We all make mistakes every now and again but depending on your profession, one mistake has the potential to cause you some serious issues.
Professional Indemnity (PI) insurance can give you some reassurance; it offers professionals such as accountants, engineers, architects and solicitors, protection from errors they might have made while doing their job. Errors could be as simple as things like providing inaccurate advice or making an accounting mistake. A PI policy helps those professionals whose clients make a claim against them following such an incident. However, PI policies only provide cover for mistakes made by ‘active professionals’, i.e. people still working in that profession. This leaves people with the potential issue of an ex-client making a claim when they are no longer working.
This is when PI run-off cover comes into play. This type of cover protects individuals from claims relating to alleged historical errors. Profession-dependent, it is possible that you could be liable for claims related to a mistake you made up to 15 years ago. This raises the question of whether you would be willing (and able) to take care of your legal costs this long after you stopped working, potentially in your retirement.
It’s important to consider the features of your run-off cover, as although it’s intended as a supplement to PI cover, this distinct policy can operate differently. This is why it’s important that you understand how run-off cover works if you’re to protect your business, yourself and your future financial situation.
So, how does run-off cover actually work?
Run-off cover, in the same way as PI insurance cover works, works on a claims-made basis.
This provides cover for claims made and reported to an insurer during the period of insurance only. Each claims-made policy will have a “retroactive date” and any claims made from losses or incidents before this date will be excluded. Similarly, if a claim is made after the policy comes to an end, regardless of whether it relates to a problem while cover was in place, it won’t be valid.
Example: A financial error causes a loss to the business. This happened five months before the policy started but the mistake was only noticed, and the claim made, while the policy was in situ. Here, you would be covered.
On the other hand, claims-occurring policies cover incidents that occurred during the policy period, regardless of when the claim was made.
Essentially, the difference between the two is that claims-made policies provide cover for when the claim is made, while claims-occurring policies provide cover for when the incident occurred, even if the claim is made years later after the policy has lapsed.
As PI policies work on a claims-made basis, once they have expired, they will not cover any more claims. This leaves you exposed years into the future, making run-off cover something you should take into serious consideration.
Who should consider run-off cover?
This type of cover is necessary for people working in particular professions, including solicitors, accountants, some health care professionals, financial advisors and architects. That being said, if you provide any kind of professional service, i.e. offering advice, giving educated recommendations, representing the needs of others, run-off cover may not only be a useful insurance to consider but an essential one.
How long should you keep run-off cover for?
It’s usually recommended that professionals keep their run-off cover for six years after they stop working, whether this be because they cease trading, change career or retire. However, there are other considerations, such as how agreements are drafted with your clients, for example. If agreements are drafted as a deed, it’s possible for clients to make a claim against you up to 12 years later. If agreements are drafted as a tort, this can be longer; up to as much as 15 years.
If you would like to discuss PI insurance and/or run-off cover in more depth, contact our team on 01653 697055, who will be able to advise you on the best cover for your specific circumstances. Alternatively, you can email us at firstname.lastname@example.org.