Many contractors take out professional indemnity (PI) insurance to cover themselves if they are found negligent in the performance of their contractual duties.
In this guide, we look specifically at retroactive and run-off PI cover. This covers work done in the past and, for a time after you finish your project, future claims.
PI Insurance basics
PI insurance is often considered a business essential, especially for those offering specialist advice or services. It helps to maintain professional credibility and is often a contractual requirement from clients or agencies.
This type of cover also protects you from claims for the unintentional breach of intellectual property, the loss of documents and data, and similar areas.
It can also extend to defamation, libel, or slander if such actions occur during your professional activities. The policy can include legal defence costs, even if the claim itself is found to be baseless, providing peace of mind and financial protection.
Retroactive Cover
If you wish to take out cover for work done in the past, this is known as “retroactive cover”.
This type of cover is especially important in professions where the effects of your work might not be immediately apparent, such as engineering, IT consulting, or financial services, where potential issues can emerge years after a project has gone live.
It is possible that a client could make a claim against you for work you carried out many years ago, so by adding on retrospective cover to your current PI policy, you will have all bases covered.
Additionally, if you are changing professional indemnity insurance providers, you should also make sure that the new PI policy has backdated cover to protect you from claims on work done in the past.
Retroactive cover is typically included by contractor insurance companies, assuming you have a ‘typical’ claims history, but you should always check that you are adequately covered before paying for a policy.
If you’ve had previous gaps in cover or lapses in your PI insurance history, it’s crucial to discuss these with your insurer, as it may affect your eligibility for retroactive cover or the cost of your policy.
Run-off Cover
If you are about to retire or are taking a break from contracting for whatever reason, what happens if a client makes a claim against you for mistakes you may have made in the past?
If you are about to leave the contracting industry, you will no longer need professional indemnity insurance for future work.
However, you may still be exposed in the event of claims made by past clients (even though this is unlikely in reality).
According to Law Society figures, 40% of all PI claims are made more than 3 years after an alleged incident.
PI insurers operate on a ‘claims made’ basis, so any claims will be processed at the date of the claim itself, rather than being backdated to the date of the alleged error/mistake being made.
So, if you don’t have an active policy in place, you will not be covered by the terms of the policies you have previously held.
The insurance industry created ‘run off’ cover for this very reason: to provide subsequent cover after an individual has ceased to work in their profession.
Most industry experts recommend taking out a six-year ‘run off’ policy, which will either be a one-off lump sum (which works out at around half the cost of the last full annual policy) or an annual policy that costs less each year until it expires.
Where can I get cover from?
Although PI cover is not a compulsory requirement in the IT contracting world (as it is for solicitors, accountants, etc.), many clients insist that their contractors have adequate cover in place.
- You can get a PI quote from our long-term insurance partner, Qdos.
- Find out more general information in our professional indemnity insurance guide for contractors.
Professional Indemnity Insurance for Contractors
Industry leading PI insurance - from just £13.50 per month via Qdos. Business liability and IR35 insurance cover also available.
