Prior & Pending and Retroactive Dates – What’s the difference?

P&P or retroactive dates, a question both insurers and brokers in the D&O space ask themselves at least somewhat frequently and which can easily cause confusion for clients if not well informed. The difference between the two is subtle and not immediately apparent from context alone. In this brief article, we will examine both P&P and retroactive date clauses, explain what exactly their impact is, when underwriters might use them and why they are not mutually exclusive.

Prior and Pending Litigation (P&P)

P&P dates are a mainstay of standard D&O policies and will be shown on the schedule of a D&O policy. As insurance is not designed for events that have already happened, are known about or inevitable, the P&P clause in a D&O policy acts to enforce this principle.

P&P clauses are designed to protect the insurer against litigation the company and/or directors are aware of, but which may not be relevant to the D&O coverage at the time but has the potential to be.

P&P may also be known as a ‘continuity date’ or ‘original inception date’.

Example

Company A has purchased D&O insurance for the first time on 1st January 2022, despite having traded for several years. Their policies comes with a P&P date of 1st January 2022 as well. On the 4th March 2022, the directors were personally named for the first time in an older case originally filed against the company on 18th October 2020.

The D&O policy Company A have taken out would not respond because the P&P date is set at 1st January 2022, well after the ‘prior and pending litigation’ commenced on 18th October 2020. If they had purchased D&O previously and secured a P&P of 1st January 2019, then the D&O would have responded to this new claim.

It is important to note that just because a P&P is backdated potentially decades, it does not mean you are covered for claims which:

• Should have or have been made to a previous insurer.

• Are not made or reported within the policy period or any applicable discovery period.

When will underwriters use P&P

P&P is the more standard date shown on a D&O schedule, at least for UK written/brokered risks. Therefore it is the normal clause to see (because you should always see at least one!). Usually the P&P date will be set to the date D&O coverage was first purchased (with that carrier or any other).

Underwriters may alter or restrict the P&P date if a company allows continuous D&O coverage to lapse for a time, or if other compelling reasons exist as to why litigation before a certain period should not be covered.

Retroactive Date

Sometimes referred to as a ‘prior acts exclusion’, the retroactive date refers not specifically to litigation, but is linked instead to the ‘wrongful act’ which triggers a D&O policy. Put quite simply the insurer will not be liable for any losses arising from wrongful acts which occurred prior to the retroactive date. In this sense retroactive dates can perhaps be considered to strike closer to the heart of a D&O policy.

Example

Company B was established on 1st March 2000 but has a policy with a retroactive date of 1st March 2010. On the 4th January 2022, a claim is made to the insurer after a director has been sued for actions which occurred in October 2008. Because the wrongful act occurred prior to the retroactive date of 1st March 2010, the claim would not be covered.

When will underwriters use a retroactive date

Although not the industry norm, retroactive dates are seen on D&O policies for a number of reasons. For example, if the company has undergone a significant change in management or changed trades into a completely new line of business with different regulators etc. and the insurer does not wish to be on the hook for previous acts of the old management. In a more nuclear scenario, if there was a previous director(s) with a ‘spotted’ history who stepped down at a certain date, insurers may also want to change the retroactive date to after their resignation/retirement (and usually only then if they would trigger the former or retired directors’ coverage) to avoid liability for that director.

The most common time a retroactive date will be used is in the event of a management buy out or purchase. The new insurer may not wish to be responsible for the acts of old management, which is perfectly reasonable and somewhat industry standard.

Other considerations

A key consideration to remember is that regardless of if you have a long or short P&P date, it may not respond (and will not need to) as many claims are limited in various jurisdictions due to statue limitations. You should therefore always be mindful when negotiating on dates that if clients are concerned about specific types of claims against them, you may only need a certain period of time covered.

You should also be aware of other potentially limiting clauses, such as prior knowledge/pre-inception exclusions, which may prevent coverage even if the P&P or retroactive date clauses do not.

Coexistence?

There does exist a world in which both these clauses do and can exist simultaneously on the policy. As we have discovered, they change different elements of the coverage, and so it would not be wrong (perhaps just a bit outside the norm) to see a policy with both dates shown. They key takeaway for brokers and clients is to ensure that they understand the implications of each if shown and clarify with underwriters is they are unsure on the coverage shown.