In Brief (TL;DR)
Run-off cover is a fundamental clause in professional liability insurance that extends protection from claims even after ceasing professional activity, such as upon retirement or closing a VAT registration.
We explain why this protection is essential to shield you from claims that can arise years after retirement or closing your VAT registration.
We will analyze why this protection is a crucial investment for your future peace of mind, safeguarding your assets in the long term.
The devil is in the details. 👇 Keep reading to discover the critical steps and practical tips to avoid mistakes.
Imagine you’ve worked your entire life, painstakingly building your professional career. The time comes for your well-deserved retirement, or you decide to radically change paths, closing your VAT registration. You think you’ve closed a chapter, but years later, you receive a claim for compensation for a mistake made long ago. Without adequate protection, this event could jeopardize the assets you’ve built with so much sacrifice. This is where run-off cover comes in, an often-underestimated insurance guarantee, but one that represents a true lifeline for the future of every professional.
In a context like Italy’s, strongly rooted in tradition yet projected towards innovation, the culture of professional protection is evolving. While in the past, a handshake and mutual trust were the cornerstone of working relationships, today the European market and growing regulatory complexity demand a more structured approach. Understanding the value of run-off cover means looking to your future with the same meticulousness with which you built your career, protecting not only yourself but also the peace of mind of your heirs.
What Is Run-off Cover and How Does It Work?
Run-off cover, also known as an “extended reporting period” or “tail coverage,” is a specific clause in Professional Liability (PL) policies. Its function is to extend the validity of the insurance protection even after the definitive cessation of professional activity, whether due to retirement, a career change, or death. In practice, if a former client were to file a claim for an alleged error made during your years of activity, this guarantee would cover legal fees and any potential compensation, protecting the professional’s personal assets or those of their heirs.
This time extension is crucial because most Professional Liability policies today operate on a “claims-made” basis. This means that coverage is active only if the claim is filed during the policy’s validity period. Without a run-off guarantee, a professional who ceases activity and no longer renews their insurance would be completely exposed to any future claims, even if they relate to events that occurred when they were properly insured.
Run-off cover is the essential provision that allows the insurance to address a claim made against the professional after their policy has expired.
The Key Difference with Retroactive Coverage
People often confuse run-off cover with retroactive coverage, but the two guarantees operate in opposite temporal directions. Retroactive coverage protects the professional for errors made before the policy was purchased, provided the claim is made during the contract’s validity period. Run-off cover, on the other hand, applies to claims that arrive after the policy expires, for errors made when it was active. Together, these two clauses create a complete arc of protection, safeguarding the professional throughout their career and beyond.
Why Run-off Cover Is an Indispensable Choice
Underestimating the importance of run-off cover is a mistake that many professionals, even the most experienced, make. There’s a tendency to think that once you cease your activity, all ties to your professional past are severed. Unfortunately, that’s not the case. The statute of limitations for professional liability claims can be very long, reaching up to 10 years for contractual liability. This means a dissatisfied client has a decade to dispute a completed job.
A practical example can clarify the concept. Let’s imagine an engineer who designs a building’s structure and then retires. Five years later, due to ground settlement, cracks appear in the building, traceable to a calculation error in the original design. The property owners can legally seek compensation from the engineer. Without a professional liability policy with ten-year run-off cover, the engineer would have to respond with their personal assets, risking their home, savings, and their family’s peace of mind.
A Legal Requirement for Many Professions
In Italy, for some professional categories, run-off cover is not just a wise choice but a legal requirement. The Gelli-Bianco law (Law 24/2017), for example, made ten-year run-off cover mandatory for healthcare professionals upon cessation of their activity. This measure was introduced to ensure complete protection for both the professional and the patient, considering that damages in the medical field (long-tail claims) can manifest many years later. For other professions as well, such as technical ones, ten-year run-off cover is strongly recommended by professional bodies.
Tradition and Innovation in the Insurance Market
The Mediterranean cultural context, and the Italian one in particular, is characterized by a strong sense of family and asset protection. Homeownership, savings for children, and financial security for old age are pillars of our society. In this scenario, run-off cover fits in as an innovative tool that reinforces a tradition of protection. It’s no longer just about relying on the reputation built over the years, but about adopting concrete solutions to defend what you have created.
Insurance companies, responding to the needs of an increasingly integrated and competitive European market, now offer flexible solutions. The duration of the run-off guarantee can be 5 or 10 years, and the cost is generally calculated as a percentage of the last annual premium paid. This is a relatively small investment compared to the risk of facing a million-dollar claim without any protection. Having a good professional liability insurance policy thus becomes essential.
What Happens in the Event of the Professional’s Death?
A particularly important aspect concerns the protection of heirs. In the event of a professional’s death, civil liability is not extinguished but is transferred to their estate and, consequently, to their heirs. If a claim for compensation were to arrive after their passing, the heirs would be responsible for it. Run-off cover also extends to heirs, protecting them from financial consequences that could heavily burden their future. This guarantee represents an act of responsibility and love for one’s family.
Conclusion
Run-off cover is not a negligible technical detail or an accessory cost to be avoided. It is a fundamental pillar for the peace of mind of every forward-looking professional. In a constantly evolving world of work, where closing a business does not mark the end of one’s responsibilities, protecting oneself from delayed claims is essential. Whether by legal obligation or as a prudent choice, supplementing your Professional Liability policy with a run-off guarantee means securing your assets, your retirement, and the future of your loved ones. It is an investment in tranquility, the final seal on a career built with commitment and dedication.
Frequently Asked Questions
Retroactive coverage and run-off cover operate in opposite temporal directions. **Retroactive coverage** covers claims that arrive *during* the policy’s validity period but for errors made *before* it was purchased. **Run-off cover**, on the other hand, protects against claims that arrive *after* the policy expires (e.g., after retirement), for errors made *while* the insurance was active.
Yes, for several professions, run-off cover is effectively a requirement. For example, the Gelli-Bianco law (Law 24/2017) for healthcare professions mandates a ten-year run-off cover for those who permanently cease their activity. For other categories as well, such as engineers, it is considered essential due to the ten-year statute of limitations for liability. In general, policies must offer the option to activate it.
The cost of run-off cover is not fixed but is usually calculated as a multiple of the last annual premium paid for the professional liability policy. This percentage can vary, for example, from 100% to 400% of the last premium, depending on the company, the requested duration of the run-off cover (usually 10 years), and the chosen limit of liability.
Yes, run-off cover also extends to heirs. If a claim for compensation arrives after the professional’s death for an error made during their lifetime, the run-off guarantee protects the heirs’ assets, as they could otherwise be held liable for the damages. Heirs can usually activate the run-off cover if the professional had not already done so.
It’s crucial because most professional liability policies operate on a “claims-made” basis. This means the policy only covers claims filed *during the contract’s validity period*. If you cease your activity and no longer renew the policy, you are left exposed to all claims that might arrive in the future, even if they relate to errors made when you were insured. Run-off cover fills precisely this time gap.
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