Professionals can find themselves liable for professional indemnity (PI) claims for many years after they stop practicing. In many cases their liability ends after six years – but under certain circumstances they could be liable for 15 years or more.
Run-off PI insurance is a form of cover which protects professionals after they have stopped practicing. This could be due to retirement, leaving the profession to start a new career, selling a firm and many other reasons. Run-off cover is required because PI insurance policies are written on a ‘claims made’ basis – this means that it is the policy in force at the time a claim is notified that is the relevant policy, rather than the policy in force at the time the work was performed or the incident occurred. Consequently the relevant policy may be many years after the event. If PI cover is not maintained, there will be no insurance to meet any new claims arising from past work.
It is a requirement of many professional bodies, such as RICS or the Law Society that their members retain run-off PI cover after they have stopped practicing. In most cases, where the professional firm continues to practice, it will provide former members with run-off cover – however it is the responsibility of the professional to ensure that cover remains in place. Professionals leaving a firm should ensure that cover will be provided and that they will be notified by their previous practice if cover ceases for any reason. If PI cover is not available from the previous or successor practice, professionals should protect themselves by taking out individual cover.
Liability can even continue after death so professionals should ensure that their executors are aware of the risk and continue cover for at least six years after the date that the last professional work was undertaken.
“It is standard market practice for cover to be arranged by firms rather than by individual practitioners, but ex-employees and past principals should not take this for granted – particularly in the present economic times when firms are becoming insolvent or may be reducing cover to save cost,” said James Burgoyne, Brunel Professional Risks. “It is particularly important that owners of firms speak to us early if they are considering closing or selling their practice as it is often easier to ensure that effective run-off cover is put in place while the firm is still practicing.”
