The importance of run-off cover for insolvency practitioners

IPA Insolvency Practitioner newsletter, February 2025

Article by Thomas Fahey, Associate, Lockton.

Please note that guest content does not necessarily represent the views of the IPA.

As a member of the IPA, maintaining adequate professional indemnity insurance (PII) and run-off cover is not just essential for compliance—it’s a vital safeguard for protecting yourself and your clients from liabilities that may arise even after you cease trading or retire.

Here’s a guide to understanding run-off insurance in the context of the IPA’s requirements.

What is run-off cover?

Run-off insurance provides PII cover for claims arising from past work, ensuring that liabilities are covered even after you stop practicing or trading. Claims can be made long after the work was completed, which makes this coverage critical for insolvency practitioners, whose advice and decisions can have lasting impacts.

Why is run-off cover essential?

PII policies operate on a ‘claims made’ basis, meaning the policy in force at the time the claim is made—rather than when the alleged negligence occurred—responds to the claim. For example, if a claim is brought in 2025 for advice given in 2018, only a current or run-off policy can respond. Without this cover, you may face significant personal financial liability.

IPA requirements for run-off cover

Mandatory two-year cover

Upon retiring or ceasing to hold insolvency appointments, you must have adequate PII or run-off cover for at least two years, at an indemnity level no less than what was required immediately before ceasing practice.

Best endeavours for six years

After the initial two years, you are expected to use your best efforts to maintain PII or run-off cover for an additional four years, making a total of six years from ceasing practice.

Cover through firms

If your former firm provides adequate PII or run-off cover, ensure that:
- The policy continues to meet IPA requirements.
- You check its adequacy annually.
- You are prepared to secure additional cover if the firm ceases trading within the six-year period.

Additional considerations for insolvency practitioners

Limitation periods

The Limitation Act 1980 outlines:

A six-year primary limitation period for claims from the date of financial loss.
A three-year secondary period if the negligence is discovered later.
A 15-year longstop in most cases, though exceptions can extend this timeframe.

Selling a practice

If you sell your practice, liability for past work is typically addressed in the sales agreement. Sellers often maintain run-off insurance to cover their past liabilities, ensuring claims do not affect the buyer’s PII.

Insolvent firms

Under the Third Party (Rights Against Insurers) Act 2010, claimants can pursue insurers directly even if the firm has become insolvent. This makes maintaining adequate run-off cover crucial to safeguard against potential liabilities.

Ensuring compliance with IPA regulations

Check Annually: Regularly verify that your PII or run-off cover remains adequate and meets IPA requirements.
Plan for Continuity: If your firm provides cover, ensure it includes retroactive protection and be prepared to take out a separate policy if the firm ceases trading.
Understand Your Liability: Whether retiring, transferring firms or selling a practice, clarify how your past liabilities will be insured and document these arrangements.

Final thoughts

Run-off insurance is more than a regulatory obligation—it is a practical necessity for any insolvency practitioner. It ensures your peace of mind, protects your reputation, and provides financial security against claims that may arise long after your practice ends.