A. Keith Stibbards of ACE writes:
Yes it is true. You should arrange future cover for your past consultancy activities as you may be exposed to future claims for breach of contract and/or negligence in respect of past work for clients.
The law imposes a primary six-year period, from the date of the breach/ error/loss, during which a client may claim against you. Unfortunately, however, claims in negligence are not subject to a straightforward deadline and can be brought up to 15 years after you have finished working on a particular project.
Professional Indemnity Insurance cover is provided on a ‘claims made’ basis. The policy will respond to a claim made against you as at the date on which the claim is made, not the date when the relevant work was undertaken.
Unless you are covered by a policy at the date on which a client makes a claim, you will have to use your own resources to defend or settle the claim. Cover is therefore provided on a different basis to most insurances, which tend to respond when a loss actually occurs.
A special type of cover, known as run-off cover, is available. It is designed to indemnify your continuing liability in contract and negligence when you cease to offer professional services. The premium calculation is usually based on the last policy you took out and tends to be a one-off payment for a set period