The least understood question in liability insurance isn't how cover begins – it's how it ends. Under claims-made logic, once the policy ends, protection for past work can end with it: work that was covered yesterday can be uncovered tomorrow, unless there is run-off cover. This article sorts out the “what happens next” question.
- Under claims-made cover, a claim asserted after the policy ends is typically not covered – regardless of when the work was carried out.
- Run-off cover (the extended reporting period) is the notification window that stays open after the policy ends.
- When closing an activity, retiring, or changing company form, this is the first insurance question to sort out.
The Problem Few People See Coming
A plumber retires, a partnership converts into a limited company, a consultant takes up an employed position – the policy is cancelled, because “it isn't needed any more.” Two years later, a claim arrives from an earlier job. Under claims-made logic, the claim would be covered if a policy were active when the claim was asserted – but it no longer is. The work was compliant, the premiums were paid for years – yet cover is missing, because the notification window has closed.
Run-Off Cover: A Window Left Open
The extended reporting period deals with exactly this: for a set time after the policy ends, claims arising from earlier work – done after the retroactive date – can still be notified. The length and terms vary: some policies include an automatic shorter period, others offer a longer one as a separate paid option. The key point: this must be arranged before you close the activity – it typically cannot be added retroactively.
When Does It Come Up? Five Typical Situations
First: retirement or permanent closure of the business. Second: a change of profession – covered in detail by the career-change checklist. Third: a change of company form, where a new legal entity legally continues the activity. Fourth: moving into an employed position. Fifth: a poorly handled insurer switch – if the new policy doesn't carry over the retroactive date, run-off cover on the old policy can bridge the gap (switching-insurer article).
What Should You Do in Practice?
If any of these situations comes into view, clarify two questions before you close down: what run-off options your current terms offer, and how long the window should realistically stay open – gauge this against how long problems typically take to surface in your profession (bookkeeping errors, for instance, typically come to light in audit cycles). The claims-made fundamentals are covered in the key article; for an answer tailored to your own situation, a free consultation is the way to go – especially once closure is already on the horizon.
Example: The Retiring Designer
A mechanical design engineer closes his business after forty years of work and – seemingly logically – cancels the policy: “I'm not working any more, why keep paying?” Three years later, a system built to one of his old designs fails, and a claim arrives. The claims-made policy is no longer active, and there's nowhere to notify the claim – after decades of compliant work, the final administrative decision opened the gap. Had he taken out run-off cover when closing down – sized to how long problems typically take to surface in his profession – the claim could have been notified within the open window. The lesson is simple and general: closing an activity is itself an insurance event – it needs planning, just like any other.
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