What is Run-off Insurance?

Run-off insurance is the continuation of Professional Indemnity insurance once a firm has ceased to practice.  It covers the past liability of a firm from the date the practice stopped trading.  This means that should a claim arise from work undertaken between your retroactive date and the date of cessation then the policy will respond. 

Professional Indemnity Insurance operates on a 'claims made' basis. This means that the policy in force at the time the claim is notified is the policy which responds and not the policy that was in force at the time the negligent work was carried out.  Consequently, if there is no policy in force, there will be no cover.

If you have sold or are thinking of selling your practice or book of business, you may be required to purchase Run-off cover. It is usual that the new owners will only cover liability for work undertaken from the date they have purchased your firm.  Therefore, protection for any claims that may arise from past work will be your responsibility.

Why is it needed?

Professional negligence claims can be intimated for up to six years from the date of the negligent advice. This is because negligent acts or errors may not become immediately apparent, particularly where accountancy professions are concerned. The Statute of Limitations determines the six-year period.

There are some circumstances where negligence claims can be at issue for up to fifteen years, as determined by the Latent Damage Act. This is a specialised area of law and you will need to refer to a qualified legal advisor for further advice. 

What cover is available under your Professional Indemnity policy?

The ACCA regulations stipulate that members must maintain Run-off insurance for a minimum of six years following cessation.

The ICAEW regulations, by contrast, stipulate a minimum of 2 years.

Dependent on the insurer, Run-off cover may be renewed annually or for a block six year period*.  Renewal is provided on a short declaration form basis with a reduced premium at each renewal to reflect the theoretical reduction in risk each year. However, this is subject to claims experience and the insurance market rates at the time of each renewal  

If you would like to learn more please contact a member of the Accountants team.

*Subject to insurers criteria being met.