Run-off cover for solicitors: closing or selling a firm

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

Closing a solicitors' practice is one of the few insurance events that is genuinely personal to the partners. The firm may cease trading, but the liabilities of decades of client work do not. Because professional indemnity insurance operates on a claims-made basis, a claim notified after closure needs a live policy to respond — and without one, the exposure can reach the individuals who signed the retainers. Run-off cover exists to close that gap, and for solicitors it is not optional: the SRA's Minimum Terms and Conditions (MTC) build it into every compliant policy. What follows is what the requirement actually involves, how the cost behaves, where the successor practice rules change the picture, and why the firms that fare best start planning the exit long before the closure date.

What does the SRA actually require when a firm closes?

Under the MTC, if a firm ceases practice without a successor practice, the insurer on risk at cessation must provide run-off cover for a period of six years from the end of the policy period in which the firm closed. That cover must be on the same minimum terms as the underlying policy — including the compulsory limits of £2 million any one claim, or £3 million for recognised bodies and licensed bodies — and it responds to claims first made during the run-off period arising from work done before cessation.

Two features of this arrangement are worth dwelling on, because they distinguish solicitors from almost every other profession. First, the obligation sits with the insurer, not the firm: the MTC is drafted so that run-off attaches automatically on cessation without a successor. The partners do not have to negotiate for it at the moment of closure. Second, under the MTC the insurer cannot withhold run-off cover merely because the run-off premium has not been paid — the cover must still be provided, though the premium remains a debt the insurer can pursue against the firm and, in practice, its principals. That is a real protection for clients, but it is emphatically not a reason to treat the premium as someone else's problem: an unpaid run-off premium follows the partners personally, and it is far better managed as a planned cost of exit than as a contested debt after the doors have shut.

It is also worth being clear about what six years does and does not achieve. Solicitors' liabilities can, in some circumstances, extend beyond six years from closure. Arrangements for claims that surface after the run-off period have changed over the years, and the current position is worth confirming as part of any exit plan rather than assumed. For most firms, however, the six-year MTC run-off is the central obligation and the central cost.

How is the run-off premium calculated?

The run-off premium is usually charged as a single payment at cessation, and insurers typically express it as a multiple of the firm's final annual premium. We deliberately do not quote figures here, because the multiple varies by insurer, by wording, and above all by the risk profile of the firm at the point of closure — but the structure itself tells you most of what you need to know as a buyer.

Because the run-off premium is anchored to the last annual premium, everything that drives the annual premium drives the exit cost: the firm's work mix (conveyancing and other higher-risk disciplines weigh heavily), fee income in the final years, the claims record, and the state of the market at the time. A firm that closes off the back of a hard renewal, or with open notifications on file, closes at the most expensive possible moment. Conversely, a firm that spends its final two or three renewal cycles tidying its risk profile — running off higher-risk work types, resolving open circumstances where possible, presenting its file discipline well — is effectively negotiating its run-off premium down years in advance, whether it realises it or not.

The premium is also, in most cases, payable up front for the whole six-year period. For a firm winding down its income, that lump sum is frequently the single largest cost of closure, and it needs to be provisioned for in the wind-down accounts rather than discovered in the final quarter. Partners contemplating retirement should ask their broker for an indicative view of the run-off cost well before they commit to a closure date — it is not unusual for the answer to influence the timing, or indeed the decision between closing outright and seeking a merger.

What is a successor practice, and why does it change everything?

Run-off under the MTC is triggered by cessation without a successor practice. If another firm is treated as the successor to your practice, the position changes fundamentally: your firm's prior liabilities generally attach to the successor's policy, and the automatic run-off obligation may not be triggered at all. That can look like an elegant outcome — no run-off premium, continuous cover — but it moves the risk rather than removing it, and both sides of the transaction need to understand exactly what they are taking on.

The successor practice definition in the MTC is technical and turns on the substance of what happens, not the label the parties put on it. Factors such as taking over the goodwill of the practice, holding the new entity out as a successor, and continuity of clients and work can all bear on the analysis — and firms have been surprised, in both directions, by where the line falls. A firm acquiring a book of business may find it has inherited the vendor's historic liabilities and must disclose them to its own insurer, with consequences for its premium and its risk appetite. A retiring partnership may believe a successor exists when the definition is not in fact satisfied, leaving a gap. Neither surprise is acceptable in a well-planned transaction.

It is also worth knowing that the MTC contemplates an election: in broad terms, a ceasing firm may choose to purchase run-off cover even where a successor practice exists, rather than relying on the successor's policy for its historic exposure. Whether that election makes sense depends on the deal, the parties' relative appetite for legacy risk, and the pricing of each route. This is precisely the territory where generic guidance runs out and specific advice — from the broker and, on the definitional question, often from the firm's own lawyers — earns its keep. If a sale, merger or team move is in prospect, put the successor practice question on the table at the outset, with both insurers sighted, rather than leaving it to be argued about after completion.

Does run-off extend to our top-up and excess layers?

The MTC governs only the compulsory primary layer. If your firm carries limits above the minimum — as most firms handling substantial matters do — the run-off position on the excess layers is a matter of contract, not regulation. Many excess wordings offer run-off, but the terms, the period and the pricing vary between insurers and are not automatic in the way the primary layer is; some wordings require the option to be exercised within a defined window around cessation.

This matters more than it first appears. The claims most likely to emerge years after closure — a failed development, a disputed estate, a corporate transaction that unravels — are often exactly the claims capable of exhausting a primary limit. A firm that runs off its compulsory layer but lets its excess layers lapse has quietly reduced its protection at the very moment its ability to absorb an uninsured loss has disappeared with its fee income. When we structure exits for firms with layered programmes, aligning the run-off across every layer — period, terms and trigger — is treated as a core requirement, not an afterthought. The considerations are close cousins of those covered in our guides to solicitors' PI top-up insurance and excess layer PI insurance: the layers only work as a programme if they respond as a programme.

When should we start planning the exit?

Earlier than feels natural. In our experience, the difference between an orderly, sensibly priced run-off and an expensive, contested one is usually made in the final two or three policy years before cessation, not in the final weeks. A realistic planning sequence looks like this:

• Two to three years out: take an indicative view of the run-off cost and build it into the partners' financial planning; begin shaping the work mix and closing out open matters that would otherwise sit on the record at cessation.
• At the final renewals: present the closure plan candidly to insurers — a well-explained wind-down is a better risk than an ambiguous one — and confirm the excess-layer run-off options in writing.
• In the final policy year: resolve the successor practice question definitively if a sale or merger is in play; review files for circumstances that should be notified before expiry; and diarise every option deadline on the excess layers.
• At cessation: confirm the run-off attachment on every layer, settle the premium as planned, and retain the policy documents and client files in a form the former partners can access for the full six years and beyond.

One point deserves particular emphasis: notification discipline in the final year. Circumstances known before the policy expires should be notified before it expires. Run-off responds to claims first made during the run-off period; a circumstance that ought to have been notified under the expiring policy, and was not, is the classic source of post-closure coverage argument — at a time when the partners have the least appetite and the least leverage for a dispute.

Why does this warrant a specialist broker?

Run-off sits at the intersection of regulation, contract and personal exposure. The MTC gives you a floor, but the outcomes that matter — the multiple applied to your premium, the treatment of your excess layers, the successor practice analysis on a sale, the handling of late-year notifications — are all shaped by how the exit is presented and negotiated. For firms with substantial premiums and layered programmes, that negotiation is a market exercise, and it rewards a broker who deals in this territory routinely. It is the same reasoning that leads larger firms to use a specialist high-value PI broker for the live programme: the stakes justify the expertise. On an exit, arguably more so — there is no next renewal at which to fix a mistake.

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.