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Professional Indemnity – guide to retroactive and run-off cover

Many contractors take out professional indemnity (PI) insurance to cover themselves in case they are found to be negligent during the course of their contract duties.

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.

In addition to PI insurance for current contract roles, what about cover for advice or work done in the past (retroactive cover), or extended run-off cover for when you retire?

Retroactive Cover

If you wish to take out cover for work done in the past, this is known as “retroactive cover”.

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.

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 (however unlikely this may be in reality).

According to Law Society figures, 40% of all PI claims are made over three years after an alleged incident took place.

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 policies you have previously held.

The insurance industry created ‘run off’ cover for this very reason – to provide a subsequent period of cover after an individual has ceased to work in his/her profession.

Most industry experts recommend taking out a six year ‘run off’ policy, which will either be in the form of a one-off lump sum (which works out at around half the price of the last full annual policy cost), or an annual policy which cost 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 now insist that their contractors have adequate cover in place.

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.

Last updated: 13th February 2019