Guide to Run Off Insurance for Professional Indemnity

What is run off insurance?

In principle, run off insurance provides you with the same cover as Professional Indemnity. However, run off insurance is necessary for when you cease trading, covering work that was undertaken in the past. 

It covers the business principal or the partners, directors and staff both past and present.

Typically run off insurance is taken out upon retirement or following a buy-out (dissolution of partnership, merger, acquisition, sale, foreclosure). Either the retired party takes out run off insurance or the new owner, if they are agreeable, will take responsibility for previous liabilities.

As much as you may be ready to put your feet up and relieve your burden, just because you are no longer trading it doesn’t mean your professional liabilities are left behind.

In many cases it can take several months, or years for mistakes and latent problems to arise for which you may be found at fault.  Which is where run off insurance comes in.

How does run off insurance work?

Professional Indemnity insurance (PI) is written on a ‘claims made’ basis, rather than at the time the claims occur.  This basically means that negligence claims against you are only covered if your policy is running when you did the work and when the claim was reported. 

If a claim is made against your former practice for work undertaken in the past, after your PI has ceased, then you won’t be covered but still liable.

Run off cover exists to protect you even when you are no longer trading. As it works on the understanding that you not be taking on any additional new work the premium will reduce over time. Following the first year of run-off you can expect premiums to fall between 20-25% per annum subject to claims.

Your only problem may be in deciding how long to let it run for…

How long should you maintain run off cover?

Unfortunately for most professions there is no hard and fast rule. A good guide however is the time limit in which a claim may be made against a professional. In general clients can sue for negligence within six years of the work being completed. 

However, there are circumstances where this can be extended to up to 15 years where claimants can prove hidden damage which could not have been reasonably expected by them. A construction professional may also need to be aware of any extended time that may be part of a Collateral Warranty Contract.

We would advise that you seek legal advice on any of your contractual obligations prior to deciding upon an adequate period of cover.

In some instances, professional bodies such as RICS, ARB, ABE and CIAT either require or recommend that run off insurance is continued for a minimum of six years after ceasing trading.

If you have any concerns or questions relating to run off cover then please contact one of our specialists who will be happy to help and advise.