A claims-made policy only responds to claims made during its period. When a firm closes, that leaves a gap: claims arising from past work may surface years later, when there is no live policy to meet them. The Solicitors Regulation Authority's Minimum Terms and Conditions close that gap by triggering mandatory run-off cover on cessation. Understanding what counts as cessation, and how the run-off cover operates, is essential for any principal winding a firm down.
Cessation occurs when a firm stops carrying on private legal practice and there is no successor practice to take on its liabilities. If another firm succeeds the closing practice, the successor's policy generally responds and run-off is not triggered. Where there is no successor - the firm simply closes - the run-off obligation engages. The distinction between a genuine closure and a succession is therefore the pivot on which the run-off question turns, and it links directly to the successor practice analysis covered in the related entry.
The MTC requires run-off cover for a defined period following cessation, giving continued protection for claims arising from the firm's past work. The run-off cover carries the minimum limit and, broadly, the same terms as the firm's ordinary cover, so a client with a claim against a closed firm is in a comparable position to one claiming against a firm still trading. The run-off period reflects a policy judgement about how long claims realistically take to emerge after work has been done.
Run-off cover is usually provided by the firm's last insurer, and the premium is generally a single, significant sum reflecting the risk of insuring several years of tail exposure at once. Firms planning to close should budget for run-off well in advance, because the cost can be a meaningful part of the economics of winding down. Leaving it to the last moment can leave principals facing a large bill at the point they have least income coming in.
Run-off is often thought of as a client-protection measure, and it is, but it also protects the individuals who ran the firm. Without it, a retired principal could face a personal claim years after closure with no insurer behind them. The mandatory run-off means the firm's past work stays insured even after the doors have shut. Financial advisers face an analogous tail-risk problem, handled differently under their regime and the long-stop debate - see our IFAs' PI guide. For the full picture of cessation and run-off, see the solicitors' PI insurance guide.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.