Continuity of Coverage & The Continuity Date

In today’s article we will delve into two often-misunderstood terms which are synonymous with Claims Made policies – Continuity of Coverage and the Continuity Date. The misunderstanding is often compounded because of confusion between the Continuity Date and the Retroactive Date. I wrote a two-part article about the Retroactive Date earlier this year. It would be worthwhile reading those articles in conjunction with this one.

See the first article here and the second article here

What is Continuity of Coverage?

To understand the concept of Continuity of Coverage it is important to first consider a key exclusion in Claims Made policies. The “Prior Claims or Circumstances” or “Known Claims or Circumstances” exclusion states, amongst other things, that a Claim or circumstance that was known prior to the renewal of the new policy cannot be covered. Since there are remedies under The Insurance Contracts Act for late notification of a “Claim”, the focus of our discussion will revolve around the late notification of a “circumstance” (that could evolve into/become a “Claim”).

The Continuity of Coverage (also called Continuous Cover) provision found in most Claims Made Policies will state that providing the Insured has maintained their insurance with the same insurer, and coverage has been uninterrupted with that insurer, protection will still be provided to the Insured if they notify a circumstance in a “new” period of insurance (i.e. a late notification). This is irrespective of the “Prior Claims or Circumstances” exclusion (noted above) which has the intent of ensuring notifications are made during the period of insurance when the Insured is made aware of any circumstances.

Importantly, any cover afforded under the Continuity of Coverage provision will, in the vast majority of cases, be afforded under the terms and conditions of the policy that was in place at the time the notification should have been made (and not the policy that is in place at the time of the actual late notification). Also, such protection is provided on the basis that the Insured was aware of the circumstance after the Continuity Date which we will now discuss.

What is the Continuity Date?

In most Claims Made policies, the Continuity Date works hand-in-hand with the Continuity of Coverage provision and represents the date from which an Insured has held uninterrupted coverage with the same insurer (meaning there have been no gaps in cover with that one insurer).

In my training sessions, some learners have expressed confusion about the difference between the Continuity Date and the Retroactive Date – so let’s do a quick refresher on the Retroactive Date before proceeding any further.

The Retroactive Date is the date from which wrongful acts allegedly committed by the Insured can be covered. These wrongful acts could be for breaches of professional duty (Professional Indemnity), mismanagement of the business (Directors’ & Officers’ Liability), or cyber events including privacy breaches (Cyber insurance).

Some of the confusion between the Continuity Date and the Retroactive Date exists because they are often the same date. This is because many insurers make their Retroactive Date “policy inception” for first-time buyers of certain Claims Made policies. On that basis, the Continuity Date, which is the date from which the Insured has held uninterrupted coverage with the same insurer, can be the same date as the Retroactive Date. The two dates can differ as well though. Two scenarios where this can happen are:

1. The Retroactive Date offered is “unlimited, excluding known claims or circumstances” and therefore there is no “real” retroactive date (but there will still be a Continuity Date – subject to the next section below).
2. The Insured has changed insurers meaning the Continuity Date has been “re-set” to the date they first purchased insurance with the new insurer. Of extreme importance is that the Retroactive Date is always maintained when changing insurers.

No Continuity Date Listed

On some occasions no Continuity Date is listed in the Policy Schedule. Instead, the equivalent of the date is mentioned in the policy wording itself.

When I state the “equivalent of the date”, I mean that the Continuity of Coverage provision within the policy sometimes states that coverage will apply from the date the Insured first purchased the policy with the current insurer (so, no specific date is mentioned anywhere). Therefore, should late notification occur, evidence of the first date that insurance was purchased by the Insured with that insurer would need to be found (i.e. this is less explicit than having a date which is listed in the Policy Schedule but really serves the same purpose).

When You Change Insurers

Due to the almost certain loss of Continuity of Coverage when changing insurers, you need to exercise extreme caution before doing this. I state “almost certain” because it is possible to negotiate with a new insurer for them to “follow” the current Continuity Date of the exiting insurer. This is rare but possible. This type of benefit would generally only be negotiated during a soft market and still doesn’t negate disclosure obligations of the Insured in the proposal form.

If changing insurers, clearly explain to the Insured the critical need to report all known circumstances to the insurer prior to making the change, and the consequences of not notifying any such matters before making the change (i.e. there will be no cover with either the expiring insurer or the new insurer for such circumstances).

As mentioned earlier in this article, a condition of the Continuity of Coverage provision states that, in the vast majority of cases, coverage is afforded under the policy that was in place at the time the notification should have been made (and not under the policy that is in place at the time of the actual notification). Since I wanted to keep this article relatively short, I have not discussed some other common conditions relating to the Continuity of Coverage provision (specifically conditions relating to prejudice and betterment). These may be the subject of an article in the future.

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Disclaimer: The information provided in this article is not, and is not intended to, constitute legal or financial product advice. It is intended to provide general information in relation to the topic being discussed which is only current as at the date of this article.