Run off insurance
Posted on 26th July 2018 by Phil Ainley MCIM
The little known cover that is essential if you are closing your business
Don’t think that because your company has stopped trading and you’ve gone back into full time employment that you can’t be sued for a mistake or financial loss suffered by one of your clients, because you can! That’s where run off cover comes in handy.
Professional Indemnity becomes live on a claims made basis. This mean that the PI policy responds when the complaint is received, not when the work is carried out. So when someone retires they are still vulnerable to a claim being made against them and require run off cover.
Run off cover is a professional indemnity insurance policy taken out when a business stops trading. Run off will provide indemnity to cover the cost of defending a claim made against those insured under the policy and will cover the losses incurred should the claim be upheld against those insured.
It is important to remember that a professional’s duty to their client does not necessarily end when their business ceases to exist.
Who needs run off insurance?
Any professional practice or professional who provides services and advice to clients will benefit from the professional indemnity cover that run off offers after trading has ceased.
A typical reason for needing run off cover is if you decide to retire. You are closing your business and winding down, the last thing you want is a claim being brought against you that impacts on your retirement fund. There are many other reasons why trading may stop including: foreclosure, sale, merger, acquisition or a company owner may just be looking to do something else instead.
What does run off usually cost?
Usually the first year of run off is the same as the preceding year when the company was still trading with the chance of potential liability claims taking a number of years to decrease from an insurers perspective. This means there is as much chance of a claim in the first few years of run off as there was in the few years prior to run off.
Typically after the first full year of run off cover you should see a decrease in your premium.
How long will I need run off cover?
The length of time needed to maintain run off cover will vary between individuals and depends on the relevant time limits in which a claimant must commence claims proceedings against a professional.
The relevant limitation periods for different types of claims which were set out in the Limitation Act of 1980 are as follows:
- Claims in relation to recovery of land: 12 years
- Claims in relation to a contract: 6 years
- Claims in relation to awards in arbitration: 6 years
- Claims in relation to debt arising under statute: 6 years
- Claims in relation to negligence: 6 years
- Claims in relation to breach of trust: 6 years
- Claims in relation to tort: 6 years
- Claims in relation to personal injury: 3 years
- Claims in relation to defamation and malicious falsehood: 1 year
To discuss run off cover or your Professional Indemnity Insurance needs please contact our award-winning team on 0333 321 1403Back to News