Run-off cover for past work.

Engineering liability does not necessarily end when the work stops.

Professional Indemnity insurance is generally written on a claims-made basis. This means the policy in force when a claim is made — rather than the policy held when the work was completed — is usually the one expected to respond, subject to its terms, conditions and retroactive date.

For engineers who retire, close a practice, sell a business or move into a different career, run-off cover can help preserve protection for claims connected with earlier professional services.

What is run-off cover?

Run-off cover is an arrangement that continues Professional Indemnity protection for past work after a business or practitioner stops providing new professional services. It is designed for claims first made during the run-off period that arise from work completed before the practice ceased or changed.

Engineering projects can have long lives. Design, certification or advisory issues may only become apparent after construction, commissioning or years of use. Without a current policy or appropriate run-off arrangement, the former practice or its principals may need to fund the defence and settlement of a claim themselves.

Why engineers may need it

1. Long-tail exposure: A design error, omission or specification issue may not become visible until well after the work was delivered.
2. Contractual obligations: Client and project contracts may require PI insurance to be maintained for a stated period after completion.
3. Retirement or closure: Stopping work does not automatically remove potential liability for earlier advice and services.
4. Sale or merger: A transaction does not always transfer every historic liability. The sale agreement and insurance arrangements need to be reviewed together.
5. Protecting personal and business assets: Defending even an unfounded allegation can be expensive.

How run-off cover works

The appropriate structure depends on the insurer, the policy wording and what is happening to the business. In some cases the existing policy is converted to run-off; in others, a separate arrangement is made.

• Duration: Consider contractual requirements, applicable limitation periods and the characteristics of past projects. There is no single period that suits every practice.
• Limit and scope: The limit should reflect the scale and risk profile of earlier work, as well as any surviving contractual commitments.
• Retroactive date: Check that the arrangement continues to recognise the relevant history of the practice.
• Known circumstances: Potential issues should be notified to the current insurer before the policy changes, in accordance with the policy terms.
• Business changes: Retaining records and documenting the treatment of historic liabilities is important when a practice is sold, merged or wound up.

Plan before your current policy ends

Run-off arrangements are best considered before retirement, closure or completion of a sale. This allows time to review contracts, claim and circumstance history, policy continuity, record retention and the insurer’s requirements.

Speak with your broker before cancelling or materially changing an existing Professional Indemnity policy. The right arrangement will depend on the work performed, the entities and individuals that need protection, and the terms available from insurers.

The information on this website is general in nature and does not take into account your individual objectives, financial situation or needs. Policy coverage is subject to the relevant wording, terms, conditions and exclusions. Consider your circumstances and seek professional advice before making a decision.