Under a claims made and reported policy, an insured would have coverage for any covered malpractice misstep that occurs and is reported during a policy period. The problem, however, is malpractice claims often don’t arise in the same year the actual misstep occurred. Prior acts coverage is what solves the problem..
In order to help you understand what prior acts coverage is, I must first explain why policies have a retroactive coverage date. In short, the retroactive coverage date sets the parameter of prior acts coverage. Under a claims made and reported policy, no coverage would exist for any malpractice misstep that occurred prior to the policy’s retroactive coverage date, even if the claim was made and reported during the policy term. Also know that a malpractice policy’s retroactive coverage date is usually the policy inception date of the first policy ever purchased as long as continuous coverage has been maintained over the years.
With all this in mind, let’s keep it simple and look at an example. The date Kathy hung out a shingle happened to be January 15, 2017 and she submitted an application for a malpractice policy on August 2. Shortly thereafter she was approved and the first day of coverage, the policy inception date, was set at August 2, 2017. The policy term is one year. Because this is her first policy, the policy inception date will also be her retroactive coverage date. Since the retroactive coverage date is August 2, 2017, no coverage is going to be available for any of the work done prior to that date, even if a claim based upon that work were to arise and be reported during this first policy period.
Now let’s look at year two. Kathy reapplies for continuous coverage and is approved. A new policy is issued with a policy inception date of August 2, 2018, but she has coverage for prior acts so her retroactive coverage date will remain August 2, 2017. The claims made and reported coverage remains the same as it was in year one. She would be covered for a malpractice misstep if that misstep were to occur during this second policy year and again, on condition that the eventual claim both arises and is reported during this same current policy year, what is different in this second year is that her coverage for her prior acts extends her coverage back one year. This means that Kathy is covered if a malpractice misstep were to occur on or after August 2, 2017 (her retroactive coverage date) on the condition that the claim would both arise and be reported during this current policy year meaning year two. If Kathy commits to maintaining continuous coverage with prior acts in place, her retroactive coverage date will remain the same and her coverage for prior acts will continue to broad one year at a time.