Claims-made cover: why cancelling professional indemnity can uninsure your past work
Liability policies written on a claims-made basis respond to when the claim arrives, not when the work was done.
Professional indemnity and directors and officers policies are usually written on a claims-made basis. The policy that responds is the one in force when the claim is made against you, not the one in force when the advice was given.
The consequence
Stop the policy and every piece of past work becomes uninsured, because there will be no live policy when a future claim arrives. That is the opposite of how most people assume insurance works.
Three terms to check
- Retroactive date - work done before this date is not covered. Changing insurer can reset it if not handled carefully.
- Extended reporting period - a run-off option allowing claims to be reported for a stated period after the policy ends. Essential when a firm closes or a partner retires.
- Notification of circumstances - most wordings require you to notify facts that might give rise to a claim. Notify early; a late notification is a common reason for a declined claim.
When changing insurer
Carry the retroactive date across, and disclose every known circumstance. Saving a few thousand rupees of premium while resetting the retroactive date is one of the worst trades available in commercial insurance.