If you are alleged to have provided inadequate advice, design or services that subsequently causes your client to lose money, your PII covers the costs and expenses of your defence and the damages and costs awarded.
A PII policy is written on a ‘claims made’ basis, which means that for the policy to be effective there must be a current policy at the time the claim is made/reported. Therefore, if a claim is notified today in respect of work you carried out 3 years ago and you are still liable, if you have allowed your policy to lapse then cover will not be effective.
This is different to other liability covers, Employers Liability for instance, are ‘claims occurring’ basis which covers claims that occur during the policy period irrespective of when the claim is made. Therefore, a policy would not need to be current in order to cover historic losses as long as there was a policy live at the time of the occurrence.
So, what should you do if your contract with your client has ended or you’ve stopped practising, retired or sold your business? Professionals and trades people can be liable for professional indemnity claims for many years after a contract has ended, this tends to be six years but can be longer depending in the contract or type of work. If you have allowed your PII policy to lapse in this period there will be no effective policy to cover claims made in the years after the end of the contract where you may still liable, this is when a run off cover should be purchased to cover such claims.
Run-off cover can be bought annually as you would with your PII policy and you should take this cost into account. Having said this you will find that the annual cost will reduce over the run off period as the potential for claims to occur reduces with time and the premiums will reduce over the period to reflect this.
If you are unsure about the type of cover you require or if you would like a quotation please contact us on either 01302 341 344 or 0114 243 9914.
By Sandy Lockwood Cert CII – Commercial Account Handler