The need for professional indemnity insurance does not necessarily end when a business stops trading.
PI insurance is generally written on a claims-made basis, so the policy in force when a claim is first made will usually be the starting point for determining whether cover is available. If insurance has ended by that point, the policy that was active when the work was undertaken is unlikely to respond.
Run-off cover protects against claims arising from professional services provided before the business ceased trading. It does not cover new professional activities.
Run-off cover should be considered whenever a client is:
Clients may assume that closing or dissolving a business removes the risk of future claims. However, allegations relating to historic work may arise years later. In some circumstances, a dissolved company can also be restored to the register so that legal proceedings can be pursued.
Run-off discussions should therefore begin before the change takes place.
Six years has traditionally been used as a starting point because many contractual and negligence claims are subject to six-year limitation periods. However, it will not be appropriate for every client.
Some professional errors may not emerge for many years. An error in drafting a will, for example, may only be discovered after the client’s death.
Construction-related exposures also require particular care. The Building Safety Act 2022 extended limitation periods for certain claims under the Defective Premises Act 1972. These claims can now be brought up to 30 years retrospectively for work completed before 28 June 2022 and 15 years prospectively for work completed on or after that date.
Even where a limitation defence ultimately applies, investigating and defending an allegation can still be costly.
Run-off cover may be required by a regulator, professional body or under contract.
For example:
The applicable requirements should be checked before a client retires, closes, sells or restructures its business.
Clients should be advised to:
Run-off is commonly arranged as an annual policy and may need to be renewed for as long as protection is required. Clients should not assume that it will continue automatically.
Stopping professional work does not end the exposure created by past work.
The appropriate period of run-off cover will depend on the client’s profession, historic activities, limitation exposure and any regulatory or contractual requirements.
Run-off should be considered before retirement, closure, sale or restructuring. Early planning allows known circumstances to be notified, historic cover to be preserved and protection to remain in place for claims that may arise years later.
See more of our Professional Indemnity Insurance: A Practical Guide for Brokers