What happens if I cancel my Professional Indemnity cover?

Sometime a client will decide that they no longer wish to remain being a Professional Consultant, or perhaps they sell or close their business, or perhaps they want to save money by cancelling or not renewing their Professional Indemnity insurance.  

I can understand this request and there is no problem doing this for their Public Liability cover but I strongly advise against letting the professional indemnity lapse. Simply because you will not be covered after the 1 June 2012 for any claims arising from work already performed.

With Public Liability cover, it is what we call a “loss occurring” type cover. This means you are covered by the policy that was in force when an event actually occurred.

However, with Professional Indemnity cover, it is what we call “claims made” cover. This means that a current policy responds when a claim is made against you, even though the event causing the loss could have occurred well before this current policy started. Your retroactive date started from inception of cover last year. All the work performed after this date is covered but only when you have a current policy in force.

Claims made is explained by clicking here.

 If you cancel your professional indemnity, then there is absolutely no cover for any work performed after the cancellation or expiry date. This means you will be breaching any contracts you signed previously  requiring you to hold Professional Indemnity. There is implied, an ongoing obligation to maintain this cover even if the work performed  as a result of the contract has now completed.

 Further if you cancel cover and then take it up later, the new cover then will start again with a new retroactive date from inception of this new cover. So you will still have no cover for any work performed before then unless you can find an insurer willing to provide a retroactive date back to then and if you did, they will charge for it.

Normally if someone closes their business, they continue protection by reverting to run off cover. In the first year it is usually the same price as the year before, but it runs off all those past exposures. We recommend at least reverting to “run off” cover.

 

The point though is that you remain at risk for the past work performed this year and previous years and a current Professional Indemnity is still covering you if a claim was to now arise from this work. These claims may not arise for a number of years, but why lose your home and all your other assets should a claim arise? Simply defending an allegation for an error or omission can be costly with the expensive legal fees.

 

So my advice to you is either maintain professional indemnity cover in some form or seek appropriate legal advice about the exposures of leaving yourself without professional indemnity cover if you do let it lapse. Because in the eagerness to save some money, there are serious ramifications if you do receive a claim for a breach of professional indemnity.

 Nothing may ever happen, but by chance if it did, at least your Insurance Broker has advised you. Ignoring the “Claims Made” nature of professional indemnity can be a very costly error to make that I have seen before and it is easy to be wise with the benefit of hind sight. Do not make this mistake. You still need to buy "Peace of Mind".  

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