Run-off insurance – Berkley issues warning to brokers

Berkley Insurance Australia (Berkley) has warned insurance brokers of the consequences of not offering run-off insurance, which provides coverage to an insured for future claims made against them arising from acts, errors, or omissions that occurred before the inception of the run-off policy.

Berkley shared one of its recent cases, where an insured individual received a claim against them nine months after their professional indemnity policy was cancelled. Without a run-off cover, the insured is now claiming against the insurance broker, alleging negligence for breach of their professional duty.

The insurer noted that the policy types generally written on a claims-made basis and therefore should consider run-off insurance if ceasing business or finishing a specific project are:

Professional indemnity insurance;
Management liability insurance;
Association liability insurance;
Directors’ & officers liability insurance; and
IT liability insurance.

With professional indemnity and management liability insurance policies written on a “claims made and notified” basis, they must be in force when the claim is made against the insured and reported to the insurer.

“If an insured ceases to operate, you as their insurance broker should recommend they take out run-off cover. If you do not recommend run-off cover and a claim is made against the insured after the policy ceases, the insured may allege you have breached your professional duty of care and seek to recover their losses from you,” Berkley said.

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So, how long should an insured take run-off cover? According to Berkley, the duration depends on the insured’s profession and the likelihood of a claim being made against them years after they provided the design or advice.

“The limitation period to bring a claim for a cause of action based on negligence varies in different jurisdictions throughout Australia. However, the clock does not start on the limitation period until the negligence cause of action accrues. Depending on the jurisdiction, this can be when the person suffers the loss or the date of its discoverability,” the insurer said.

It further advised insurance brokers to never cancel a professional indemnity or management liability policy without explaining the claims made and nature of the policies and recommending the insured take out run-off cover.