PI insurance and contracts / closing business

[FrankMe]

Hi there,

My other half and I are thinking of closing our limited company and take different work routes. We have had to maintain (increasingly expensive) £5m PI insurance for design liability for around 10 years (construction industry). I have read about run-on insurance. I don't want to alert our insurer until we're decided, so to understand the topic properly I have a few queries, grateful for any help:

Run-on insurance sounds like it could be a mighty expense - most of our formal contracts and warranties require us to maintain PI cover for 12 years. Does run-on insurance have to cover every project - eg. if I listed out all projects for the insurer and only covered those where there was no formal contract, and as they go out of the 12 year period remove them from the cover - could this reduce the cost?
What if we didn't take run-on insurance? If the business closes - would we risk being personally liable?

Many thanks,
Frank

 

[Frank the Insurance guy]

Hi @FrankMe

The term you are referring to is "run-off".

It is straightforward to arrange this run-off cover, but you will need to do this with your current insurer. Most insurers will only provide this on an annually renewable basis - usually 1st year is at the expiry annual premium with subsequent years reduced by 10-25% each year, subject to insurers minimum premiums.

Check the wording of the contract - does it states you will maintain cover as long as it is viable?

Does the contract make any specific personal obligations on you that would allow them to pursue you personally?

In my experience if the business is formally closed down (ie. dissolved), the company no longer exists whatsoever. As such any contracts and liabilities will die with the company, therefore you may want to look into this.

 

[Gecko001]

I do not see why you cannot discuss this with your insurance company. As Frank says run-off insurance is usually taken out with your present insurer. I think there was a time when you could pay a lump sum, but now it seems that yo have to pay annully. Note the Ltd company might provide some protection, but if any of the directors are are members of a professional institution, then they could face disciplinary action by the institution they belong to if they use their Limited Company status as insurance against a large claim.