Any SRA authorised solicitor who ceases trading or whose company ceases trading, merges, or is acquired must purchase run-off cover as a condition of their SRA membership.
Solicitors who are not SRA authorised may not be required to purchase run-off cover as a condition of any regulatory oversight. Still, the cover is often specified as a contractual obligation with clients in certain industries, such as construction.
Even if run-off is not a contractual or regulatory requirement, run-off policies serve to protect the interests of both clients and business owners if negligence claims are made following business closure or acquisition and should be considered an important protective measure. NimbleFins’ comprehensive solicitor insurance guidance provides comprehensive information on solicitors insurance and a range of other coverage options for any profession and business size.
What is run-off insurance?
Run-off insurance is an extension to Professional Indemnity and/or Management Liability insurance policies, which provides additional cover for businesses that have ceased trading. This ensures that claims made against companies for work done in the past can still be addressed by insurers, which provides security for retired partners and previous clients alike.
Do other policies have run-off options?
Public and employers’ liability policies do not require run-off options, as they are issued on a ‘claims occurring’ basis. This means that a claim can be made months or years after the event which caused it and will still be covered by insurers as long as there was a policy in place when the event occurred. Therefore, there is no need for an active policy to be in place at the time the claim is made, so there is no need for run-off cover to exist for these policies.
What does ‘Claims made’ mean?
A ‘Claims made’ policy will only cover claims made against the policyholder while the policy is active, even if the event that caused the claim occurred before the policy’s start date. This is because claims made policies typically have a ‘retroactive date’ which specifies a ‘cut off’ date in the past. If the event that caused the claim happened before this cut-off date, the claim wouldn’t be covered.
Professional indemnity and directors and officers policies are both claims made.
How long is solicitors run-off insurance?
Solicitors run-off insurance is typically for 6 years. However, a contractual obligation with a client can mandate a longer period. As can situations where potential liabilities might extend beyond the typical limitation periods. Insurers package run-off into different options, with some accepting a single payment for the full 6 years’ worth of protection.
In some cases, insurers will manage a run-off policy annually, with the possibility of reducing the premium each year, given that the business is no longer generating risk. If your run-off policy works this way, it is good to call your insurer at each renewal to discuss your options and possibly obtain a discount.
Who is run-off insurance for?
Run-off insurance benefits businesses by ensuring that they can comply with regulatory and contractual requirements. Still, it also safeguards a business’ reputation and the assets of its directors in the event of a claim. Run-off insurance also protects the clients of a business from being unable to claim when a business has ceased trading and preserves the good reputation of any given industry by ensuring these clients always have some recourse.
What are the types of run-off insurance claims?
Typically, run-off claims fall into the same categories as professional indemnity and directors and officers (management liability) claims. The key difference is that any claim against a run-off policy will have been discovered after a business ceases trading.
A poorly written client’s will resulted in conflicting views between beneficiaries and large expenses incurred in determining inheritances. The solicitor responsible no longer trades at the time the will is activated, but their run-off policy addresses the claim for professional negligence.
Two years following its acquisition the new directors of a business discover debts that were not disclosed prior to the company acquisition. As a result, they claim against one of the prior directors personally for the value of the outstanding debts. Insurers take up the claim under the terms of the in-place run-off policy.
Important considerations when buying run-off cover
The retroactive date on any solicitors policy, run-off or otherwise, should be the date that the solicitor or business started trading. Checking this at the point of issue will save any issues later on.
It’s uncommon for other insurers to quote for run-off for companies they have not covered on a full policy for at least a year, meaning that if you are looking last minute, you may be unable to escape punitive or uncompetitive run-off terms. Consider asking your insurer or broker about run-off rates a year or two prior to ceasing trading, if possible, so that you can select the best option for you in advance.
As a run-off policy progresses, the risk of a claim steadily reduces. As a result, it may be possible to obtain run-off at lower levels for more competitive premiums as the perceived risk to your business drops. However, you may still be required to maintain a level as specified by the SRA as suitable.