Run-off is the most expensive insurance purchase most partnerships ever make, and the only one they buy when there is no firm left to pay for it.
When a regulated law firm closes without a successor practice, the SRA Minimum Terms and Conditions of Professional Indemnity Insurance (MTC) require 6 years of run-off cover on the same MTC basis as the active policy. This is not optional. It is a contractual obligation of the participating insurer that wrote the last active policy, and the firm cannot regulate its way out of it. The combination of the 6-year tail, the typical front-loading of premium into year 1, and the absence of fee income to pay it makes run-off the defining financial issue of partnership cessation. This guide sets out the requirement, the role of the Solicitors Indemnity Fund Limited (SIFL) for post-6-year supplementary cover, the cost profile firms should plan for, and the realistic steps a partnership should take in the run-up to closure. The statutory backdrop is the Solicitors Act 1974 and the SRA Indemnity Insurance Rules.
The 6-year obligation runs from the date of cessation of practice. During those six years the run-off policy must respond to claims first made against the firm on an MTC-compliant basis — same insuring agreement, same limits floor (£2 million / £3 million depending on structure), same defence-costs-in-addition treatment, same innocent insured wording. It is, in effect, the same policy continued without new fee income to support it.
Cessation is the trigger that matters. The SRA defines cessation, in essence, as the firm ceasing to carry on private legal practice without there being a successor practice. A successor practice — broadly, another regulated firm that takes over the closing firm’s clients, files and goodwill — assumes the closing firm’s claims liabilities and brings them into its own ongoing MTC cover. Where there is a successor practice, no separate run-off policy is needed; where there is not, run-off bites in full.
This makes the cessation-versus-successor question critical. Two firms merging in a way that meets the SRA’s successor practice definition can avoid run-off entirely; the same two firms structuring the transaction as a closure of one and a referral of clients to the other will trigger run-off on the closing firm. The difference can be six- or seven-figure premium savings.
After the 6-year MTC run-off ends, claims can still be made — the Limitation Act 1980, section 14A, gives claimants up to 15 years from the negligent act in some professional negligence contexts under the longstop in section 14B, and ordinary contract and tort limitation periods continue to run. To address this tail, the profession has retained the Solicitors Indemnity Fund Limited (SIFL) as a vehicle for supplementary post-6-year run-off cover, after a period during which the SRA reviewed whether the role should continue. Firms approaching cessation should confirm the current SIFL arrangements with their broker; the position has been subject to change in recent years.
Every participating insurer that signs the SRA’s Participating Insurer’s Agreement commits in advance to offering run-off cover to any firm it insures at the point of cessation. The firm cannot shop the run-off premium around — the obligation sits with the insurer that wrote the last active period of insurance.
The cover responds in the ordinary way under clauses 1, 4 and 7 of the MTC: civil liability arising from the firm’s pre-cessation private legal practice, defence costs in addition to the limit, innocent insured protection for the firm and uninvolved partners. Dishonesty exclusions under clause 6 work the same way — against the dishonest individual, not the firm or the innocent partners.
The pricing trajectory is where run-off differs from active cover. Insurers typically price the 6-year run-off as a front-loaded multi-year premium, with the bulk of the cost falling in year 1 and tapering across years 2 to 6. A common shape is a year-1 premium of around 200% to 300% of the firm’s last annual premium, with declining percentages in subsequent years — though the precise multiple depends on the insurer, the firm’s claims experience, work mix and structure. Some insurers offer a single up-front payment for the full 6 years at a discount.
Section 11 of the Insurance Act 2015 continues to apply during the run-off period, as does the duty of fair presentation in section 3 at the point the run-off cover is placed. Firms often forget that placing run-off involves a fresh disclosure exercise — the insurer is entitled to ask updated questions about claims notifications, the firm’s wind-down plan, and any matters the firm now considers may give rise to a claim.
The SIFL supplementary cover, where available, addresses claims made after the 6-year MTC run-off has expired but within the relevant limitation period. It is a backstop, not a substitute for the 6-year run-off.
Consider a 4-partner high street firm with a £140,000 annual PI premium on a £2 million primary policy, doing a typical mix of conveyancing, probate, family and minor commercial work. Two partners want to retire; the other two do not want to take on the firm’s claims liabilities. The firm decides to close without a successor practice on 1 May, with cessation effective immediately.
The insurer prices the 6-year MTC run-off at 280% of the last annual premium in year 1 — around £392,000 — with subsequent years priced at 40%, 25%, 15%, 10% and 10% of the year-1 premium, totalling roughly £820,000 over the full 6-year run-off period. The insurer offers a single up-front payment at a 10% discount: around £738,000. The firm’s distributable reserves after settling office costs, employee redundancies and outstanding work-in-progress are £1.1 million. After paying run-off up front, the four partners share around £360,000 — meaningfully less than they had assumed when planning the closure. Two years into run-off, a historical conveyancing matter generates a £900,000 claim; the policy responds in full under clauses 1 and 4 of the MTC, the partners’ personal positions are protected by the innocent insured wording, and the wisdom of paying run-off up front is confirmed.
For a firm not contemplating closure, the renewal conversation should nevertheless include run-off. Ask the broker to model what cessation would cost on current premiums, and to confirm how the firm’s current insurer prices run-off. For a firm with succession or merger discussions live, ask the broker and the SRA-experienced corporate adviser to confirm whether the structure under discussion would meet the successor practice definition — and what it would take to do so. For a firm with a definite closure date, start the run-off placement conversation 6 to 12 months out: this is where any leverage exists on premium and terms. Partners should also consider how their partnership or LLP agreement deals with run-off funding — many older agreements are silent, leaving the question to be argued at the worst possible moment. A clean closure plan funds run-off as a first call on partnership reserves, not as a residual after distribution.
Apex’s view: We have seen too many firms decide to close, distribute reserves to partners over twelve months on tax-planning grounds, and then discover that the run-off premium is most of what they have just paid out. The partnership agreement should require run-off funding to be ring-fenced from the moment cessation is on the cards. And if a merger is genuinely possible, work hard to structure it as a successor practice — the SRA’s tests are technical but the difference to the partners’ net position is enormous. Run-off is unavoidable if cessation happens; the question is whether the partnership has planned to pay for it from a position of strength.
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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