Professional indemnity insurance claims: How long does cover last?
Professional Indemnity claims aren’t always made immediately after an insurable event. Here's how you can tell when you're covered.
If you pay for a year’s professional indemnity insurance, you might think that the question answers itself. However, professional indemnity claims aren’t always made immediately after an insurable action. So you should always take this into account when selecting your policy.
Here are the things to look out for.
Professional indemnity is based on two things:
- when a claim occurs,
- when the action relating to that claim happened.
This means there are three different scenarios in which you may or may not be covered depending on the extent of your policy. Say you buy cover for all of 2015, here’s what could happen:
- In the first scenario, a professional indemnity claim is made during 2015 about work that was done in 2015. This should be covered if it’s within the policy’s coverage.
- In the second scenario, a professional indemnity claim is made during 2015 about work that was done before 2015. Some policies will cover work done prior to 2015 provided you had a policy in place and your new and old insurers agree, up to a specified date – known as the retroactive date. But you need to check.
- In the third scenario, a professional indemnity claim is made after 2015 about work done in 2015. If you have a continuous policy, then you should be covered. If your policy has lapsed, it probably won’t be.
This is how the indemnity cover works for three above scenarios.
In the first scenario you need a claims-made policy
You buy a policy at the start of 2015 and a professional indemnity claim is registered two months later for work you did in your first month of cover. This will be met, but a claim brought before you had cover wouldn’t be met. Or if you have a policy, but didn’t renew or replace it and a claim is then made, then insurers won’t pay as the policy is no longer active.
Policies are generally provided on this claims-made basis. So only professional indemnity claims that are brought when a policy is active will be met – as long as the claim meets certain policy conditions and that the related incident doesn’t fall outside the retroactive date. So you should check policies for the phrase ‘claims-made’ basis.
In order to have continuous professional indemnity insurance cover, you need to maintain cover without a break and keep renewing your policy. This will mean you’re covered not just for the year, but back to when you first took out the policy.
In the second scenario you need a retroactive date
Some professional indemnity policies provide cover for claims that are raised during the insured period for events, which happened before the policy begun. A policy can cover you back to a specified date as long as you had an active professional indemnity policy with an insurer.
But in the same way you’d keep your no claims discount for car insurance when moving insurers, you’d need to show proof to your new insurer. Here you’d give them evidence you had professional indemnity cover in place before the start date of the new policy and when the event the claim relates to took place.
In third scenario you need run-off cover
If you don’t renew your policy, usually you’re no longer covered once it ends. In the scenarios one and two, 31 December 2015 would be the end date. Any professional indemnity claims made after wouldn’t be covered.
But, for those closing their business, run-off cover can allow you to be covered even after a business has been sold, ceased trading or liquidated. The event the indemnity claim refers to would have had to have taken place when the policy was in place.
Similarly, it’s possible to get ‘extended reporting period’ or ‘tail’ cover. This gives you a set amount of time after the end of cover, where professional indemnity insurance claims relating to the period can still be made, as in Scenario Three. However, the best way to guarantee you’re insured is to keep your indemnity cover running