What is Run-off insurance?
It is often seen as being something vastly different to normal professional indemnity insurance however, there is no great mystique to run-off insurance. The key to understanding run-off cover is in understanding the “claims made” nature of the protection.
Given that you have probably already been purchasing professional indemnity (PI) insurance for some years, you will appreciate that PI policies are all underwritten on what is referred to as a “claims made” basis as opposed to “claims occurring”.
Example policies: Professional indemnity, professional indemnity “run off”, directors’ & officers’ cover.
An insurance policy that will respond to a claim (or an event that may lead to a claim) that is first notified to the insurer while the policy is actually in force, i.e. a claim made during an insured period. The event giving rise to the claim could have occurred before the policy started or when you were insured by another insurer.
Example policies: Employers’ liability, public liability, car insurance.
An insurance policy that will respond to a loss which actually happened while the policy was in force. So, if you switched insurers since the event, it will be the insurer that provided the insurance at the time of the event that would deal with the claim.
The ‘claims made’ nature of professional indemnity insurance means that a professional indemnity policy still has to be in force to ensure that you are covered should a claim be made against you or your former practice for work undertaken in the past.
To ensure you are protected a run-off professional indemnity insurance policy must be purchased and maintained whilst the professional liability period to your clients runs off. Run-off cover is a professional indemnity insurance policy which comes into effect when you or your employees stop trading, and any claims made under it will relate to work carried out before the policy started.
How does run off work?
PI provides cover to firms, whether they are limited companies, or partnerships including LLPs or sole traders. It covers the businesses principal or partners, the directors and the staff both past and present. A professional indemnity run off policy will provide indemnity to cover the cost of defending any claim made against those insured under the policy and will reimburse the losses occurring should the claim be upheld against the insured parties.
Retirement is a typical reason for requiring run-off insurance and we find it is particularly popular with smaller firms or sole traders. With larger firms the business is often sold or taken on by a younger principal who maintains the PI cover and therefore provides the run-off under that policy. However this is not always the case, as the new owner may not wish to have the responsibility of the legacy liabilities. On the other hand the outgoing incumbent may not want the responsibility of his liabilities being trusted to someone else.
The consequence of both scenarios is that it is necessary to keep a run-off policy in force after retirement, to cover any claims that may arise in the future.
Individual members of SWW who are policyholders in the SWW Insurance Scheme can benefit from free run off insurance for life, provided they have been insured on the scheme for a minimum of two consecutive years, prior to retiring from will writing activities. Run off is also provided for businesses, subject to a single premium.
Who needs it?
Anyone holding themselves out as a specialist, expert or consultant could be held responsible for negligent acts, errors and/or omissions by clients who claim reliance on the services or advice provided.
Not all insurers will provide run-off insurance cover, so it is worth checking that it is available before taking out an insurance policy with them. Otherwise there may not be an option to buy the cover or the protection you need, when you need it.
Going into run-off
Once you have decided you need to provide run-off insurance for your business you need to advise your current insurer/broker.
You will then have the option to either take up the run-off policy or not.
If you choose not to take up a new policy and make any alternative arrangements, your professional indemnity cover will cease and any claims brought against you for work undertaken in the past will be uninsured. You should remember, even spurious or speculative claims require a defence and without professional indemnity insurance cover these can be damaging.
Will Writers in particular need to carry longer periods of run of cover, to protect against any liabilities contained in wills that may not be read for decades.