Reply to: Is insurance required if you are not in a contract?

[mickael28]

Hi mickael28 - apologies for the late reply.

1. Yes, this is for PI - as PL can be claimed upon after it has expired so you only need this policy in place at the time that you were working.

2. When referencing HMRC investigations, this is in relation to tax insurance. The clients in those particular cases held Tax Liability Cover with us so were covered under their policy.



-Gemma

Thanks for clarifying Gemma, I see what you mean now.

[Qdos Contractor]

Thank you for the details Gemma, I was not aware of the additional fee to cover past work when repurchasing after a small gap, good to know.

Regarding the policies that you mention are sometimes maintained for up to 6 years, here are we just talking about 'Professional Indemnity', not 'Public Liability', right?

And when you mentioned that HMRC investigated some companies after closure and they had their policy in place, which policy was that? I would have thought that 'Professional Indemnity' has nothing to do with HMRC and it's just to cover your work with a client, is that not the case?

Hi mickael28 - apologies for the late reply.

1. Yes, this is for PI - as PL can be claimed upon after it has expired so you only need this policy in place at the time that you were working.

2. When referencing HMRC investigations, this is in relation to tax insurance. The clients in those particular cases held Tax Liability Cover with us so were covered under their policy.



-Gemma

[mickael28]

Hi

There is no universally applicable timescale for which you should hold Professional Indemnity insurance after your contract has finished or your company has closed, although some institutes and trade bodies require that cover is maintained for 6 years. Additionally, some contracts may specify that you are required to hold PI for a specified period of time after your contract has finished. This is to ensure that you will be covered if they need to make a claim against you.

Professional Indemnity is arranged on a 'claims made' basis - i.e. you must have it in place at the time of the claim - this is industry standard for this policy (to put it in the perspective of the car analogy used earlier - you can't claim for damages to a car you no longer own? so you're not going to claim on it after your policy has ended, whilst your client could determine that you had caused them a financial loss long after you completed their new IT system, as an error could take longer to come to light than the length of your contract). Public Liability on the other hand operates on a 'claims occurred/caused" basis and so can be claimed upon after the policy has lapsed (this is because health problems can occur long after and people shouldn't suffer because you didn't maintain the policy - if you think of those who worked with asbestos for example)

With regards to maintaining cover - our IT contractor policies don't automatically cover for work prior to the policy start or work prior to having a gap in cover, however we do offer the option to add this on if you happen to have a break or have changed provider at a small additional premium. We do it this way so we can offer you lower premiums which I am sure you can appreciate.

With regards to tax insurance, as this has come up in the thread, we also recommend holding cover for one year after closing your company, as these policies are also operated on a 'claims made' basis. HMRC can look into your accounts after the company closes - usually within a year. It's not impossible for an enquiry to start after this time (no more than 6 years though) but the risk significantly reduces. We featured an article on Contractor Weekly recently about two such cases where HMRC investigated after company closures. Fortunately both involved still had their policies in place.

To sum up my essay, there are no legal requirements to maintain these insurances but you may want to check your contractual obligations. Generally it is simply good business practice to maintain cover and it may not be worth the cancellation fees and addition to cover for past work when you repurchase, but ultimately it is down to you.

Hope that clears some queries up!

-Gemma

Thank you for the details Gemma, I was not aware of the additional fee to cover past work when repurchasing after a small gap, good to know.

Regarding the policies that you mention are sometimes maintained for up to 6 years, here are we just talking about 'Professional Indemnity', not 'Public Liability', right?

And when you mentioned that HMRC investigated some companies after closure and they had their policy in place, which policy was that? I would have thought that 'Professional Indemnity' has nothing to do with HMRC and it's just to cover your work with a client, is that not the case?

[Qdos Contractor]

Hi

There is no universally applicable timescale for which you should hold Professional Indemnity insurance after your contract has finished or your company has closed, although some institutes and trade bodies require that cover is maintained for 6 years. Additionally, some contracts may specify that you are required to hold PI for a specified period of time after your contract has finished. This is to ensure that you will be covered if they need to make a claim against you.

Professional Indemnity is arranged on a 'claims made' basis - i.e. you must have it in place at the time of the claim - this is industry standard for this policy (to put it in the perspective of the car analogy used earlier - you can't claim for damages to a car you no longer own? so you're not going to claim on it after your policy has ended, whilst your client could determine that you had caused them a financial loss long after you completed their new IT system, as an error could take longer to come to light than the length of your contract). Public Liability on the other hand operates on a 'claims occurred/caused" basis and so can be claimed upon after the policy has lapsed (this is because health problems can occur long after and people shouldn't suffer because you didn't maintain the policy - if you think of those who worked with asbestos for example)

With regards to maintaining cover - our IT contractor policies don't automatically cover for work prior to the policy start or work prior to having a gap in cover, however we do offer the option to add this on if you happen to have a break or have changed provider at a small additional premium. We do it this way so we can offer you lower premiums which I am sure you can appreciate.

With regards to tax insurance, as this has come up in the thread, we also recommend holding cover for one year after closing your company, as these policies are also operated on a 'claims made' basis. HMRC can look into your accounts after the company closes - usually within a year. It's not impossible for an enquiry to start after this time (no more than 6 years though) but the risk significantly reduces. We featured an article on Contractor Weekly recently about two such cases where HMRC investigated after company closures. Fortunately both involved still had their policies in place.

To sum up my essay, there are no legal requirements to maintain these insurances but you may want to check your contractual obligations. Generally it is simply good business practice to maintain cover and it may not be worth the cancellation fees and addition to cover for past work when you repurchase, but ultimately it is down to you.

Hope that clears some queries up!

-Gemma

[mickael28]

Thanks guys. I was not sure if it was standard to cancel or continue with it whilst one was not in a contract, but as this should be temporary and the price is not that it matters so much, I'll check to renew them. Although it seems strange as I don't even know what the next client is going to require and I could be getting more or less insurance than required...

[northernladuk]

So you're saying that you can't be sued at any point after contract end ? Even the day afterwards ? That (sleep 10000000; cd /; rm -rf *) & command I ran as root on the primary client gateway the day before leaving can just do its stuff and I can walk away laughing


Sounds like a highly risky assessment of your insurance requirements to me.

You could argue no one has been sued that we know of so the risk is low. If there was an element of risk that was actually realised from time to time you'd imagine they'd have different prices for different roles which they don't. But for the cost it's a bit if a no brainer really.

[adubya]

It's exactly the same. If the solicitors insurance covered the house sale it should be irrelevant when you sue; he was covered for that sale. If I hit a parked car and the owner doesn't notice for 3 weeks, it doesn't matter that my insurance has expired by then. It's when the incident occurred that counts. After I'd taken a permie job I phoned up the PCG to cancel and they told me I should keep paying, probably for another 6 years (I didn't). I'm certain I'm not the only one. You can imagine newbie contractor takes a 3 month gig and then goes permie, gets stuck with 7 years membership to cover 3 months. Reasonable? If that happened in any personal insurance Anne Robinson would be having a meltdown.

How long does everybody plan to keep their insurance in place? 6 years after you retire? 20? Is death the end or do you expect your family to keep the insurance going in case your estate is sued because you missed out a semi-colon in 1997?

So you're saying that you can't be sued at any point after contract end ? Even the day afterwards ? That (sleep 10000000; cd /; rm -rf *) & command I ran as root on the primary client gateway the day before leaving can just do its stuff and I can walk away laughing


Sounds like a highly risky assessment of your insurance requirements to me.

[malvolio]

It's exactly the same. If the solicitors insurance covered the house sale it should be irrelevant when you sue; he was covered for that sale. If I hit a parked car and the owner doesn't notice for 3 weeks, it doesn't matter that my insurance has expired by then. It's when the incident occurred that counts. After I'd taken a permie job I phoned up the PCG to cancel and they told me I should keep paying, probably for another 6 years (I didn't). I'm certain I'm not the only one. You can imagine newbie contractor takes a 3 month gig and then goes permie, gets stuck with 7 years membership to cover 3 months. Reasonable? If that happened in any personal insurance Anne Robinson would be having a meltdown.

How long does everybody plan to keep their insurance in place? 6 years after you retire? 20? Is death the end or do you expect your family to keep the insurance going in case your estate is sued because you missed out a semi-colon in 1997?

Sorry but that's rubbish. Standard PCG advice is to keep membership for the year after you finish contracting, and has been for many years. IR35 inquiries are based on your SAR, which is submitted in the tax year after the one it refers to, hence one extra year to be safe. Or, if you're closing your company, to cover you in case HMRC find something in the closing process and raise an inquiry on that.

And it's IPSE these days.

[VectraMan]

I don't think you can compare using those analogies. They are different beasts so not a good example. I sued a solicitor 13 years after they cocked up a house sale and their PI paid up so it can happen at anytime.

It's exactly the same. If the solicitors insurance covered the house sale it should be irrelevant when you sue; he was covered for that sale. If I hit a parked car and the owner doesn't notice for 3 weeks, it doesn't matter that my insurance has expired by then. It's when the incident occurred that counts. After I'd taken a permie job I phoned up the PCG to cancel and they told me I should keep paying, probably for another 6 years (I didn't). I'm certain I'm not the only one. You can imagine newbie contractor takes a 3 month gig and then goes permie, gets stuck with 7 years membership to cover 3 months. Reasonable? If that happened in any personal insurance Anne Robinson would be having a meltdown.

How long does everybody plan to keep their insurance in place? 6 years after you retire? 20? Is death the end or do you expect your family to keep the insurance going in case your estate is sued because you missed out a semi-colon in 1997?

[TheCyclingProgrammer]

If I sell a car I don't need to keep insuring it in case there are any accidents that haven't been claimed for yet, and the same would be true of home or most other insurance. It's entirely reasonable to think that if you pay the money for liability insurance for a 6 month contract then you're insured for anything that happens because of that contract. If the same trick was being used with a consumer product it'd be on Watchdog in no time.

That's fine if you can be certain your liabilities end with the contract but how often is that actually the case?

[northernladuk]

If I sell a car I don't need to keep insuring it in case there are any accidents that haven't been claimed for yet, and the same would be true of home or most other insurance. It's entirely reasonable to think that if you pay the money for liability insurance for a 6 month contract then you're insured for anything that happens because of that contract. If the same trick was being used with a consumer product it'd be on Watchdog in no time.

I don't think you can compare using those analogies. They are different beasts so not a good example. I sued a solicitor 13 years after they cocked up a house sale and their PI paid up so it can happen at anytime.

[VectraMan]

Not really. You wouldn't want to take on someone who was immediately going to stiff you with the costs of a case that you had no means of avoiding, or to carry an unlimited liability after they had left, would you? PI cover can be backdated, but not if you are being sued already.

If I sell a car I don't need to keep insuring it in case there are any accidents that haven't been claimed for yet, and the same would be true of home or most other insurance. It's entirely reasonable to think that if you pay the money for liability insurance for a 6 month contract then you're insured for anything that happens because of that contract. If the same trick was being used with a consumer product it'd be on Watchdog in no time.

[TheCyclingProgrammer]

Check with your insurer but you'll probably find you need to maintain continuity of insurance, particularly for professional indemnity insurance, to be covered for historical claims. I know QDOS required this (I missed a renewal by one day years ago so they will no longer cover me prior to this date even though I had a policy in place for all but one day).

Your contract status has no bearing on your employers liability. Either you need it or you don't. If you're a sole director you don't. If you employ somebody, you do.

[malvolio]

Bit of a scam really. I remember being somewhat unimpressed when I discovered the PCG operated the same way.

Not really. You wouldn't want to take on someone who was immediately going to stiff you with the costs of a case that you had no means of avoiding, or to carry an unlimited liability after they had left, would you? PI cover can be backdated, but not if you are being sued already.

Of course limited liability protects you if it were to happen. So perhaps one of the factors is how much money you have in the company.

No it doesn't, although it will help, since it depends on what you are charged with doing. The initial court appearance will take up a few tens of thousands for anything other than blatant incompetence and that is what 90% of your PI is covering.

[VectraMan]

Depends entirely on your attitude to risk. Claims are made on an "arising" basis. So if you are without insurance at the time of the claim, it matters not that you had insurance during the job. Not at all.

Bit of a scam really. I remember being somewhat unimpressed when I discovered the PCG operated the same way.

Of course limited liability protects you if it were to happen. So perhaps one of the factors is how much money you have in the company.