Just because you have stopped working does not mean that you are not liable for the work you have done in the past – you have an open period for claims to be made as set out under the statute of limitations. Generally 6 years past the last date at which advice was given is the accepted norm.
You may also have rules which are imposed upon you by your Institute or Association.
ICAEW stipulate that a member or practices hold at least 2 years and recommends 6 years run off.
ACCA stipulate a period of 6 years under their rules.
In the case of a partnership without a limited liability, it is especially important to purchase this type of insurance after a dissolution, as liability cannot be removed during the winding up process.
Even as a Limited Liability or LLP firm when closed or sold there is still residual exposure. Claims can still be made and will have to be defended. For sole traders and smaller firms, retirement is a common reason for purchasing run off insurance, whereas larger firms are often passed on to a new generation of owners who can continue the existing PI policies.
Professional businesses close down for many reasons, including foreclosure, acquisition and retirement. In cases such as these, it may be necessary to extend an indemnity policy beyond the end of trading in order to comply with regulations, or simply to take the sensible option and protect against all eventualities.
These eventualities may include claims of negligence in one form or another. A business and it’s partners or directors and officers does not simply remove itself from its client responsibilities once it ceases trading. Professionals have to prepare for the possibility of claims such as those mentioned, years into the future. It is one of the few legal duties imposed on directors and officers (other instances are rules) to ensure that the firm has proper insurance.
If you provide a service to a client you are liable for it. A claim may not have any validity but you will still have to defend and the PI pays for the costs of defense and any award.
This extract has been taken from an article was written by Paul James CEO of Legalrisks Professional Indemnity Limited. If you would like to see the full article then please email me at email@example.com.
If you want to contact me to discuss your situation in confidence, then please email me, Nicola Draper, at firstname.lastname@example.org