This is your essential guide to run off cover in professional indemnity insurance policies. In this guide, we’ll explain what run off cover is, who needs it, and some of the benefits of adding it to your policy.
What is Run Off Cover?
Run off cover is insurance for any claims made against your business after you stop trading. Many insurance claims involve situations that took place months or years ago. This is partially because it can take a while to put a case together. But it’s mainly because it can often take some time for certain risks and damages to become apparent.
For example, a contractor might overlook certain details during a construction job. Some years later, a surveyor might find that the building they worked on is structurally unsound. The building’s owner might then make a claim against the contractor – even though they carried out the work years ago.
But what if this contractor doesn’t trade anymore? What if they’ve closed down their business since carrying out the work?
With run off cover, the claimant can still get any compensation they’re due, while the contractor can avoid being personally liable for the claim.
Who Needs Run Off Cover?
Run off cover is a legal requirement in some sectors. Solicitors, for example, have a legal obligation to get run off cover.
But all business owners, freelancers, and contractors should consider getting professional indemnity insurance, and it’s a very good idea to add run off cover to your policy.
How Does Run Off Cover Work?
Professional indemnity insurance works on a “claims made” basis. This means that the cover applies on the date the claim was made, rather than on the date the error, omission, or harm occurred. So when you stop trading, you can cancel most of your business insurance policies: You won’t need public liability cover, or buildings insurance, for example.
But you shouldn’t cancel your professional indemnity insurance policy just yet. If you do, and a client makes a claim against you, you could be personally liable for the claim – even if it’s for an incident that occurred years ago, and even if you had cover at the time.
The Pros and Cons of Run Off Cover
It’s always costly and stressful to face a claim. But it’s particularly frustrating to face a claim for something that happened long ago. It’d be even worse if you were personally liable for this claim. Without run off insurance, you’d have to pay for all costs yourself, out of your own pocket. But with run off insurance, you’d be covered for all costs, even if your business stopped trading years ago.
There are a couple of downsides to run off cover, though. The main one is the cost. Run off cover doesn’t cost much, but adding it to your professional indemnity insurance will increase the price of your premiums.
Another problem you might have is in deciding just how long you need your run off cover to last. Policies will usually set a limitation period of six years following the date of the incident. This might be more cover than you need.
So think about the nature of your business, and the sort of claims you might face. If you’re a copywriter or a web designer, you may not face any claims for work you carried out years ago. But if you work in construction, or any other field where problems might not become apparent for years, then run off insurance could give you peace of mind that any potential trouble will be sorted even long after you stop trading.
Need some extra guidance about professional indemnity insurance and run off cover? If you have any questions or would like to discuss your options please contact our Tapoly team at info@tapoly.com, call our help line on +44(0)2078460108 or try our chat on our website.