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What’s run-off cover?

5 September 2012
Creative Commons feet up by Reinis Traidas_Flickr

Beginning of the end

So that’s it.

You’ve decided to call it a day. It’s time to hang up the briefcase, close the laptop and burn the business jargon dictionary.  A life of leisure beckons.

Just a few loose ends to tie up and you’re finished. Oh, and you can cancel your business insurance too. Don’t need that hanging around any more do you?

Or do you?

Well, yes and no.

Public liability insurance, employers’ liability insurance, and office insurance can be ditched. But you might want to keep your professional indemnity insurance ticking over by adding something called run-off cover. Here’s why.

Trouble ahead

If you’ve had professional indemnity insurance (PI) for some time, you’re probably aware it’s a ‘claims made’ policy.

In simple terms, that means negligence claims against you are only covered if your policy is running at two points: when you do the work and when the claim is reported.

If you cancel your policy, and a client subsequently claims against you, the claim isn’t covered – even if it relates to work you did when the policy was up and running.

The ‘claims made’ nature of PI insurance means that, ideally, you should keep your cover going after completing a contract. Or after you’ve ceased trading.

That’s because it can take months or even years for mistakes and latent problems to rear their ugly heads. If it turns out your work is at fault, you’ll have to pay to fix the problem. Doesn’t matter  whether you’re still in business, or not.

Run-off rundown

So, run-off cover exists to protect businesses that are no longer trading. It’s like a bolt-on section of PI cover that starts when you stop.

But, because it’s not a full-blown professional indemnity insurance policy (you can’t take on any new work, for example) its premium reduces over time. And although it only provides useful protection against claims from work you’ve already done, it helps avoid the sort of hassle and expense you can do without when you’re supposed to be taking it easy.

So the only problem you might have is deciding how long you need it for. Generally, and somewhat unhelpfully, there’s no minimum or maximum length of time you have to have it. (Chartered accountants, architects and members of the RICS are the exceptions here.)

It depends on what your business did and how likely you think it is that there could be a claim. The limitations period is six years from the date of the alleged incident. Whether that’s enough or too much for you is your call.

If you’re thinking of putting your feet up and you’d like some advice on how best to stay safe, feel free to give us a call.

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