Professional Indemnity When Buying or Selling a Practice

Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Last reviewed 2026-08-10

When a professional practice changes hands — whether an outright acquisition, a merger, or a retiring partner selling to a consolidator — the balance sheet and the client list get the attention. The professional indemnity position frequently gets a paragraph in due diligence and a phone call in the final fortnight. That ordering is wrong, and the reason is structural: PI is written on a claims-made basis. Cover responds to claims first made during the policy period, regardless of when the underlying work was done. The moment a practice ceases to exist in its previous form, the question of which policy will respond to a claim about last year's advice — or advice from a decade ago — stops being academic.

Who covers the work done before completion?

There are broadly two mechanisms, and the deal must land on one of them deliberately.

Run-off cover. The selling entity purchases a policy (or converts its existing policy) to cover claims made after cessation in respect of work done before it. Run-off is typically bought for a multi-year term — six years is a common benchmark, reflecting the primary limitation period for contract claims, though claims in tort or under the latent damage rules can emerge later. The cost is usually expressed as a proportion of the expiring annual premium and varies significantly with claims history, profession and insurer appetite, so it needs to be quoted, not assumed. Run-off is the clean answer where the practice genuinely ceases and nobody succeeds to it.

Absorption into the buyer's policy. Where the buyer takes on the seller's business as a going concern, the buyer's PI policy can be extended to pick up the prior practice's work — sometimes automatically under the policy's definition of the insured practice, sometimes by specific endorsement with an agreed retroactive date. This is administratively tidier and avoids a separate run-off premium, but it has real consequences: the acquired book's claims record now sits on the buyer's programme, the buyer's limit of indemnity is shared between old and new exposures, and the buyer's insurer will reprice at the next renewal with the inherited liabilities in view. A buyer absorbing a practice with a difficult claims history is importing that history into its own market presentation for years.

Neither route is automatically better. What is always worse is ambiguity — a completed deal where the seller believes the buyer's policy has picked up the past, the buyer believes the seller bought run-off, and the first anyone learns otherwise is when a claim lands with no policy behind it.

Does it matter whether it's a share sale or an asset sale?

Considerably. In a share sale the entity survives with its liabilities intact; the buyer acquires the company complete with its exposure to historic work, and the entity's PI programme can, with insurer consent, continue — though a change of control is almost always a notifiable event under the policy, and many wordings make cover for the new ownership conditional on the insurer's agreement. In an asset sale the selling entity is left behind, often to be wound down, and its historic liabilities stay with it unless the sale agreement expressly transfers or indemnifies them. That stranded entity is precisely the situation run-off cover exists for: a shell with no income, no ongoing policy, and years of latent exposure.

Sellers should be alert to a related trap in asset sales: winding up the selling company shortly after completion to distribute proceeds does not extinguish claims — and for unincorporated partnerships there is no shell to hide behind at all. Former partners remain personally liable for the partnership's obligations, which is why the run-off decision in a partnership sale is ultimately a decision about the partners' personal balance sheets.

What is the "successor practice" question for solicitors?

Law firms sit under a distinct regime and it changes the default answer. The SRA's Minimum Terms and Conditions require participating insurers to provide six years of run-off cover when a firm closes without a successor, at the MTC minimum limits — £2m any one claim, or £3m for recognised and licensed bodies. But where another firm is a "successor practice" within the meaning of the rules — broadly, where it holds itself out as carrying on the prior practice, or the transaction otherwise meets the definition — the successor's own policy picks up the prior practice's liabilities instead, and the closing firm's entitlement to run-off falls away.

The successor-practice definition is technical, turns on the specific facts of how the deal is structured and presented, and has produced disputes between insurers precisely because large historic liabilities ride on it. Two practical points follow. First, in a solicitor transaction the parties should not leave successor-practice status to inference — the sale agreement and the communications around completion should be structured with the intended PI outcome in mind, with specialist input. Second, a buyer who becomes a successor practice inherits the seller's claims record into its own insurance presentation, which is a pricing and capacity question the buyer's broker should model before heads of terms are signed, not after. The MTC minimums are also just that — minimums; a successor absorbing a substantial prior practice frequently needs to revisit whether its excess layers still leave adequate headroom for the combined exposure.

What should the sale agreement say about claims and notifications?

The PI position belongs in the warranties and disclosure exercise, not just in a completion checklist. A buyer's advisers will typically want warranties covering, at minimum:

• the accuracy and completeness of the claims and notifications history disclosed — including circumstances notified to insurers, not merely formal claims;
• that the seller is not aware of any circumstance likely to give rise to a claim that has not been notified;
• that current PI cover is in force, premiums are paid, and no insurer has reserved rights, declined cover or imposed special terms;
• an obligation on the seller to notify any circumstance arising between exchange and completion.

The notification warranties do double duty. Because PI responds to the policy year in which a circumstance is notified, a seller who notifies known circumstances to its own expiring policy before completion crystallises them where they belong — on the seller's programme — rather than leaving them to surface later as claims against the buyer's policy or the run-off, where late notification arguments can put cover itself at risk. A disciplined pre-completion notification sweep protects both sides, and many disputes after practice sales trace back to its absence.

Sellers, for their part, should resist open-ended warranty language that effectively makes them the insurer of last resort, and should check how the agreement's indemnities interact with whichever cover structure has been chosen — there is little point paying for six years of run-off while simultaneously giving the buyer an uncapped indemnity for the same liabilities.

When should the PI position enter the deal timetable?

At heads of terms, in outline; in detail, as soon as due diligence opens. There are three reasons the position cannot be left to the final weeks. First, insurer consent: a change of control, a merger of practices, or an extension to pick up prior work all typically need underwriter agreement, and underwriters ask questions — about the acquired book's claims record, disciplines, fee split and contract profile — that take time to answer well. Second, run-off pricing: quotes are risk-assessed, not tariff-based, and a seller who discovers the run-off cost the week before completion has no negotiating room and no time to market the risk. Third, the numbers feed the deal itself: run-off premium, retained warranty exposure and any uplift in the buyer's ongoing premium are real costs that belong in the price negotiation, not after it.

Timing across renewal dates deserves particular care. Completing a purchase shortly before the buyer's renewal, or a sale shortly after the seller's, can be materially cheaper or more expensive than the alternative, and the deal timetable sometimes has more flexibility than the parties assume once they see the figures.

I'm selling to retire — how long does my exposure actually last?

Longer than most sellers expect. Claims can be brought years after the work was done: six years is the primary contractual limitation period, but tort claims run from when damage is suffered, and latent problems — a defective trust structure, a design flaw, an under-settled claim — may not surface for a long time. Six years of run-off is the common benchmark and, for solicitors, the MTC standard; but it is a floor, not a natural end to exposure, and some retiring principals choose to extend run-off beyond it where their discipline carries long-tail risk.

Two further points for retiring sellers. The run-off limit is usually an aggregate for the whole run-off period under many wordings — a very different proposition from an any-one-claim limit renewed annually — so the limit purchased at cessation has to be sized for everything the past may produce, with no opportunity to top it up once a large claim erodes it. And if the buyer's policy is absorbing your past work rather than you buying run-off, understand that you are relying on the buyer maintaining that cover for years to come; a well-advised seller asks what contractual commitment the buyer is giving to keep it in force, and what happens if the buyer itself later fails or is sold.

What should the broker on each side actually be doing?

On the sell side: marketing the run-off early enough to compare terms, running the pre-completion notification exercise, and pressure-testing the interaction between run-off, warranties and any indemnities. On the buy side: interrogating the target's claims and notification history as an underwriter would, establishing whether the buyer's current insurer will take the acquired book and on what terms, modelling the combined programme's limits and excess structure, and — for solicitor deals — getting the successor-practice analysis done with the lawyers rather than around them. For substantial combined practices this is placement work as much as advisory work, and it belongs with a broker experienced in high-value PI who deals with the relevant underwriters directly.

Every transaction turns on its own facts, structure and policy wordings — the mechanics above are the general shape, not a substitute for deal-specific advice from your broker and your lawyers working together.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This article is general information, not advice on a specific policy.