What is Run-Off Cover?
In essence, run off cover is a policy which exists to honour claims made after a business has ceased to trade. It is usually far cheaper to obtain than regular professional indemnity insurance and assuming there is no claim, your premiums are likely to become substantially reduced over time. The exact cost will depend on your claims history, the nature of your work, and the kind of risk you present.
What does the policy cover?
If you provide a professional service a run off policy should pay your legal costs if a case for damages is filed against you. It could cover the expenses involved in hiring a defence team and also pay out compensation if it is awarded.
Do I have a choice in the type of policy I buy?
When you approach an insurance provider regarding run off cover they may offer two different options. The first, and most common choice, is an annual policy. Just like car or home insurance this cover has to be renewed at the same time every year, and you will be notified well in advance of this date. The second option is known in the industry as block cover; insurers will generally offer a better deal on these policies, as in the long run they require less administration. The premium will not go up year upon year unless you make a claim, and as you have already paid, you won’t be affected by any general increase in insurance premiums.
Single premium insurance has its advantages, but if you’d prefer this longer term cover you’ll need to do the legwork, or consult a PII broker - it’s a specialised service and only a few companies make it available.
Which should I choose?
Traditionally, renewing your run off policy every year is the most costly solution, but it is more likely that your provider will still be in business at the end of the twelve months. Policies which cover multiple years do not offer such security, a factor which deserves consideration, especially in the current economic climate.
Why do I need run off insurance?
If you’ve been involved in providing a professional service in any capacity ongoing cover is essential. You could remain liable to claims made by disgruntled customers years after you retire. In many lines of work this liability ends six years after you cease practicing, however, in certain cases people remain at risk of a claim for a far longer period.
Is it relevant to me?
This kind of claim can occur for many different reasons. If you have caused a client to lose money at some point and they can prove you are at fault, it is likely they will pursue you for costs as soon as the problem becomes manifest.
Years ago there were few members of the workforce who were considered professionals; among these were lawyers, doctors and teachers. Now times have changed and many people who are self employed or part of a company are thought of as a professional.
If you offered a service to the public as a consultant, or an expert, or a specialist, a customer could hold you responsible if something goes wrong. The most common claims relate to product liability and professional indemnity, but are not limited to these.
Guaranteeing your continued protection and financial security
You may have left a previous role to pursue a new challenge, lots of people are tempted to start afresh in a new industry. Others sell their company as a going concern, but many simply retire and enjoy their new found freedom. Whatever route out you have chosen, professionals need run off cover to protect their interests against future claims.
‘Claims made’ policies won’t leave you future-proof
Professional indemnity policies are sold on a ‘claims made’ basis, in practice this means whichever policy is in force when a person makes a claim will be the one liable to pay out. If a ‘claims made’ policy was in place when the problem occurred, but a claim was made after that policy was cancelled or expired, a run off policy then provides protection.
Why do people claim after the event?
Even years after an incident took place a claimant might allege they have suffered a loss as the result of your service. After speaking to friends and family, or mulling the event over privately, they could believe you have been negligent, or accuse you of carrying out a wrongful act. Alternatively a fault in a building, computer system, engineering project etc that you were involved with could take many years to come to light.
What if I make a mistake in reporting an incident to my insurer?
In some historic cases insurers take a sympathetic approach to their clients. However, they must demonstrate a genuine lack of knowledge regarding a negligent incident. Not all circumstances are clear cut and you may have innocently assumed there was no case to answer until it was too late, and if so, your insurer may honour the policy.
If you choose to change insurance providers and purchase a new run off policy elsewhere, it is vital that you swiftly notify the new insurer of any impending action.
In a similar vein, notifying your current insurer of a potential claim, even one which may not reach fruition, is essential. Matters of interest to your provider could take many forms, for example; an angry letter outlining a complaint and threatening to sue, or a more formal declaration of intent mentioning legal action. A claim does not have to be made in any specific form; a simple verbal statement that a client is not happy can often be considered to be a claim for redress, and your insurer should be made aware of it straight away if the matter is substantial.
Keep your policy up to date
People can experience difficulties with run off insurance if they fail to maintain a payment schedule and a policy is cancelled. This can be particularly problematic if a policy expires before the insurance company have been advised of a claim. In this instance, a run off insurance policy cannot provide backup, as it only covers claims made whilst the cover is live. Therefore, always keep up to date with your premiums and share any relevant information. You’ll avoid a lack of cover and remain protected against costly legal action.
Professional bodies recommend run off cover
Some professional bodies insist that their members retain a robust professional indemnity insurance with run off supplementary cover for many years after they have stopped work. These are the Law Society, which monitors standards in the legal industry, and The Royal Institute of Chartered Surveyors, a body that represents workers in the areas of land, property and construction.
New owners need new policies
Whether you are personally at fault or not, any professional person who uses ignorance of previous events as a defence, is unlikely to be successful. If you have assumed a managerial role and are acting in a professional capacity, part of your duty is to take responsibility for the company’s historic actions.
Therefore, any change of control at a firm can trigger the need for a run off policy. This will cover the company for any wrongful acts which took place before the new directors arrived.
Can claims be made from overseas?
Yes, if you have dealt with an individual or a company which trades from a foreign location, you may be liable for damages if they make a claim against you. It is worth noting that UK limitations do not apply the world over, however, in most countries twenty years is the standard period.
Why do the limitations for loss claims stretch into years?
Although most problems are noticed soon after the event, certain issues may not arise until years later. The consequences of bad legal advice or the omission of important information in a house sale for example, may take years to become apparent. Therefore, up to 40% of claims are made three or more years after the alleged incident of neglect occurred. If you experience such a case, run off cover will protect you from any financial impact.
Safeguarding your loved ones
Somewhat surprisingly, professional people can remain liable for their actions even after their death, so adding a provision in your will that relates to continued cover is a sensible way of protecting your relatives. It will also give you peace of mind in the here and now.
When run off cover is not needed
There are a few exceptional circumstances where you may feel run off cover is superfluous, like if your business is sold on and the new owner also takes on its liabilities. While you may be confident in the sale, it makes sense to obtain concrete proof that adequate insurance arrangements have been made, should a problem arise that relates to your work. Moreover, always establish that the change of liability is mentioned in any legal documents relating to the purchase.