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 provisions protect the insured by allowing them to retain coverage against losses reported when the current insurance policy was in effect, but which occurred before the policy became active.
- Sunrise provisions are rare in contract language because of the increased usage of sunset provisions in contracts.
- Insurers often use sunset provisions because these provisions set a strict time limit on the insurer's liability, unlike sunrise provisions.
- A sunrise provision is also called a sunrise clause.
How a Sunrise Provision Works
Insurance and reinsurance contracts using sunrise provisions 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 and limits 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.
Example of a Sunrise Clause
For example, in an auto insurance policy, the insured is protected against a vehicular accident risk. 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 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.
A sunrise provision protects the insured from any damage that develops slowly over time. Insurance and reinsurance policies may contain a sunrise provision, but not always.
Sunrise Provision vs. Sunset Provision
Sunrise provisions allow the insured to retain coverage against losses 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 the 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 they 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 rest of the policy's terms or conditions beyond the stated provision.