The Retroactive Date That Moved
Kestrel Design Group, an architecture firm, bought a professional liability policy for calendar 2024 on a claims-made-and-reported basis: $2,000,000 limit, $50,000 deductible, retroactive date January 1, 2019. On November 14, 2024, the client for a 2021 project wrote that the roof trusses "appear undersized" and demanded Kestrel "make it right" at an estimated $600,000. The principal forwarded the letter to a colleague and did not notify the insurer, believing no claim had been filed. The 2024 policy expired December 31 without renewal by the same carrier; Kestrel bought a policy from a different insurer effective January 1, 2025, with a January 1, 2022 retroactive date, the same limits, and no extended reporting period. In March 2025 the client sued for $1,800,000. Kestrel also did a small amount of work on the building in 2018.
1. Which policy, if any, responds to the March 2025 suit? Work through claims-made, the reporting requirement, and the retroactive date for both policies.
Read the worked answer
2024 policy - claim was never reported in the period. The 2024 policy responds only to claims made and reported while it is in force. The suit was filed in 2025. The one event that could have made this a 2024 claim was the November 14 letter - a demand for $600,000 is a written demand for money, and most forms treat a notice of circumstances as a claim once reported. Kestrel did not report it. Absent an extended reporting period, the 2024 policy owes nothing.
2025 policy - the retroactive date is fatal. The suit was made and reported during 2025, so the first two tests are satisfied. The third is not: the wrongful act is the 2021 design, which predates the January 1, 2022 retroactive date. Excluded. The 2018 work is even further outside.
Result: a coverage gap. Neither policy responds. The suit is uninsured, and the 2018 work is outside both retroactive dates as well.
Why this happened. The insured changed carriers and accepted whatever retroactive date the new insurer offered. On a claims-made form, the retroactive date is the single most important term for prior work.
2. What would an extended reporting period have changed, and what should Kestrel have done in November?
Read the worked answer
What a tail buys. An extended reporting period does not extend the policy period or create new coverage. It extends only the window for reporting claims arising from acts already covered - here, acts on or after January 1, 2019. A one-year tail bought at the 2024 expiration would let a claim made in 2025 be reported against the 2024 policy, which still carries the 2019 retroactive date. The 2021 project would then be covered, subject to the $50,000 deductible and the $2,000,000 limit.
What Kestrel should have done in November.
- Report the letter to the carrier in writing within days, as a circumstance that may give rise to a claim. That single act converts the matter into a 2024 claim regardless of when suit is filed.
- Inform the client in writing that the letter was received and referred to the insurer - do not go silent.
- Before the January 1 renewal, negotiate the new carrier's retroactive date back to January 1, 2019 to match prior coverage, or buy a prior-acts endorsement. If the new carrier refuses, buy the tail from the expiring carrier before it lapses.
The general rule worth memorizing. On claims-made paper, the retroactive date governs what acts are covered; the reporting requirement governs when the claim must be told. Kestrel failed both the reporting and the retroactive date, and each failure alone is enough to defeat coverage.
3. Kestrel argues the 2025 carrier must defend because the suit was filed during its policy period. Evaluate the argument and identify who ultimately bears this loss.
Read the worked answer
The argument fails. The duty to defend under a claims-made-and-reported policy requires all of: (1) a claim made during the period; (2) reported during the period or any applicable extended reporting period; and (3) a wrongful act occurring on or after the retroactive date. Kestrel satisfies only the first. The 2021 design predates the 2022 retroactive date, so there is no coverage and therefore no duty to defend. Expect a prompt denial citing the retroactive date, which is a clean, near-unappealable ground.
Who bears the loss.
- Kestrel. The $1,800,000 demand, minus whatever the client proves, is uninsured. If the firm is a professional corporation, the entity bears it; partners may face exposure on other theories.
- The placing producer. There is a real E&O question here: placing a 2025 professional liability policy with a retroactive date that did not match the expiring coverage, without flagging it or offering a tail, is a failure to place coverage the client reasonably expected. That is a defensible claim against the producer.
- The insured's own duty. Kestrel had the policy and received the November letter. A duty-to-read and duty-to-report defense is available to the producer, but a comparison of the two declarations pages is exactly the kind of check the producer is expected to perform.
Lesson for the exam. Notice and retroactive date are the two independent gates on claims-made coverage. When both are missed, no amount of argument about the filing date reopens them.