Critical factors in purchasing Run off cover

Purchasing Run off cover?

I see it all the time…

A company is winding up, maybe the business has been acquired or has come to an end.

And the insured is seeking a run-off policy for PI or D&O. Makes sense - doesn’t it?

After all, the insured probably has contractual obligations to hold same…so they are offered options of:

• 1 year,
• 3 year and
• 7 year options

with the same limit or some limit options.

And little advice on which to select.

So what to do!?

I see this all the time!!! The insured left to basically figure it out themselves

And the most critical driving factors in the purchase of a run-off policy are never properly evaluated and advised on, like:

How many years of cover should you buy?

• Well - do you know the limitation periods applicable to probable causes of action in your sector and taking account of your unique business?

What limit to purchase?

• Well - do you know the potential for damages and legal costs applicable to claims in your sector and relevant to your business?

There are also other factors to consider like contractual, statutory obligations and director and potential direct employee liability.

Insurance broking advice is absolutely critical to get the deal done at the right price, but so is legal advice…

Why?

Time limitations can differ significantly across different legislative provisions like the Building Act 1993 (Vic), Limitation of Actions Act 1958 (Vic) and also the Australian Consumer Law to name just a few and of course further distinctions apply across jurisdictions.

There are even situations where a limitation period has not applied - read our case note on Steedman

When making a significant decision on run-off cover - it is necessary to understand all the issues including legal issues.

After all, you are insuring against legal risk and good decision-making is based on good information.

You should know if the most common claims you will face are in contract, tort, equity or other legislative grounds like misleading and deceptive conduct and what forum they cna be filed in.

In addition, there are other considerations like who will pay an excess if the company has been wound up and deregistered. If there is no bank account - who pays?

Gone are the days where a seven year policy and an expectation that a six year time limit applies.

After all, if you are the decision maker, you don’t want to make a mistake yourself!

I regularly advise on run-off cover and ensuring insureds have informed awareness of the relevant issues before purchasing a policy.

If you are considering run-off cover, hit me up, we offer a no cost consultation to discuss your options.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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• litigation