Professional Indemnity FAQ

Run Off Cover

Failing to take out ‘Run off’ cover

A very real situation is an Insured who closes his business, and despite the advice of his Broker, decides not to take out ‘Run off’ cover.

Here is an example.
Mr X was an architect, who decided, upon reaching 60 years, to sell his practice and retire. By agreement the buyer of Mr X’s business would provide ‘Run Off’ cover for two years under the buyer’s Professional Indemnity policy. The ‘Run Off’ cover for Mr X was not renewed after the two year period.

In the third year of retirement, Mr X was served with a Writ alleging breach of professional duty and negligence. Some 15 years beforehand, he had designed an office building in Tasmania. The building had a ramp leading from street level to a basement carpark and he had incorporated in his design a bridge from street level over the ramp to the front entrance of the office block.

Several months after the ‘Run Off’ cover had expired, some youths were mucking around on the bridge.

One of them went over the bridge railing and fell to the ramp below suffering severe spinal injuries.

The Writ specifically alleged that the design of the bridge railing was negligent, as it was lower than the applicable Australian Standard. Mr X was left to defend the Writ from his own resources, as he had no insurance cover when the claim was made against him.

 Pro-risk's view on the need for Run Off cover

Statute of Limitation Periods: How long do I need to avoid future claims

 

I often get asked, “How long do I need for ‘Run Off’ cover? This occurs when a Professional is looking to retire or has sold his business but the new owners do not want to be responsible for any of their past work.

When we tell them that they need to run off their risk we normally suggest at least seven years to meet with the statute of limitations. However, this statute does not always apply. In fact there are certain situations where this will not apply at all. For some other matters such as Defamation or Medical Malpractice it can be only three years.

Even then, there are circumstances where the Limitation of Actions Act 1974 allows extensions.

Section 31(2) of the Limitation of Actions Act 1974permits a court to extend a limitation period if "it appears to the court –

  1. that a material fact of a decisive character relating to the right of action was not within the means of knowledge of the applicant until a date after the commencement of the year last proceeding the expiration of the period of limitation for the action; and
  2. that there is evidence to establish the right of action apart from a defence founded on the expiration of a period of limitation".

If the criteria is met, then the court may extend the limitation period for 1 year after that date.

First and foremost there must be a "material fact of a decisive character", which really must not have been known until after "the critical date", and the applicant must also have taken reasonable steps to establish that fact before the critical date. For instance in medical negligence cases, it was considered that a patient discovering that his or her medical practitioner had performed at a standard below that to be reasonably expected would ordinarily be a "material fact of a decisive character".

Other critical elements to succeed are:

  • Evidence which goes to establishing a right of action; and
  • Absence of prejudice to the defendant caused by the delay.

To view more of this Act, go to:

http://www.legislation.qld.gov.au/LEGISLTN/CURRENT/L/LimActionsA74.pdf

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