Prior Acts Coverage

What is 'Prior Acts Coverage'

A feature of an insurance policy that extends the coverage of insurable events to dates prior to the policy being purchased. Prior acts coverage is a feature of liability policies, and bridges the gap between when services are rendered and when claims are filed as a result of those services.

BREAKING DOWN 'Prior Acts Coverage'

Most liability policies are effective for a short period of time, such as one year, and cover risks that are identified in the policy language and which are reported during the time in which the policy is effective. When the policy ends, there is no further coverage even if there are claims that have not yet been reported. Any claims that are made after the insurance policy's end date will have to be covered by a new policy. Policies may also only cover events that occur during the policy year, meaning that no coverage is granted under the current policy if the event occurred before the policy’s effective date.

Prior acts coverage extends the date at which coverage is extended backwards in time. This is an especially useful feature for damages or injuries that may take a long period of time to develop. For example, a doctor with liability insurance may see a claim filed by a former patient years after the patient was treated. The doctor may have changed policies by the time the claim is filed.

Generally, insurers will not provide an insurance policy with prior acts coverage if the business looking to purchase coverage has not had insurance coverage previously. This protects the insurer from underwriting policies to businesses that wait until they believe that they will have a claim before purchasing coverage. Because offering prior acts coverage increases the insurer’s claims exposure, an insurer would often offer this type of coverage with more expensive premiums which are to be paid for a period of time.