Professional liabilities are covered under a “claims made” policy wording. “Claims made”, means that providing a policy is in force at the time a claim is made against the insured or when the insured becomes aware that a claim may be made, then subject to the policy conditions, cover is provided, no matter when the incident causing the claim took place. This is subject to any retroactive provisions that may apply.
When Cover Ceases
In the event that insurance lapses (and is not replaced with a fresh policy) all cover ceases for claims made after the date of lapsing, even if the firm was insured at the time the incident occurred.
In other words, cover is not available for past incidents unless the person/firm has a policy in place at the time of the claim notification.
Ceasing to practice, whether it be an individual, sole practitioner, partner, director or firm does not remove the possibility of legal action from professional negligence after retirement arising from the practice prior to retirement.
Seek Advice from Hiscock Insurance Brokers
Any member contemplating ceasing business completely, sole practitioner or any partner, director of a member firm contemplating retiring from business completely should contact Hiscock Insurance Brokers for advice about run-off cover prior to ceasing practice.
It is strongly recommended that any firm, sole practitioner, partner or principal who is ceasing practice arranges, well before the event, insurance to cover any claims arising out of errors or omissions which happened before retirement and which may not be discovered until after retirement. Such insurance will protect the assets of the persons who have ceased to practice.
Where a partner/principal retires from an ongoing business, the current Abacus policy conditions will continue to provide cover to the firm for work handled by the retiring partner/principal, provided the member continues to purchase the insurance each year from the same insurer, and provided that the insurer continues to offer such benefits.
When Run Off Cover is Required
Where a whole firm ceases business, run-off cover will protect both partners/principals plus staff. Under these particular circumstance, as the firm is not continuing in business, it will be necessary to arrange and purchase appropriate run-off cover.
If, after ceasing business, the business entity is subsequently dissolved or wound up, then arrangements will need to be made to protect the partners/principals and staff. Again, there is an onus on the principals and partners to ensure cover is maintained and it may be necessary under these circumstances for individuals to arrange their own cover.
In determining what premium and excess shall apply during run off cover, the insurer will consider the nature of the business previously carried out, and whether any incidents likely to give rise to a claim have been reported.