What Is a Sunrise Provision?
A sunrise provision, also known as a sunrise clause, is a contract provision that extends coverage to events that occurred before the contract was signed. Insurance and reinsurance contracts use sunrise provisions.
Sunrise Provision Explained
Insurance and reinsurance contracts provide the policyholder protection from specific risks during a predefined period. The period in which the policy remains in effect is one of the most critical aspects of the contract. The effective date limits the time the insurer is at risk as well as limiting the time of protection from loss to the insured. In some cases, losses may appear years after the insurance contract's effective term has ended.
Sunrise Clause Example
For example, in an auto insurance policy, the insured is protected against the risk of a vehicular accident. Identifying that a loss has occurred tends to be simple, as property damage is visible as soon as a car accident happens. Losses from other types of risks, such as negligence or malpractice, may not be instantly identifiable, since they may develop over the course of time.
For example, a patient may only begin to experience complications from surgery years after the procedure. Late-onset of symptoms presents the possibility that identification of loss is after the expiration of the insurance policy. To protect the insured from any damage that takes a long time to develop, insurance and reinsurance policies may contain a sunrise provision.
Sunrise Provision vs. Sunset Provision
Sunrise provisions allow the insured to retain coverage against losses that are reported while the current insurance policy is in effect, but which occurred during the period before the policy became active. This type of provision is increasingly rare in contract language due to increased usage of sunset provisions. Sunset provisions limit the amount of time the insured has to report a loss after a policy ends.
Insurers and reinsurers prefer to use sunset provisions because these provisions set a strict time limit on how long the insurers will be liable for claims. A sunrise provision allows the insured to maintain a level of coverage despite no longer paying premiums on the ended contract.
Claims-made policies may contain sunrise and sunset provisions more frequently than occurrence policies. Occurrence policies focus on when the incident occurred rather than the report date. With a claims-made policy, the focus is on the filing date of a claim against the policy.
Provisions are found in the endorsement section of the insurance contract and do not alter the terms or conditions of the rest of the policy beyond the stated provision.