It is a common misconception that professional liability insurance (commonly referred to as "E&O" or Errors and Omissions) applies, like auto or fire and smoke insurance, to all events that occur after it is in place. This is because PLI insurance applies even to incidents that occurred in the past: the timing of the error or omission or the provision of the professional services is not considered, but rather the date a claim is made determines which insurance applies.
Consider the example of a professional who renders services in 2018; 3 years later, in 2021, his client claims that he made an error at the time that the services were rendered and now makes a claim against him (the law allows for lawsuits up to 3 years after the fact). It is not the insurance in effect in 2018 that will apply (the date of the error or incident), but that of 2021 because that is when the claim is made.
The professional can therefore count on his 2021 insurer to take charge of his defence to the lawsuit presented to him. The insurer will retain an attorney to defend him in court and an adjuster to investigate the facts and pay their costs. It will not matter if the professional did not have insurance in 2018 at the time of the incident.
But don’t be mistaken: it is not possible to be insured if there is already a fire. Indeed, when you are insured, you are asked if you know of any facts that could lead to a claim against you, rightly or wrongly. If you answer in the affirmative, we will exclude from the coverage anything that could result from these circumstances because it would be dishonest to insure yourself right when you sense the heat.
You can count on the insurance you’ve just purchased to protect you from anything you’ve done in the past. It is never too late to purchase professional liability insurance.
In a future article, we will discuss the impact of a retroactive date.
