What is Professional Indemnity Insurance Run Off Cover?
Professional indemnity insurance run off cover is a type of policy for professionals who currently have a professional indemnity policy but want to retire or leave the profession and no longer need an ongoing full policy.
Professional indemnity insurance is a policy required by professions such as architects, surveyors, accountants and solicitors. Anyone who provides advice as part of their profession probably needs professional indemnity insurance. It is liability insurance and provides financial cover to fund legal costs and compensation in case of a claim if a client alleges the service offered cost them money.
But the nature of the policy being sold on a claims-made basis means if a sole trader or business owner wants to step away from their role, they still need a policy in place to provide that covers for a number of years. This is because claims against work or advice can still be made years after the fact, which is where run off insurance comes in.
Run off cover is put in place before the full policy ends and offers that extension of protection while there is still a risk of a claim.
This can be up to six years, but there are occasions were run off cover is needed for longer as in certain cases, liability can extend to up to 15 years. Often, run-off policies are set for 12 years, due to many contracts now being issued as deeds with different statutes of limitations.
What does professional indemnity insurance run off cover?
Professional indemnity insurance run off covers the same as the full professional indemnity insurance policy. The level of risk to the insurance provider is the same for the first year or two of the run off policy as it is when the full policy is active. As time goes on, the level of risk is seen to reduce as the likelihood of a claim being made reduces.
Professional indemnity run off will cover legal costs in fighting an allegation of wrongdoing and any compensation payments if found liable.
It will cover against claims such as negligence, errors or omissions in advice or if the service provided caused a financial loss or damage to a client.
Independent research and data-driven personal finance site, NimbleFins, lists some of the claims that professional indemnity insurance can cover.
- Negligence, for example, incorrect advice or making a mistake.
- Negligent misstatement.
- Intellectual property infringement, such as copyright.
- Breach of confidentiality or breach of confidence.
- Defamation, including slander, libel or other damage to reputation.
- Dishonesty of partners, directors or employees.
Does a limited company need run-off insurance?
Anyone who sells their expertise, whether a sole trader, a limited company or a partnership, is open to claims of negligence, fault, accusations of financial loss and damage. With that risk comes a need for insurance to offer protection and fund the legal costs associated with defending against these claims in court. That can be in the form of professional indemnity insurance or possibly directors and officers insurance.
But when a person selling their expertise decides to change career or retire, the need for that financial protection does not end. Claims can still be made up to six or more years after an error or alleged fault occurred, and to be covered, there must be an appropriate level of cover in place.
Run off cover is therefore needed to protect from claims being made years after the incident. In addition, run off insurance will provide that cover when a full policy covering new work being carried out is no longer needed.
Do I need a professional indemnity insurance run-off?
If you have professional indemnity insurance and want to retire or change careers, you probably need to run off cover.
In the same way that professional indemnity insurance provided financial protection from claims made against your advice or work, run off cover will offer that while there is still a risk of claims being made.
If you have a professional indemnity insurance policy and let it lapse or expire or cancel it without a run off policy in place, then you will have no protection if a claim is made.
While the work may have taken place while the policy was active, it must also be active at the time of the claim being made for the cover to be in place. This is because professional indemnity insurance is sold on what is called a claims-made basis.
If you decide to leave the profession, you still need to protect yourself from the risk of a claim and the huge financial impact.
Even the most diligent professional can make a mistake and find themselves facing a claim of wrongdoing. And even if there is no fault, then just defending against an allegation can incur huge costs.
Claims can be made up to six years after work is carried out, or sometimes even longer, so there needs to be some form of cover in place during that time.
A full policy is no longer needed if you no longer work in the field, so run off cover can be arranged to cover just the past work.
It is important to note that it is a commonplace to have run off the cover from your current provider. Most insurance providers won’t offer run-off cover until the professional or company has had a full professional indemnity insurance policy for at least a year. Therefore it is a good idea to look into the run off cover provided by your insurer if you have plans of retiring or changing jobs. Then, if you are unhappy with what is offered, you can change your insurance provider at the next renewal.