Professional Indemnity and Directors and Officers Insurance policies are written on a “claims made” basis rather than, like other classes of insurance “claims occurring” basis.
To understand these words is to understand a fundamental part of the cover.
For a claim of negligence against you (or any other claim made against you for financial loss where the cover is arranged on a civil liability basis) to be covered, your Professional Indemnity Insurance Policy has to be in force at two points:
When you did the work and;
When the claim is made against you
Professional Indemnity and Directors and Officers Insurance is mostly concerned with work you’ve already done, as that’s where the majority of claims come from. You can’t be sued for a mistake you haven’t made yet, and it can take months or even years for latent problems to become apparent.
This means that your cover exists only for as long as your policy does.
So, by cancelling or allowing cover to lapse, if there is a claim against you, next week or next month, it won’t be covered – even if it relates to work you did when the policy was in place. This feature of Professional Indemnity Insurance is often misunderstood. It’s easy to assume because you bought and paid for insurance at the time you were working, cover still applies after the cover is cancelled. Unfortunately that’s not the case.
If you want to make sure you’re still covered, you need to keep your insurance running. It could mean paying for cover years after completing your work, or after you’ve ceased trading/retired or sold the business.
