What Is Backdated Liability Insurance

Backdated liability insurance provides coverage for a claim that occurred before the insurance policy was purchased. Backdated liability insurance is not an insurance product frequently offered by insurers since the insurer cannot be certain how much the loss will amount to.

Key Takeaways

  • Backdated liability insurance is insurance that provides coverage for a claim that occurred before the insurance policy was purchased.
  • Companies purchase backdated liability insurance coverage to protect themselves from risks from previous business activities or from when there were gaps in coverage.
  • Insurance companies typically do not offer backdated liability insurance as the risk has already been incurred and the loss amount is uncertain.
  • When insurance companies can charge premiums that cover the cost of the claim plus the premiums investment value, they will then offer backdated liability insurance.
  • Backdated liability insurance is usually commercial general liability insurance that covers bodily injury, personal injury, and property damage as a result of business operations.

Understanding Backdated Liability Insurance

Companies purchase backdated liability insurance coverage to protect themselves from risks that may arise from past business activities. It covers possible gaps in coverage that are only discovered after a loss event occurs. The company that experiences this loss can either self-insure, meaning that it pays for the loss itself, or it can try to purchase a backdated liability insurance policy that will cover the loss.

Backdated liability insurance can be sought after when the claim is extremely uncertain, in which case potentially long delays in payment may result. If the premium charged by the insurer, coupled with its investment value, is calculated to the point where it is sufficient to cover all of the claims from the incident, then an insurer will provide a backdated liability insurance policy.

Backdated liability insurance is not a commonly available type of coverage. Insurance companies typically don’t offer backdated coverage because the loss has already occurred. In traditional insurance underwriting, the insurer will conduct actuarial analysis on a potential policyholder to determine the likelihood of a claim being made, but in the case of backdated coverage, the insurer is already dealing with the loss and instead must determine how severe the loss will ultimately be.

As with most insurance policies, a backdated liability insurance policy will still contain a coverage limit. This protects the insurer from unlimited losses in the case that a claim becomes more expensive than estimated. The insurer will still seek to reduce the claim amount as much as possible, as the less it is forced to pay out the more it keeps in profit. This can be a complicated undertaking because liability claims, such as bodily injury, can be expensive.

Common Backdated Liability Insurance Policies

A typical backdated liability insurance policy is usually a commercial general liability policy that provides coverage for claims of bodily injury or other physical injuries, personal injury (libel or slander), advertising injury, and property damage as a result of a company's products, premises, or operations. It can be offered as a package policy with other coverages such as property, crime, or automobile insurance.