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Run-Off Cover – what is it and do I need it?

Run-Off Cover – what is it and do I need it?

If you are a professional who has decided to retire or call it a day for some other reason, you will no longer need commercial insurance to cover you against liability. When operating in business you likely had a combined business insurance policy to cover you for public, employers and professional indemnity. When you stop trading, these insurance policies are no longer required. Of course, if you are no longer trading your exposure to risk from employees and the public is gone, professional liability however is another matter. This is where run-off cover comes in…

Run-Off cover??

Professional Indemnity Insurance protects a professional against legal liability towards third parties for injury, loss, or damage, arising from their own professional negligence or that of their employees. This liability however does not end because a professional has stopped practicing. Run-Off cover is specifically designed to protect a business which is no longer trading.

Why do I need that?

When you no longer have an active professional indemnity policy, it is no longer possible to make a claim against it. This is the case, even where a claim relates to a period where there was a Professional Indemnity policy in place – so far, so obvious…

But, for a lot of professionals who needed professional Indemnity whilst practicing, the nature of the work or advice they provided can continue to present risk, many months, or even years after they stop. Solicitors, surveyors, chartered accountants and other professional advisers may find themselves being held liable for problems which only came to light after they were no longer in business. If it turns out that they were responsible for these problems, through negligence for example, they will still have to pay to put things right.

Run-off cover is like an extension of your Professional Indemnity policy, which only begins when your full professional indemnity cover ends.

How long do I need it for?

The answer to that, like so many other insurance related questions, will depend on individual circumstances. Professional negligence claims usually need to be brought up within six years from when the negligence happened. In the case of a surveyor who missed an issue which he should reasonably have been expected to identify, the date the negligence happened would be the day the survey took place. It may be that the client does not identify that negligence for some time following the survey. But assuming that the issue is identified and a claim made within 6 years of the survey date, the surveyor in question could still be deemed negligent, and therefore liable.

The good news is that your risk of a claim being made decreases over time, and therefore the policy cost should decrease in line with this. For most, the six year limitation means that this would be an appropriate time to continue run-off cover.

For more information on run-off cover, professional indemnity insurance and other commercial cover – get in touch with one of our experienced team.

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