Don’t Just Run-Off!

Run-off insurance likely needs no introduction but to summarise briefly, it is a Professional Indemnity Insurance (PII) policy that comes into effect when you or your employees stop trading.

It is particularly important as it covers claims that relate to work carried out before the policy started, which you could be liable for.

Typically, run-off policies are purchased when a business is sold or taken over, or if the business ceases to trade following retirement.

Don’t do a Doug – Case Study

To help put this into perspective, let’s take the case of Doug.

When Doug decided to take early retirement, he decided against taking out run-off cover.

Doug had run his own business for over 30 years. He’d worked really hard during that time to build up his business and decided now was the time for him to put his feet up and enjoy his retirement. He wound down his business and moved to his dream Spanish villa overlooking the Mediterranean.

After just over a year in the sun, an ex-client made a notification against Doug’s previous business. The complaint related to advice they had received from Doug’s firm which had led to the ex-client incurring a serious financial loss.

When Doug had retired, he’d had the option of purchasing run-off cover which would have offered protection for all previous work his firm had undertaken. This would have meant the claim would have been defended and potentially paid by insurers.

Sadly, Doug had opted not to take out run off cover. This meant the claim made against him was not protected.

So what happened?

Doug was found to be liable for the claim (including costs) and had to pay a substantial award to his ex-client out of his own funds.

This meant he was forced to sell his retirement property in Spain and return to the UK. To add insult to injury, he also had to return to work just to make ends meet. Not quite the retirement he’d envisaged!

Thankfully in this example Doug is just a fictional character, but the potential for this type of scenario to unfold and the real life impacts are very real.

So, if you are thinking of retiring or ceasing to trade. Don’t do a Doug!