Prior acts cover is the part of a professional indemnity (PI) policy that protects a firm against claims arising from work performed before the current policy incepted. It is closely tied to the retroactive date and is essential to the continuity that makes claims-made insurance workable.
Because PI cover responds to the year in which a claim is made, not the year the work was done, every new policy must reach backwards to absorb the firm's accumulated history. Without prior acts cover, a firm switching insurer would only be protected for work done after the switch, leaving years of past advice exposed.
Prior acts cover, sometimes called "full retroactive cover", confirms that the incoming policy stands in the shoes of the firm's earlier policies and will respond to qualifying past work, subject to the retroactive date and the usual exclusions.
When a firm renews with the same insurer, prior acts cover is implicit: the retroactive date stays put. When a firm moves to a new insurer, the new insurer decides whether to grant it. Typically the insurer will agree to honour the existing retroactive date provided:
That last point is critical. Anything the firm knows about must be notified to the expiring policy before it lapses. Prior acts cover does not pick up known problems; those belong to the insurer on risk when the firm first became aware of them.
Prior acts cover can be cut back or withheld if the firm has changed its activities significantly, has a heavy claims record, or has had a gap in cover. An IFA who moves from execution-only business into discretionary management, or an accountant who adds tax-planning advice, may find an insurer reluctant to extend full retroactive cover over the new activity.
If prior acts cover cannot be obtained for a particular period, the alternative is run-off cover on the policy that did insure that work. This is one reason a firm should never simply let an old policy lapse without checking that every year of its history remains protected somewhere.
Apex reviews prior acts cover and the retroactive date together at each renewal, and checks that the disclosure position supports the cover being relied upon. For sector detail see the accountants PI guide, the IFAs PI guide and the management consultants PI guide.
Prior acts cover becomes complex when firms combine. When one practice absorbs another, the question is whether the surviving firm's policy will pick up the past work of the acquired practice as "successor practice" liabilities. Insurers treat this differently, and the answer drives whether separate run-off is needed for the acquired entity. Getting this wrong can leave a whole acquired back-book uninsured, so the prior acts position should be settled in writing before any deal completes.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.