PI insurance run-off cover: how long do consultants actually need?

Professional indemnity is written on a claims-made basis: the policy that responds is the one in force when the claim is made, not the one in force when you did the work. Run-off cover keeps a policy in force after the commission ends so a later claim has something to answer it. The period a client should reasonably ask for is tied to how long they can still bring that claim.

Why do agreements ask for run-off at all?

Because the risk outlives the commission by years.

A design decision made during documentation may not surface as a problem until the building has been occupied through several seasons. By then the consultant has moved on, the policy that covered the design work has lapsed, and without run-off there is nothing for the claim to reach.

From the client's side this is entirely reasonable. They are protecting their own recovery, not punishing you. The negotiation is about the period and the limit, not about whether the obligation is legitimate.

What drives the number?

Two things, and only one of them is legal.

The first is how long a claim can still be brought about the work. That is what a client is implicitly reaching for when they ask for seven or ten years.

The second is commercial and is the one consultants underweight. A tail has an annual cost, every year, long after the fee has been spent. It is a real liability on a small practice and it should be priced into the commission if the period is long or the limit is high.

What does the clause usually get wrong?

Three recurring problems, in order of how much they cost.

A limit above the cover you hold. An agreement requiring $20 million of professional indemnity when your policy is $10 million puts you in breach at signature, not at claim.

A period you cannot commit to. Ten years is a long time to guarantee the behaviour of an insurance market. Insurers exit classes of work; a practice may not exist in a decade.

An obligation to maintain cover on terms no broker recognises. Wording that requires cover "on terms satisfactory to the Principal" hands someone else an open-ended veto over your insurance arrangements.

How do the common positions compare?

Why does claims-made cover change the maths?

Because the policy that matters is the one in force when the claim arrives, and that is a policy you have not bought yet.

An occurrence-based policy responds to events that happened during the policy period, whenever the claim is made. Professional indemnity is generally not written that way. It responds to claims made during the policy period, which means a claim about work done in 2020 is answered by the policy in force when the claim lands, not the one that was in force while you were drawing.

Three consequences follow, and they are the reason run-off exists at all:

• Continuity matters more than any single year's cover. A gap in cover is not a gap for one year's work. It is a gap for every project you have ever done, because there is no policy in force to receive a claim during it.
• Retroactive dates matter. A policy with a retroactive date limits how far back the covered work can go. Cover that starts today with no retroactive cover does nothing for last year's project.
• Stopping is the dangerous moment. Retirement, a merger, or simply not renewing during a quiet year all end the cover for every past commission at once.

Run-off is simply the mechanism for keeping a policy in force once you no longer have current work to justify one.

Who pays for the tail, and what does it cost?

You do, and it is a cost with no matching revenue, which is what makes it easy to under-price at proposal stage.

The cost is not evenly spread either. A tail on a modest limit for a few years is a manageable line item. A high limit maintained for a decade after a practice stops earning is a materially different proposition, and it falls due at the point a practice is least able to absorb it.

That is worth saying out loud in a negotiation, because clients rarely intend it. The number in the insurance schedule is usually inherited from a larger project, not calculated for yours.

Two questions to settle before you agree a long period:

• Have you asked your broker what this actually costs per year? An estimate turns an abstract obligation into a number you can put in the fee.
• Does the obligation survive the practice? If the agreement binds a company that may not exist in eight years, everyone should understand what that means rather than discovering it later.

What about notification obligations?

Easy to miss and expensive to get wrong.

Most professional indemnity policies require you to notify circumstances that might give rise to a claim, promptly, and often before the policy period ends. Notifying a circumstance during the current policy generally attaches the matter to that policy even if the claim itself arrives years later.

The practical value is that a circumstance notified before cover ends is usually handled by the policy that was in force at the time, which can matter a great deal if your cover later changes or reduces.

The instinct to wait and see whether a problem develops is the wrong one. A late notification is one of the few genuinely self-inflicted ways to lose cover you had paid for.

A worked example

The sample review commission carried exactly this problem. The insurance schedule required professional indemnity of $20 million maintained for ten years after completion. The consultant held $10 million.

Set aside the ten years for a moment. The limit alone put the consultant in breach on the day they signed, for a commission worth $180,000. Nobody in the room intended that. It was a schedule copied from a larger project and never checked against the consultant's certificate of currency.

The amendment reduced the requirement to $10 million maintained for seven years, matching the cover actually held.

Two things are worth noticing. First, the fix came from the consultant's own certificate, not from an argument about what is standard. Second, nobody objected, because the client's real interest was in the consultant being insured, not in a number.

That is the usual outcome when this is raised at signing. It is a very different conversation once a claim exists.

What to ask for

Start by checking your certificate of currency, because the entire negotiation runs off it. Then:

The Consultant must maintain professional indemnity insurance of not less than $[limit], and must maintain that insurance for [number] years after completion of the Services, provided such insurance remains available on commercially reasonable terms.

The proviso at the end is the part that matters most and the part most often dropped. Without it you have guaranteed the behaviour of an insurance market for a decade.

If the limit is above your cover, the covering note writes itself:

Our professional indemnity cover is $[amount], and our certificate of currency is attached. The schedule currently requires $[higher amount], which we do not hold. We can either align the requirement with our cover, or price the additional cover into the fee, but we cannot sign a requirement we would breach immediately.

Attaching the certificate converts this from a negotiating position into an administrative correction, which is a much easier thing for a client to agree to.

Where this stops being general

You now know what to look for and roughly what a defensible position sounds like. What you do not know is whether the agreement on your desk asks for cover you hold, whether the run-off obligation survives termination, or whether an indemnity elsewhere in the document quietly requires cover the insurance schedule never mentions.

That is the work that remains, and it is specific to your document.