What is Run-Off Insurance? Why Do I Need It?

Various insurance policies are written on a ‘claims made’ basis. This means that they will only respond to claims which are made against an insured and notified to the insurer during the policy period, irrespective of when the work was performed by the insured. If the policy expires, no additional claims can be made under the policy.

There is a potential for claims to be made against an insured after a business is wound up or a project is finished. If a claim is made at a time in the future and there is no insurance policy in place there would be no protection for the insured. This is where a run-off insurance policy can prove to be very valuable.

A run-off insurance policy can be purchased prior to the cessation of the business or the finalisation of a project. It will provide coverage to an insured for future claims made against them which arise from acts, errors or omissions which occurred prior to the inception of the run-off policy. Run-off policies can be purchased on an annual basis or a multi-year basis with one upfront premium payment.

WHICH POLICIES?

The following policy types are generally written on a claims-made basis and run-off insurance should be considered if ceasing business or finishing a specific project.

• Professional Indemnity Insurance
• Management Liability Insurance
• Association Liability Insurance
• Directors’ & Officers Liability Insurance
• IT Liability Insurance

BUT, THERE IS NO COMPANY TO SUE...WHY DO I NEED IT?

• Individuals can be held liable for their negligent actions as professionals, principals, partners, directors, officers and employees even if a company no longer exists.
• Obligations agreed to under contracts & deeds signed by the company can survive the life of the company and attach to individuals. 
• Some sale agreements require entities to purchase run-off insurance to cover past liabilities.