Spoke 8 of the Apex Insurance Brokers Building Safety Act 2022 hub. If you are a director or partner of a construction professional firm that might close, merge, or be sold within the next decade, this is the article you need to read most carefully.
Plain English summary
Professional indemnity insurance for construction professionals is written on a "claims-made" basis. The policy responds to claims first notified to the insurer during the period of insurance — not claims arising from work done during the period of insurance.
This structure means that when a practice stops trading, it needs continuing PI cover ("run-off cover") to respond to claims that emerge in the years after closure but relate to work done while it was trading. Historically, six years of run-off cover was the standard answer — matching the standard limitation period under the Defective Premises Act 1972, the standard six-year contractual limitation, and the standard tortious limitation.
The Building Safety Act 2022 destroyed that standard answer for any construction professional with historical residential work. Section 135 BSA 2022 extended the DPA 1972 retrospective limitation to 30 years and prospective limitation to 15 years (for HRBs). A retired architect who closed a practice in 2018 carrying 6-year run-off is uncovered for any claim emerging after 2024 — even though the underlying DPA 1972 limitation horizon on a building completed in 2010 now runs to 2040.
The fix — buy more run-off — is harder in the BSA 2022 era than it was before. The market for extended run-off (10, 15 or theoretically 30 years) for construction professionals is narrow, expensive, and shrinking. Some insurers will not offer extended run-off at all to a closing practice with residential exposure.
For directors and partners planning a future exit, this is now a strategic question that cannot be left until the year of closure. The right time to plan is years in advance.
The legal position
Why PI is claims-made
PI cover for professional services has been written on a claims-made basis for the last 40+ years. The justification is that latent professional liability claims (errors that surface years after the work) are extremely difficult to reserve for under an occurrence-basis cover — the insurer cannot predict, at the time it writes the policy, how many claims from work done in the policy year will eventually surface. The claims-made basis transfers reserving uncertainty in time: the insurer reserves for claims notified in its policy year, regardless of when the work was done.
The corollary: cover stops when the policy stops. There is no "tail" automatically — a practice that closes without buying run-off has no PI cover for claims that emerge after closure, even if the underlying work was done during a period when cover was in place.
What run-off cover does
A run-off policy is a PI policy issued to a closed or closing practice that responds to claims first notified during the run-off period. It covers claims arising from professional services performed before closure. It does not cover any new professional services performed after closure (a practice that closes and then continues to act needs continuing professional services PI, not run-off).
Run-off can be purchased:
- For a single year, renewed annually.
- For a fixed multi-year period (3, 5, 6, 10 or sometimes longer).
- For an open-ended period, with continuing premium payments.
The market practice has typically been single-payment six-year fixed run-off, written by the incumbent insurer at the point of closure, at a multiple of the final-year annual premium.
Why six years was the historical answer
Before section 135 BSA 2022, the substantive limitation periods that mattered for construction professionals were:
- DPA 1972 s.1: 6 years from completion.
- Contractual: 6 years (12 years if under seal).
- Tort (latent damage): 6 years from accrual of damage, or 3 years from knowledge under section 14A Limitation Act 1980, with a 15-year long-stop under section 14B.
The dominant practical horizon was therefore 6 years from completion, with the longer tortious tail being a marginal concern for most professionals. A 6-year run-off matched the dominant horizon.
Why six years is no longer enough — section 135 BSA 2022
Section 135 BSA 2022 (see Spoke 1 for the full analysis) extended DPA 1972 s.1 limitation to:
- 30 years retrospectively for completed buildings (pre-28 June 2022).
- 15 years prospectively for HRBs (post-28 June 2022).
The 6-year horizon has become a 15-year or 30-year horizon. A practice that closes in 2026 carrying 6 years of run-off has cover to 2032. But the DPA 1972 latent claim window on a 2024 HRB project runs to 2039. The mismatch is seven years of uncovered exposure.
The contribution complication
Even where the DPA 1972 limitation has run out, the Civil Liability (Contribution) Act 1978 creates a separate two-year limitation from judgment, settlement or award (section 10). A claimant who reaches a defendant after the DPA limitation expires can still pull in contribution from the closed practice — and the run-off cover must be in place for that contribution claim to be notified to an insurer.
The "discovery" tortious tail under section 14A
Section 14A Limitation Act 1980 provides a 3-year period from knowledge of damage in latent tort claims, with a 15-year long-stop. The long-stop runs from the negligent act or omission, not from completion. For a designer, the long-stop is essentially 15 years from the design work. This sits alongside the DPA 1972 regime.
Insurance Act 2015 implications
If a circumstance arises during run-off (for example, a third-party investigative report is received naming the closed practice as the original designer), the IA 2015 disclosure duty at the next run-off renewal requires it to be disclosed. See Spoke 7.
The market reality for run-off in the BSA 2022 era
Capacity is narrower
Insurers have become much more selective about offering extended run-off to closing construction professionals. The reasons are:
- The 30-year retrospective horizon makes pricing a single-payment multi-year run-off premium very difficult — the reserve commitment is long-dated.
- Adverse selection: practices choosing extended run-off are precisely those with the strongest concern about long-tail exposure, which signals a higher-risk pool.
- Reinsurance limitations: reinsurers have themselves restricted their support for long-tail run-off.
The result is that several insurers that previously offered 6-year run-off as a matter of course now offer only annual run-off (year-by-year renewals), or refuse to offer run-off at all to certain risks.
Pricing has risen sharply
Single-payment multi-year run-off premiums for construction professionals are typically a substantial multiple of the final annual premium — 3x, 5x, sometimes 8x or more depending on the residential / HRB exposure. For a small practice closing with a £15,000 annual premium and 6 years of run-off historically costing £30,000–£50,000, the same coverage now might cost £100,000+, and 10 or 15 years may be unattainable.
Annual run-off as an alternative
Annual run-off renewals (year-by-year) are sometimes more accessible than multi-year single-payment options. The trade-off:
- Pro: avoid the up-front pricing premium for the long tail; can stop paying if exposure assessment changes.
- Con: each annual renewal is an underwriting event. Cover can be withdrawn or restricted year-by-year.
- Con: premium escalates in real terms with each renewal (no lock-in).
- Con: fair-presentation duty applies at each renewal; the disclosure burden continues.
For some closing practices, annual run-off renewals are the only practical option. The strategic risk is that, after some years, the market for run-off renewals tightens further and cover becomes unavailable just when the late-emerging claim arrives.
"Closed-book" insurers and run-off pools
A small number of insurers specialise in long-tail run-off — including some "closed-book" or "consolidator" insurers that buy run-off liabilities from other insurers. The market is small and specialised. Broker access to these markets is variable.
The going-concern alternative
For some closing practices, the cleanest practical answer is not to close as an independent legal entity — but to be absorbed into a larger going-concern practice that maintains continuing PI cover. The continuing PI of the acquiring practice responds to claims arising from the absorbed practice's pre-acquisition work, provided the policy wording properly extends to predecessor entities (which it should — but check). This is the route most often taken by mid-career architectural and engineering partners contemplating succession.
The unincorporated partnership problem
A practice that traded as an unincorporated partnership or LLP carries some particular issues. The partners' personal liability does not extinguish when the partnership dissolves. Even where the partnership has carried run-off, the partners' personal exposure may outlast the run-off period, particularly under section 1 DPA 1972 claims. Specialist legal advice on dissolution structure is essential.
Practical guidance — planning the run-off question
Step 1 — model the residential exposure now
Even if closure is years away, model your residential exposure today: how many over-11m residential projects, how many HRBs, how many fire safety / EWS1 / cladding engagements, when each was completed, what limitation horizon applies under section 135. This gives you the tail you need to cover.
Step 2 — make a closure horizon assumption
When realistically might the practice close, merge or be sold? 5 years? 15 years? Never (succession to next-generation partners)? Different horizons require different planning.
Step 3 — engage your broker early
The PI broker can give an indicative run-off pricing and availability picture for your specific profile. The market signal is itself useful: if multiple insurers indicate that extended run-off would be difficult or expensive, that influences your strategic options.
Step 4 — consider corporate / succession structures
Sometimes the right answer is to incorporate (if currently a partnership), or to restructure (if currently incorporated) — for tax, liability and insurance reasons together. The structure influences what run-off looks like at closure.
Step 5 — plan the closure year itself
In the year of closure, the run-off purchase decision should be informed by:
- The available market quotes (multi-year vs annual; from incumbent vs alternative markets).
- The available capital — single-payment multi-year is a working-capital ask, particularly for retiring sole practitioners.
- The trustees / executor risk if directors / partners die during the run-off period (the run-off should cover the directors' / partners' estates).
Step 6 — maintain disclosure discipline through run-off
Even after closure, the IA 2015 disclosure duty applies at each annual run-off renewal. Maintain the project register, maintain a "circumstances log", and notify promptly when circumstances arise.
Worked scenarios
Scenario A — sole practitioner architect retiring at age 65
Facts: Sole practitioner architect, sole director / sole shareholder of a Ltd company. Practice has been operating for 35 years. Residential portfolio includes 27 over-11m projects, 4 of which would be HRBs under the modern definition. Final-year annual PI premium £12,000. Practice wishes to close on retirement.
Run-off planning:
- DPA 1972 retrospective horizon: longest exposure is a 2003 project running to 2033 — 7 years from closure.
- HRB project (2020 completion): horizon 2050 — 24 years from closure.
- Indicative multi-year quote: 10 years of run-off at £85,000 single payment, or annual run-off at £18,000 in year one with no commitment beyond.
Strategic decision points:
- £85,000 single payment is substantial relative to retirement provision but provides certainty.
- Annual renewal is cheaper in year one but exposed to market hardening.
- Alternative: succession to a junior architect taking over the practice as a going concern would eliminate the run-off question altogether.
Scenario B — three-partner engineering LLP merging into a larger consultancy
Facts: Three partners, 18 staff, structural and civil engineering practice, £4m turnover, mixed residential and commercial portfolio. Acquisition by a national consultancy.
Run-off planning:
- The acquirer's PI policy will (subject to specific endorsement) extend to cover the absorbed practice's pre-acquisition work as predecessor work.
- The acquirer's PI broker confirms the predecessor extension in writing as part of the deal.
- The acquired LLP's outgoing PI insurer issues a "stop-gap" run-off to cover any claim that arises in the gap before the acquirer's cover takes effect.
- The acquired partners' personal positions under the LLP framework are handled by individual run-off / D&O extensions.
Outcome: the run-off question is solved by the going-concern structure, but requires careful documentation of the predecessor cover. Failure to document is a common gap.
Scenario C — small specialist fire engineering practice closing post-retirement
Facts: Two-director fire engineering practice, 6 staff. Significant HRB exposure. Senior director retiring; junior director not willing to take on the run-off liability solo.
Run-off planning:
- The market response to a fire engineering run-off request is severely restricted; multiple insurers decline to quote.
- One specialist underwriter offers 5 years at a high premium with sub-limits.
- Annual run-off is offered by another underwriter at a high price with no commitment beyond year one.
- Personal D&O cover for the retiring director is available but does not substitute for PI run-off.
Strategic outcome: the practice negotiates a sale to a larger consultancy who takes over as a going concern, absorbing the staff and the project book. The run-off question is eliminated. The seller receives less than they hoped for, but the alternative — closing with inadequate run-off — was financially worse on a risk-adjusted basis.
Sector-specific practical takeaways
Architects: the most exposed sector for residential design over the longest tail. Start run-off planning at least 5 years before contemplated closure. Consider succession alternatives.
Structural engineers: URS v BDW makes structural engineers a primary target. The run-off horizon is as long as the architect's. Plan accordingly.
Fire engineers: the most difficult run-off market. Strongly consider going-concern alternatives; closing as an independent specialist practice with full BSA exposure is increasingly impractical.
Surveyors with EWS1 history: the run-off market for EWS1 work is exceptionally constrained. Plan well in advance; consider a substantial run-off premium provision in retirement planning.
D&C contractors: the corporate structure is often complex (SPVs, JV vehicles, holding companies). Run-off planning at each SPV level is required; group-level run-off may not respond to an SPV's pre-existing liabilities without careful structuring.
Frequently asked questions
1. How many years of run-off do I need? For a practice with residential exposure, 15 years is now a more realistic minimum than 6. For a practice with HRB exposure, the theoretical answer is up to 30 years; the practical answer is "as long as you can buy".
2. Can I buy 30-year run-off? In principle, yes; in practice, very rarely from the standard market. Specialist markets may offer something approaching it, at significant cost. For most closing practices, 10–15 year cover with annual renewals thereafter is more realistic.
3. What if I can't afford run-off? This is a strategic crisis. Options include: continuing to trade in a reduced form; selling the practice into a going concern; restructuring the personal exposure; accepting personal exposure for the gap. Take advice early.
4. Does run-off cover personal exposure of directors / partners? A run-off PI typically covers the corporate or LLP. Personal exposure of named individuals (e.g. under criminal investigations or for personal liability gaps) may need separate D&O cover. Check the wording.
5. What happens if my run-off insurer becomes insolvent? The Financial Services Compensation Scheme provides limited protection. For commercial professional indemnity, the FSCS coverage is typically a fraction of large claim values. Insurer choice matters.
6. Can I rely on the incumbent insurer to offer run-off at closure? The incumbent has knowledge of your risk and is often best placed to offer competitive run-off. But there is no obligation, and incumbents have refused or radically repriced run-off at the moment of closure. Start the conversation early.
7. Does run-off cover claims from third parties (not just original clients)? Run-off responds to claims arising from professional services performed pre-closure. A section 1 DPA 1972 claim from a subsequent leaseholder is a claim arising from those services. The cover should respond, subject to the wording.
8. If I merge into a larger practice, do I still need run-off? The acquirer's continuing PI should respond to pre-acquisition work as predecessor work, but only if the policy wording properly extends. Always confirm this in writing and document the cover trail. A short stop-gap run-off is sometimes prudent to bridge any gap.
9. What about a phased wind-down — reduce activity then close fully? A phased wind-down is sensible from many angles. PI premium typically scales with declared turnover, so reducing activity reduces premium. The eventual closure point still triggers the run-off question.
10. We're a 30-year-old architectural practice with several historic projects we can't easily document. What do we do? This is the most common position. Practical steps: build a project register from whatever records exist (project files, banking records, CRM systems, broker records, professional body records); document the gaps; engage the broker early; consider an early dialogue with insurers to avoid a surprise at closure.
Sources
Statute — Building Safety Act 2022 c.30, s.135; Defective Premises Act 1972 c.35, s.1; Limitation Act 1980 c.58, ss.14A, 14B; Civil Liability (Contribution) Act 1978 c.47.
Case law — URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772; the developing case law on cover continuity and predecessor practice.
Guidance — Architects Registration Board; Royal Institute of British Architects; Institution of Structural Engineers; Institution of Fire Engineers — published guidance on professional indemnity and run-off cover for member firms.
Where this fits
Related Apex content:
- Hub — Building Safety Act 2022 and PI insurance
- Spoke 1 — Section 135 limitation extension
- Spoke 5 — Cladding and external wall claims
- Spoke 6 — PI availability
Sibling Apex content:
- Run-off cover hub
- Run-off — what is run-off cover?
- Run-off — how long do designers need?
- Run-off — retiring sole practitioner
Disclaimer
This is legal and insurance commentary, not advice. The Building Safety Act 2022 regime is technical and fact-sensitive — consult specialist counsel and your broker on your specific position. Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FRN 724952.