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Professional indemnity explained
PI for a dormant company is professional indemnity cover kept in place, or bought as run-off, while a company has stopped trading. It matters because the company can still be sued for work it did before.
Part of: Professional indemnity insurance
In short
A dormant company does no new work, but it can still face claims about work done before it went dormant. PI is usually claims-made, so only a policy in force when the claim is made will respond. If you cancel cover when the company goes quiet, a later claim may be uninsured. Directors commonly either keep a reduced annual policy or buy run-off for a set period, guided by contract clauses and limitation periods. A company that never traded is a different case. Before restarting, arrange cover first and check the retroactive date reaches back far enough.
A dormant company does not create new professional risk, because it is not doing any work. But it can still be sued for work it did before it went dormant. Because professional indemnity insurance is usually written on a claims-made basis, the policy that responds is the one in force when the claim is made. If you cancel PI when the company goes quiet, a later claim about past work may find no policy in place.
So the real question is not "does a dormant company need PI?" but "does the company's past work still need protecting?". If the company advised clients, produced designs or reports, or signed contracts requiring cover to continue, the answer is commonly yes, by keeping the policy or buying run-off cover.
A company that has never traded, such as a shelf company set up for a future venture, usually has no past work to protect and so is a different case.
Under the Companies Act 2006, section 1169, a company is dormant during any period in which it has no significant accounting transaction, meaning a transaction that must be entered in its accounting records. Certain items are disregarded, such as paying for shares taken by subscribers on formation, and paying Companies House fees for a change of name, re-registration or a confirmation statement, or a late filing penalty.
HMRC uses a related but separate test. GOV.UK guidance says a company is usually dormant for Corporation Tax if it has stopped trading and has no other income, or is a new company that has not started trading. A dormant company still has to file annual accounts and a confirmation statement with Companies House.
| Question | Dormant company position | PI point |
|---|---|---|
| Is it doing client work now? | No | No new work for a policy to cover |
| Can it be sued for past work? | Yes, it still exists as a company | A claims-made policy or run-off is needed when the claim arrives |
| Does it still file with Companies House? | Yes, accounts and confirmation statement | Dormancy is not dissolution |
| Can it restart trading? | Yes, after telling HMRC | Cover must be in place, and properly described, before work restarts |
When a company stops trading but stays on the register, you broadly have three choices for PI:
How long to keep protection depends on your profession, your contracts and the limitation periods. Negligence claims can come late: the Limitation Act 1980, section 14A allows some negligence claims up to three years from when the claimant learns of the damage, if that is later than six years from when the cause of action arose. Many client contracts also require PI for a period after completion; see clauses requiring PI for 6 or 12 years after completion and how long a client can sue.
These examples are illustrative only.
A management consultant takes a two-year employed role and makes her company dormant. She keeps a reduced PI policy running. A year later a former client complains about a restructuring plan; the claim is notified under the current policy.
An architectural technologist makes his company dormant and cancels PI to save money. Three years later a homeowner finds a drainage design defect. There is no policy in force, so the company faces the claim uninsured.
A software contractor restarts a dormant company for a new assignment. Her broker arranges a new policy, and because the company traded before, asks whether the insurer will set the retroactive date back to cover the earlier contracts, subject to what she discloses.
For an active company the wider set-up is covered in PI for a limited company.
Apex arranges PI and run-off cover for companies that have stopped trading; a broker reads every enquiry.
If it has never traded, usually not. If it did professional work before going dormant, it can still be sued for that work, and a claims-made PI policy only responds if it is in force when the claim is made. Many directors keep a policy running or buy run-off for that reason.
Section 1169 of the Companies Act 2006 says a company is dormant during any period in which it has no significant accounting transaction, meaning one that must be recorded in its accounting records. Some items, such as certain Companies House fees and subscriber share payments, are disregarded.
It varies by insurer, profession and claims history, and some insurers price run-off as a single premium for several years. Because run-off covers past work only, it is often the natural choice once the company is not taking on new work, but ask your broker to compare both.
Tell HMRC, follow the GOV.UK guidance on restarting, and arrange PI before you take on work. If the company traded before, ask whether the new policy's retroactive date can cover that earlier work, and disclose any known complaints when you apply.
That rarely works. A policy bought after you know of a complaint will usually exclude it as a known circumstance, and the duty of fair presentation means you must disclose it. Keeping continuous cover, or buying run-off, avoids the gap.
Tell us what your business does, your turnover and any claims. A broker reads every enquiry and comes back with options. No fee for a quote. Or call 0117 325 0027.
Get a PI quote Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
