The day a professional firm closes is the day its insurance problem becomes most expensive — and most overlooked.
Run-off cover is the bridge that keeps a closed, sold or merged firm insured for the work it did before it shut its doors. Because professional indemnity is written on a claims-made basis, a policy that is not in force when the claim is made will not respond, regardless of when the negligent act occurred. Run-off solves that problem by keeping a policy in force for a defined tail after the firm stops trading. Get it wrong and a retiring partner’s personal assets are exposed to claims that arrive five, ten or thirty years after they signed the last invoice.
Every UK PI policy depends on two dates: the date the claim is first made against the insured, and the retroactive date behind which the policy will not look. Trading firms manage this by renewing every year and preserving the retroactive date across each renewal. When a firm stops trading there is no annual renewal to continue the policy. Run-off cover is a single placement that keeps the policy in force for an agreed number of years after the cessation date, with the same retroactive date as the final live policy.
The buyer is usually the firm itself in its final months of existence, or — if the firm has already been dissolved — the former principals personally. The policy responds to claims notified during the run-off period, in respect of work done before cessation. New advice cannot be insured under a run-off policy because the firm is no longer providing professional services.
The triggers for needing run-off are familiar. A retiring sole practitioner. A two-partner firm where one principal leaves and the other carries on. A practice that merges into a larger firm and ceases to exist as a legal entity. A consultancy that closes after a contract loss. An acquisition where the target’s pre-completion liabilities are not assumed by the buyer. In each case the question is the same: who is on cover for claims that emerge after the trading entity stops paying renewal premiums?
The economics of run-off matter because the cover usually has to be bought as a single up-front premium at the point of cessation. The market typically prices a six-year run-off policy at between two and three times the final annual premium, payable in one sum, with no refund if no claims are made. The buyer has the worst of two worlds: a known cost paid now, against an unknown liability spread over a long tail. Underwriters know the firm cannot walk away and have no incentive to compete aggressively. Brokers who handle run-off well plan the placement well before the cessation date and approach the market with the firm presented as an attractive run-off risk rather than a distressed one.
The wording of a run-off policy is materially the same as the wording of the final live policy. The insuring clause continues to indemnify the insured against civil liability arising from the conduct of the professional business, on a claims-made basis, subject to the retroactive date. The change is that the cessation date replaces the annual renewal as the end-point of new exposure, and the period of insurance runs from the cessation date for the agreed number of years.
Run-off cover requirements vary by regulator. The SRA Minimum Terms require solicitors to buy six years of run-off cover when the firm closes, on a single premium basis, with the same limit of indemnity as the firm’s final live policy and the same minimum terms. There is no option to opt out, and the SRA Solicitors Indemnity Fund operates as the safety net for older closed-firm exposures. The RICS regime requires surveyors to maintain run-off cover for a minimum of six years and, in practice, the longer tail risks under the Defective Premises Act 1972 mean many firms buy ten or twelve years voluntarily. The Architects Registration Board does not mandate run-off cover in the same prescriptive way, but the ARB Code of Conduct requires architects to maintain adequate insurance for the standard of care owed, and the practical answer for any architect closing a practice is that run-off is mandatory in all but name.
The Building Safety Act 2022 has changed the calculus for anyone whose work touched residential buildings. Section 135 of that Act extended the limitation period under section 1 of the Defective Premises Act 1972 to thirty years for accrued causes of action and fifteen years for prospective ones. A firm that designed or surveyed dwellings any time in the last thirty years can now face a claim under that regime. Six years of run-off cover is no longer obviously sufficient for residential exposures; ten years has become a reasonable minimum and longer is defensible for higher-risk work.
Run-off policies do not cover new advice. They will not respond to a former principal who continues to advise clients informally after cessation. They typically exclude any work done after the cessation date, and the insurer will require confirmation that the firm is genuinely no longer trading. A firm that quietly takes on new instructions after buying run-off has likely voided the cover for that work.
A two-partner surveying practice in the south of England decides to close at the end of 2025. Both partners are retiring. The firm has been with the same insurer for fifteen years, with a current limit of indemnity of £2m on each claim and no aggregate, and a “none” retroactive date. The current annual premium is £14,000.
The partners ask their broker about run-off three weeks before the planned cessation date. The broker can only obtain quotations from two markets in the available time. The cheaper quotation is £36,000 for six years of run-off, single premium, with the same limit and retroactive date. The partners accept it because the alternative is dissolving the firm without cover and accepting personal exposure to any claim that emerges.
Two years into the run-off period, a claim is notified for negligent valuation of a residential block where structural defects have emerged. The damages claimed are £900,000. The policy responds, defence costs are met, and the matter settles at £620,000 within the £2m limit. Had the partners not bought run-off, the claim would have been pursued against them personally, with no insurer behind them.
Had the broker been instructed six months earlier, a five-market exercise would have produced a quotation closer to £28,000 and a ten-year tail would have been priced and offered as an option for the longer residential exposure.
If the firm is approaching closure, treat the final renewal as a planning exercise for run-off. Notify all known circumstances against the expiring policy so that the eventual run-off responds only to genuinely new matters.
Confirm the limit of indemnity on the run-off policy is the same as the limit on the final live policy. Underbuying the limit at run-off is a false economy because the long tail on professional negligence claims is precisely where catastrophic claims emerge.
Match the retroactive date to the firm’s full trading history. A run-off policy with a “none” retroactive date is the safe default.
Quantify the right length of the tail by reference to the work the firm has done. Six years is the SRA minimum for solicitors; ten years or more is defensible for surveyors, architects and engineers with residential exposure under section 135 of the Building Safety Act 2022.
Document the run-off placement clearly for former principals and their personal advisers. The policy is often the only protection between a retired professional and a claim made years after the firm has been forgotten.
Apex’s view: the standard six-year tail is no longer adequate for any firm with meaningful residential exposure. The Building Safety Act 2022 has put a thirty-year retrospective tail on Defective Premises Act 1972 claims and the market has not yet repriced run-off cover to match. We continue to advise architects, surveyors and structural engineers approaching closure to budget for at least ten years of run-off, and to start the placement conversation six months ahead of cessation. The premium uplift for a longer tail is rarely the deal-breaker; the deal-breaker is leaving it too late and accepting the only quote the firm can find.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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