What Is Run-Off Insurance? 

Run-Off Insurance protects you after you stop trading, retire, sell your business, or otherwise cease providing professional services. It provides ongoing protection for claims that may arise from work you completed in the past, even though you are no longer operating. 

Professional Indemnity Insurance operates on a Claims Made basis. This means you need to have an active policy in place at the time a claim is made against you, not simply when the work was undertaken. 

Without Run Off cover, you may no longer be insured for claims relating to your previous professional services after your policy has been cancelled. 

Run Off cover may also assist in meeting contractual obligations where agreements require Professional Indemnity Insurance to remain in place after a project has been completed. 

Why Is Run-Off Cover Important? 

Many professionals assume that once a project has finished, their exposure to future claims also comes to an end. Unfortunately, that isn’t how Professional Indemnity claims typically arise.

A claim may not emerge until months, or even years, after the work was completed. This can occur when an error, omission or design issue is only discovered once a loss becomes apparent.

Because Professional Indemnity Insurance responds on a Claims Made basis, maintaining appropriate Run Off cover helps ensure you remain protected for work undertaken before you ceased trading.

How Long Should Run-Off Cover Be Maintained?  

The appropriate period of Run Off cover will depend on your profession, contractual obligations and individual circumstances.

When you retire, sell your business or otherwise cease trading, your insurer will generally provide the option to arrange Run Off cover. Depending on the insurer and your circumstances, this may include:

• Annual Run Off cover – cover that is renewed each year. 

• Multi-Year Run Off cover – the option to purchase multiple years of Run Off cover upfront. Many insurers offer the option to purchase up to seven years of Run Off cover upfront, subject to their underwriting guidelines and product offerings at the time.  

While the length of Run Off cover is an important consideration, it’s equally important to understand that Professional Indemnity Insurance operates on a Claims Made basis. This means claims may arise well after the professional service was provided, particularly where a loss is only discovered months or even years later. 

For this reason, there is no universal “right” period of Run Off cover. The most appropriate duration will depend on your profession, the nature of your work, any contractual obligations and your individual circumstances. 

Your insurance broker can help determine what period of Run Off cover may be appropriate based on your profession and risk profile. 

Why Do I Need To Keep Paying If I Was Insured at the Time?  

This is one of the most common questions we receive.

Unlike many other types of insurance, Professional Indemnity Insurance operates on a Claims Made basis. This means the policy that generally responds is the one that is active when the claim is made and notified, not necessarily the policy that was in place when the professional service was originally provided.

For example, you may have completed a project several years ago while you held Professional Indemnity Insurance. If a claim relating to that work is first made after you have cancelled your policy or retired, you may no longer have insurance in place to respond.

Run Off Insurance helps bridge this gap by maintaining cover for claims arising from work you completed before ceasing business.

When Does the Risk Period Actually Begin?  

One of the biggest misconceptions surrounding Professional Indemnity Insurance is that the risk ends when the work is completed. In reality, claims relating to professional services may not arise until months or even years later, when an alleged loss first becomes apparent or is discovered.

This is one of the key reasons Run Off Insurance is so important. Although your business may have ceased trading, claims relating to previous work can still arise long afterwards.

Legal time limits are an important consideration as they are not simply measured from the date the professional service was provided. In many circumstances, they may depend on when an alleged loss is first discovered, with the applicable limitation periods varying depending on the circumstances, the type of claim and the relevant legislation.

For this reason, the appropriate duration of Run Off cover should be considered in light of your profession, contractual obligations and individual circumstances, rather than by reference to a single timeframe.

Note: Every claim is different, and the timing of a claim will depend on the individual circumstances and applicable legal principles. This information is general in nature and should not be relied upon as legal advice.

Run-Off Cover In Practice – Case Study  

The Situation: 

An engineering consultant prepared the stormwater drainage design for a residential development. The project was completed, construction finished, and the homes were occupied without any immediate issues.

More than 10 years later, several property owners began experiencing ongoing stormwater runoff and drainage problems during periods of heavy rainfall. Following further investigation, it was alleged that aspects of the original drainage design had contributed to the issues. 

What Happened? 

Although the design work had been completed more than a decade earlier, the alleged loss was only identified after the drainage issues became apparent over time. The property owners subsequently sought to recover the costs of rectification and associated losses from the engineering consultant.

Why This Matters 

This example demonstrates why Professional Indemnity claims can arise many years after professional services have been provided. The potential exposure does not necessarily end when the project is completed. It may continue until an alleged loss is discovered and a claim is made.

For professionals who have retired or ceased trading, maintaining appropriate Run Off Insurance can be an important consideration to help protect against claims relating to past work. 

The above example is illustrative only and has been prepared to demonstrate how Professional Indemnity claims can arise years after professional services have been completed. 

What To Learn More?

More information can be viewed in our Professional Indemnity FAQs.

To discuss your specific requirements so we can provide tailored advice to your business, please give us a call on 1300 932 237 or email us.