"Full" Equals "None"? (Professional Liability Terms and Usage - Part I)

As much as possible when quoting or forwarding policy comparisons or summaries to my customers, I try to avoid using abbreviations or other lingo that may not be readily understood. Sometimes items are included in correspondence that may not be clear, so in the next post or two I'll try to touch on phrases and abbreviations you may run into as you work on future professional liability and E&O accounts.

Past Acts Date: Just another way of saying "retroactive date" or what most people call the "retro date". You will also hear it referred to as the prior acts date. That's one of the critical dates on a claims made policy, and it may or may not be different than the policy effective date. It's the earliest date an error or omission could occur and be covered by the current carrier/policy, and it's either the effective date of the policy (see "RDI") or some date in the past. Some carriers add their own terminology, like Travelers for example uses the term "knowledge date". For them that means the date Traveler's first wrote coverage for that account. What it means is the insured is warranting they are not aware (have no knowledge) of any claims - or incidents that could give rise to claims - that occurred before the "knowledge date".

"Full" Prior Acts: This one indicates that there are no limitations regarding the prior acts date. It's used by some companies when they can see that an insured has had continuous claims made coverage for a period of time (ten years, for example) but the insured has been in business for twenty years. Perhaps they can't really identify the exact date that claims made coverage was first put in place, or once it's past a certain number of years it doesn't really matter to the carrier if a date is shown. Strategically, I think it's used to make it more difficult for competitor carriers to know just how far back prior acts coverage might extend on the current policy! (But that's just me...)

"None": How's that for obscure? You may see Declarations (dec) pages on policies show a prior acts date as "none". Don't be confused into thinking that means they don't have prior acts coverage - if there's no prior acts coverage the "retro" date will show the effective date of the policy, or if it's on a quote the quote form might say "incecption date". Remember, a prior acts date is a limiting or restricting condition of coverage, so "none" as a retro date means the insurance company is not showing a date that limits how far back they'll go to insure past acts. (It's the same as "full". If this doesn't make sense, call me and I'll try another way to explain it...)

RDI: Sometimes a broker will tell you all they can offer is "RDI" when you're looking for coverage to include prior acts. RDI is "retroactive date = inception" and effectively means their is no prior acts coverage provided by this policy. (If an account is quoted RDI, then when you look at the quote document the effective date of the policy and the retro date will be the same date). Just remember if you see or hear "RDI" in regards to prior acts, you need to advise your client they have no prior acts coverage if they choose that quote/policy. And if you're new to claims made or prior acts coverage, it's almost impossible to obtain anything other than RDI on a business that's never carried claims made E&O insurance previously. (I say "almost" to cover my assets because I'm sure someone, somewhere has arranged it, or will in the future)

"Tail" Option: On most policies it's shown as "extended reporting period" (ERP) or sometimes as extended "discovery". If you're talking with others within the professional liability industry, most of us call it "tail" coverage. The rather odd terminology is linked to the fact that the option comes at end of the policy term and if accepted, is added on to the "end" of the policy, like the "pin the tail on the donkey" game. Except hopefully you're not blindfolded while arranging for your client's ERP!

What ERP or tail coverage does is add time onto the end of the policy for claims or incidents to be reported, which oddly enough is why it's easier to remember this as the "extended reporting period option" as opposed to the "tail" option. "Extended reporting period" describes it pretty clearly, while "tail" could mean any number of things, none of which I'm going to explore here!

What ERP does not do is continue or extend the expiring coverage for "new" errors or omissions. If your CPA retires and buys an ERP option, he will have additional time to report claims that may arise as a result of his practice - his previous work in effect. If he then decides to "un-retire" and does nothing about his insurance coverage, his ERP will not protect him from errors, omissions, etc that may happen while functioning at his new job, business, etc.