P date from the date of the inception of that first purchased policy;
- if there is a break in cover, underwriters will need a convincing explanation as to why this happened in order not to reset this.
The true effect of backdating the P&P date is that it allows new claims made during the current policy period to be covered when they arise out of pre-existing issues or litigation which may not yet have developed into a claim applicable to the current policy. Evidently, a P&P date at the inception of the policy would potentially allow insurers to exclude claims arising out of pre-existing issues or litigation. Importantly, it does not exclude conduct that occurred prior to that date and the P&P date will be set at the date on which cover was first purchased and from when it has been purchased without interruption.
The existence of a P&P date is not a negative feature, it is part of the standard construction of a D&O policy. Keep in mind, though, that backdating the P&P date will not:
- pick up cover for claims which have been noticed to a prior insurer; or
- pick up any other claims made against the insured prior to the policy period, as the claims made trigger requires the claim be made during that policy period.
This position is further reinforced by a ‘prior notice’ exclusion and prevents the ‘stacking’ of individual claims across more than one policy.
The retro date will not take the place of the P&P date but appears with much less frequency. The retro date goes to the core of continuity and is often referred to as the “wrongful acts” date. It is the date from which coverage incepts for an insured’s behaviour, or “wrongful acts” and, in a nutshell, claims made during the policy period that result from conduct that pre-dates the retro date do not fall for cover. This constitutes a dramatic restriction in coverage, and few brokers would consider this viable when determining whether or not to move from one carrier to another, or to accept a renewal proposal. There are exceptions, which include:
- an insured may have undergone a major overhaul of management, and the new regime (or the underwriter) may seek to insulate itself from the behaviours of their predecessors;
- an insured may not have purchased D&O previously, and the underwriter may not wish to cover the behaviours of the past;
- a buyout or purchase: the most common place to see a retro date will be on an organisation that has been the subject of a buyout. In this case, the prior policy will go into run off (D&O – do you need to run off?) and a retro date is the correct and perfectly standard solution.
D&O policy language can sometimes be difficult to digest, so it’s always good to have help at hand if you need it. Understanding and simplifying the differences can be straightforward, but not always, and MPR are on hand to help when you need us.