As an engineer, your professional expertise is a valuable asset, but it also comes with inherent risks.
Whether you’re working on large-scale infrastructure projects or smaller design tasks, the potential for disputes or claims due to errors, omissions, or negligence doesn’t disappear when you stop working. This is where run-off cover for your professional indemnity insurance becomes essential.
What is Run-Off Cover?
Run-off cover is an extension of your existing professional indemnity insurance that provides protection after you retire, sell or close your engineering practice. While your current professional indemnity policy covers you for claims made during the period you’re actively practising, liability for past work can linger for years, even decades. Run-off cover ensures that you’re protected from any claims that arise from your prior work after you’ve stopped practising.
In Australia, particularly in the engineering sector, projects often have long life spans, and issues related to design or structural failures can surface long after the project is completed. Without run-off cover, any claims made against you after you stop practising could leave you financially exposed.
Why Engineers Need It
- Long-Term Liability: Engineering projects can take years to fully reveal issues, whether it’s a design flaw, material miscalculation, or an oversight in project specifications. A claim can be lodged years after the project is completed. Without either a current policy in place or run-off cover, you would have to personally cover the costs to defend the claim, which can be financially devastating.
- Protecting Your Legacy: As an engineer, your career is built on years of hard work, expertise, and reputation. Run-off cover ensures that your reputation and finances are protected, even after you’ve stepped away from the industry.
- Contractual Obligations: Many contracts, particularly in government or large-scale private sector projects, require engineers to maintain professional indemnity insurance for a certain period, even after completing a project. This can range from a couple of years to more than 10 years of run-off cover being required. Failing to have adequate run-off cover could result in a breach of contract and significant legal costs.
- Peace of Mind in Retirement: For engineers approaching retirement, run-off cover offers peace of mind. You can enjoy your retirement without the fear of potential claims disrupting your finances or lifestyle, knowing you’re covered for any past projects.
- Business Sales and Mergers: If you’re selling or merging your engineering firm, run-off cover can be crucial. It ensures that any future claims related to the work done before the sale or merger are covered, making your business more attractive to buyers and protecting your financial interests.
How Does Run-Off Cover Work?
Run-off cover is a continuation of your existing professional indemnity policy but specifically tailored to cover claims for past work. When purchasing run-off cover, it’s important to consider:
- Duration: Claims in the engineering industry can arise years down the line, so ensure your run-off cover period aligns with the long-term liability risks of your projects. Many engineers opt for run-off cover lasting at least 6 to 7 years. However, longer periods may be necessary depending on the nature of your projects.
- Coverage Amount: The level of coverage should reflect the scale and scope of your past work, including any contractual requirements. Larger projects or high-risk sectors may require higher limits of indemnity.
- Cost Considerations: While run-off cover might seem like an added expense, it’s a fraction of the potential costs you could face from defending a claim without cover in place. Each year of run-off insurance coverage costs less than the year before. As a rough guide (noting that each engineering discipline carries varied risks and the insurance market fluctuates from year to year), 7 years of run-off insurance coverage should cost around 4.5 times the premium before the policy is changed to run-off. For example, if your premium is $10,000 before going into run-off, purchasing 7 years of coverage will cost around $45,000.
Secure Your Future
As an engineer, the value of your professional indemnity insurance doesn’t end when your active work does. Run-off cover is a critical part of ensuring long-term protection against future claims, safeguarding both your professional legacy and personal finances. Whether you’re retiring, closing your business, or transitioning to a new career, having run-off cover in place will give you the peace of mind to move forward without lingering liability concerns.
At Engineer Insurance Australia, we specialise in providing tailored insurance solutions for engineers. If you’re considering run-off cover or need guidance on professional indemnity insurance, contact us today to explore the best options for your unique situation.
