Prior Acts and Retroactive Dates: Managing Historical Exposure Under Directors and Officers (D&O) Liability Insurance

Directors and officers of U.S. companies — especially those headquartered in New York, Delaware, California, and Texas — face litigation risk that can arise years after alleged wrongful acts. Two policy features determine whether historical wrongdoing is covered: prior acts and the retroactive date. Understanding and negotiating these terms is essential when securing run‑off (tail) coverage or arranging continuity of cover after an exit, merger, bankruptcy, or resignation.

What are Prior Acts and Retroactive Dates?

• Prior Acts (or “prior acts coverage”): Language in a D&O policy that extends coverage to wrongful acts committed before the policy inception date, subject to the policy’s retroactive date.
• Retroactive Date: The cut‑off date before which the policy will not respond for wrongful acts. A policy with a retroactive date of January 1, 2015 will not cover allegations arising from acts before that date.

Why it matters: many claims (securities suits, employment practices claims, fraud allegations) are filed years after the actual conduct. Without favorable prior acts language and the correct retroactive date, executives can lose coverage for legacy exposures.

How Prior Acts and Retroactive Dates Interact With Run‑Off (Tail) Coverage

Run‑off (tail) coverage (extended reporting periods or ERPs) preserves the right to report claims after the policy is terminated. But run‑off only helps if:

• The wrongful act occurred on or after the policy’s retroactive date; and
• The underlying policy includes prior acts wording that doesn’t carve out the matter.

Key scenarios requiring run‑off attention:

• Mergers & acquisitions (sell‑side and buy‑side continuity concerns)
• Insolvency or bankruptcy filings
• Resignations of key executives
• Portfolio sales where legacy liabilities remain

See foundational guidance on when to secure tail protection: Run‑Off (Tail) Coverage for Directors and Officers (D&O) Liability Insurance: What Boards Need to Know.

Common Contractual Traps — and How to Manage Them

• Prior Acts Exclusions: Some policies exclude specific long‑running exposures (e.g., known OSHA or SEC investigations). Always secure a written exception or buy a separate carve‑back if necessary.
• Inter‑Policy Trigger Differences: Claims‑made vs. occurrence triggers can change coverage. Most U.S. D&O policies are claims‑made; a run‑off simply extends the reporting window.
• Retroactivity Gaps: When you replace a D&O policy, an insurer may insist on a later retroactive date. Avoid gaps by negotiating continuity of retroactivity or purchasing prior acts buy‑back language.

For practical clause recommendations see: Negotiating Run‑Off Terms After an Exit: Practical Clauses Every Executive Should Request in Directors and Officers (D&O) Liability Insurance.

Pricing: Typical Market Ranges and Example Scenarios

Run‑off pricing depends on company size, industry, claims history, known investigations, and whether the triggering event is a bankruptcy or orderly exit. Market guidance from major brokers shows ERP/tail premiums commonly range between 75% and 300% of the expiring annual D&O premium, with the higher end reserved for bankruptcy or high litigation risk. (See carrier and broker resources for current market conditions.)

Representative pricing examples (U.S. headquarters: New York or San Francisco):

Real‑world carriers active in the U.S. D&O market include Chubb, AIG, Travelers, and Allianz — each offers management liability and run‑off solutions. While carrier quoting varies, market commentary and broker guidance (Marsh, Aon) confirm the percent‑of‑premium approach above and that bankruptcy‑triggered tails frequently cost toward the upper bound. See broker guidance from Marsh and Aon for current benchmarks:

• Marsh D&O overview and run‑off considerations: https://www.marsh.com
• Aon commentary on management liability and run‑off: https://www.aon.com

Always obtain multiple carrier quotes; differences of tens to hundreds of thousands of dollars are common for mid‑market placements.

Negotiation Strategies for U.S. Executives and Boards

• Start early: Begin tail negotiations 90–180 days before the policy termination date.
• Get competitive quotes from national carriers (Chubb, AIG, Travelers, Allianz) and specialty markets — regional risks (e.g., California employment exposure, Delaware corporate suits) will affect terms.
• Seek a prior acts buy‑back or a retroactive date no later than the earliest policy in your tower to avoid gaps.
• For M&A: negotiate buy‑side and sell‑side continuity language to secure coverage through the transaction. Read more: How to Secure Continuity of Cover: Buy‑Side and Sell‑Side Strategies for Directors and Officers (D&O) Liability Insurance.

Practical Checklist Before You Buy Run‑Off or Change Retroactive Dates

• Identify known claims, investigations, or facts that could give rise to a claim.
• Determine the earliest date you need covered (retroactive date target).
• Obtain the expiring policy wording and run‑off/ERP quote in writing.
• Compare carrier quotes on:
  • Price as % of expiring premium
  • Retroactive date continuity
  • Prior acts carve‑backs or exclusions
  • Defense‑inside vs. defense‑outside allocation
• Ask for layered options (shorter ERP at lower cost or longer ERP for higher payment).
• Consult with counsel to negotiate specific carve‑backs and representations.

Also review: Checklist for Purchasing Run‑Off Coverage: Questions to Ask Your Broker for Directors and Officers (D&O) Liability Insurance.

Alternatives and Layered Solutions

If full tail pricing is prohibitive, consider:

• Limited‑time ERPs (e.g., 1–3 years)
• Excess‑only ERP (buyer purchases tail for excess layers)
• Portfolio approach: purchase prior acts coverage for specific subsidiaries or jurisdictions first, then expand
• Run‑off structures where the acquirer assumes certain legacy liabilities (explicit contractual indemnities)

For a deep dive into alternatives and layered tactics, see: Portfolio Approach to Prior Acts: Layered Solutions for Legacy Exposure in Directors and Officers (D&O) Liability Insurance.

Final Takeaways

• Prior acts and the retroactive date determine whether historic conduct will be covered — they are the backbone of legacy exposure management.
• Run‑off (tail) coverage preserves reporting rights but does not override an unfavorable retroactive date or prior acts exclusion.
• In U.S. markets (New York, Delaware, California, Texas), expect ERP/tail pricing commonly between ~75% and 300% of the expiring premium; bankruptcy or high litigation risk pushes pricing upward.
• Negotiate continuity of retroactive dates, secure prior acts buy‑backs where necessary, and solicit multiple competitive quotes from carriers such as Chubb, AIG, Travelers, and Allianz.

Selected external resources and market guidance:

• Aon — management liability and run‑off commentary: https://www.aon.com
• Marsh — D&O and run‑off considerations: https://www.marsh.com

Internal resources:

• Run‑Off (Tail) Coverage for Directors and Officers (D&O) Liability Insurance: What Boards Need to Know
• Negotiating Run‑Off Terms After an Exit: Practical Clauses Every Executive Should Request in Directors and Officers (D&O) Liability Insurance
• Checklist for Purchasing Run‑Off Coverage: Questions to Ask Your Broker for Directors and Officers (D&O) Liability Insurance