Why Run-Off Cover Matters: A Critical Consideration for Professional Indemnity Insurance

In the world of professional services, risk doesn’t end when the business closes its doors.
Whether due to retirement, sale, merger, or simply winding down operations, professionals
remain exposed to claims arising from past work. That’s where run-off cover becomes
essential – and why choosing a Professional Indemnity (PI) insurer that offers this
protection is not just prudent, but vital.

What Is Run-Off Cover?

Run-off cover is a type of insurance that continues to protect a professional or business after
they cease trading. It is designed to provide protection if a claim is made in the future for
work completed while the business was active.
Professional Indemnity insurance operates on a “claims-made” basis – meaning it only
responds to claims made or valid notifications of circumstances that might give rise to a
claim while the policy is active, regardless of when the work was performed (subject to the
retroactive liability date applied to the policy). Without run-off cover, once a policy lapses,
any subsequent claim or claims (even for past work) may not be covered.

Why Is Run-Off Cover So Important?

Claims Can Arise Years Later

Professional negligence claims often surface long after the work is completed. For example:

• A financial advisor retires in 2025, but a client discovers a costly error in 2027.
• An architect closes their firm, only for a structural issue to emerge three years later
  relating to services provided prior to the closure of the firm.
• An accountant completes a client’s tax return in 2024 but in 2028 a new accountant
  takes over the client’s tax affairs and notices an error was made in 2024.
  Without run-off cover, these professionals could face legal costs and damages out of their
  own pocket.

Legal and Regulatory Requirements

In many industries, regulators or professional bodies mandate run-off cover for a specified
period post-closure. Examples of this are:

• Solicitors.
• Accountants and financial planners (depending on the requirements of their governing
  bodies).
  Choosing an insurer that understands and supports these requirements assists in ensuring
  compliance.

Business Sales and Mergers

When selling or merging a business, buyers often require the seller to maintain run-off cover
to protect against legacy liabilities. An insurer that offers seamless run-off solutions can
facilitate smoother transactions and negotiations.

Personal Asset Protection

Without adequate run-off cover, professionals may be personally liable for claims. This can
jeopardize personal assets, retirement savings, and financial security – especially for sole
traders or partners in a firm.

Statute of limitations

Ceasing a business does not automatically invoke the operation of statute of limitation
legislation and can be another factor in determining the duration of run-off cover required.
Depending on the circumstances, limitations for civil claims such as contract breaches or
torts, may have limitation periods up to six years starting from when the right to sue arises.
For example, if a loss is discovered in 2027 for advice provided in 2025, the statute of
limitations would likely apply from the time the loss is discovered.

Why the Right Insurer Matters

Not all insurers offer run-off cover, and among those that do, the terms can vary significantly.
Here’s why it’s crucial to choose wisely:

• Automatic Run-Off Options: Some insurers offer automatic run-off for a set period – i.e. until the policy expires – reducing administrative burden.
• Flexible Terms: The ability to extend cover annually or for a fixed multi-year period.
• Claims Expertise: Run-off claims can be complex. An experienced insurer may
  assist in the fair handling of claims and defence of matters that may arise.
  Professional Indemnity insurance is about more than just protecting your business today – it’s about safeguarding your legacy. Run-off cover is the bridge between your past work and
  your future peace of mind. When selecting a PI insurer, make sure they can provide robust
  and flexible run-off cover. It’s not just a feature – it’s a necessity.

Important Notice
Berkley Insurance Company (limited company incorporated in Delaware, USA) ABN 53 126 559 706 t/as Berkley
Insurance Australia is an APRA authorised general insurer. Information provided is general only, intended for
brokers and has been prepared without taking into account any person’s particular objectives, financial situation
or needs. Insurance cover is subject to terms, conditions, limits, and exclusions. When making a decision to buy
or continue to hold a product, you should review the relevant policy documents.