A contractor’s guide to run-off cover for Professional Indemnity Insurance

Run-off cover can be added to a professional indemnity policy to cover claims made after a business has stopped trading. Essentially it acts as an extension to your professional indemnity insurance once your business has closed.

Hiscox explains run-off cover for professional indemnity insurance to contractors and why contractors may need it for their business.

Do contractors need run-off cover?

Run-off cover for contractors is just as important as any other business. Whether you’re wanting to retire or want to change your career, run-off cover will be needed to secure safety for yourself and your business in case any claims are made against you.

If you decide to stop trading as a contractor, you will most likely have fresh projects with clients which have just been completed or are finishing in the weeks leading up to your closure. These clients or even clients from up to six years ago are eligible to make a claim against you and your contracting business for any damages, leaked information, or negligence during the project.

If you have any confidential information which has been shared, or if your services could be challenged by a client, then you will most likely have needed to take out professional indemnity insurance for your business, and adding run-off cover for contractors could add extra security to your business after you have closed. This policy will cover both the business and contractor as well as any past collaborators who have worked alongside you in client projects.

How do I get run-off cover with my professional indemnity insurance?

If you have professional indemnity insurance as part of your business insurance, all you will need to do is contact your insurer and update your details to your policy.

You can purchase run-off cover as you give notice to your insurer that your business is closing. The day that your business closes is when run-off cover will become active, providing that you display your previous record of services to clients that were taken in between renewing your professional indemnity insurance and closing. This will help keep track of your business in the case of any claims in the future.

Should I still have run-off cover if I close my limited company?

The answer is, yes. Having run-off cover for your limited company once you close will secure your business against any claims for up to six years. Clients of any past projects from up to six years to when you close your business can still make a claim against you and your company so adding run-off cover to your insurance policy will stop any claims from advancing.

Historic liabilities will be covered if you choose to have run-off cover when you close your limited company, but you do need to have a policy already in place for this to happen. You can cancel other insurance policies such as employers’ liability insurance, and public liability insurance, but need to keep professional indemnity insurance if you want to add run-off cover and keep it valid.

What is the cost of run-off cover?

The cost of run-off cover can vary for contractors depending on your insurer. Even once your business has closed, a premium still needs to be paid each year, but will slowly go down in price for each year that there have been no claims. Run-off cover is therefore cheaper than professional indemnity insurance due to the business no longer being active and going down in price. Keep an eye on the cost of run-off cover and after six years evaluate whether you still need it.

What is Professional Indemnity Insurance for contractors?

In the event a claim is made against you by a client, professional indemnity insurance (PII) will have you covered for any damage that your client has claimed that they have received, whether this being towards their finished product or the treatment of the client.

PII helps to cover you against:

• Negligence
• Infringement of intellectual property rights
• Breach of confidentiality
• Defamation

As well as cover for past projects, PII highlights that it might not always be you who received a claim from an incident. PII covers both you and any suppliers and subcontractors who have helped out in any client projects. This has you covered from all angles to save you the worry of client claims

Contractors who have PII will be covered while their business trades and adding run-off cover once you decide to close your business will extend this cover. With up to six years of run-off cover, contractors can feel safe knowing that if a claim was made against their business that it would be dealt with efficiently with the help of this policy.

Find out more about professional indemnity insurance for contractors here.