Professional Indemnity Insurance (almost always) operates on a ‘claims made’ basis. This means that it is the policy in force at the time when a claim arises which responds to the claim – not the policy that was in place when the (alleged) error or omission giving rise to the claim occurred. So a policy in force today may be required to respond to a claim arising out of a mistake made many years ago, before the current policy even commenced.
John is an architect. His professional indemnity insurance policy was with XXX Insurance Company Ltd from 1990–2000. In 2000 he got a better deal from YYY insurance company Ltd, so he switched. He renewed his policy with YYY Insurance Company Ltd for the next 5 years (from 2000-2005).
In 2004, whilst John was insured with YYY Insurance Company Ltd, he received a solicitors’ letter in connection with some advice he had given to a client in 1998. The solicitor alleged that John had given bad advice and that a court action against him would follow, for damages.
Which insurance company will foot the bill for this claim?
YYY Insurance Company Ltd. Why?, because John was on cover with them when he first became aware of a possible claim.
What is Run-off professional indemnity insurance cover?
Refer to the example given above. What if John had retired in 2002 and cancelled his professional indemnity cover? Then in 2004, he receives a solicitors letter regarding advice he gave back in 1998. The answer is, that he would not be covered, as his policy had lapsed.
What John should have purchased when retiring was a run off professional indemnity policy. This stays in place for a number of years after the business has ceased and protects an insured against claims which may arise from past work – subject to the policy terms and conditions – of course.
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Disclaimer: The material contained is this article is for general information purposes only and does not constitute professional advice.