Reply to: Insurance renewal

[Babbage]

By your logic, you would go after the ex-directors of the insurance company. Good luck!!!



So you will take out an insurance policy which will cover risks which occurred IN THE PAST? Good luck getting anyone to underwrite that.



Firstly, my clients have no contract with me, they have a contract with my Limited Company. You have to understand this distinction, the company is an entity in it's own right. There is NO WAY people would go into business with unlimited liability which is why we have the concept of a limited liability company.

Secondly, you can sue a company which has ceased trading but you are wasting your time. You ain't gonna get blood out of a stone and you can't touch the directors either. Do a google for "phoenix company" for numerous examples of where people were owed real money and never got it while the directors walk away blameless. Not only that but the government is sympathetic to people who start a business, take risks and sometimes fail.

The difference is that most contractors don't have any tangible company assets worth speaking of so it's a trivial matter to shutdown one company and start trading with a new one the next day.



Don't believe the FUD spreading from those peddling these worthless insurance policies. The insurance protects THE COMPANY not the directors. If the company stops trading then people can do nothing.

The exception to this may be HMRC who will do whatever they like, but that's a different matter.

"Sole Traders" go into business with unlimited liability, it worked fine for Lloyds insurance market for 300 years until the re-insurance spiral got out of control.

Also, until HMRC stuck their nose in and disallowed Sole Trader basis when placed in a gig by an Agency anyone could go in as a sole trader if they so wished. If you go direct, being a sole trader is still a legitimate option, even if not for the faint hearted.

[Qdos Contractor]

So, as an example, a combination of the fact that PI insurance is invariably written on a 'claims made' basis and the PI policy having no retroactive cover means that the policy will only cover you for claims raised during the period it is actively in effect. Correct?

Yes. If the PI policy does not provide any retroactive cover the insured will only be covered for claims which arise from the work they carry out whilst the policy is in force. Note that the claim must arise and be notified to the PI insurer during the period of insurance. If the policy is allowed to lapse and a claim is notified after the policy has expired no cover will be provided.

If so, and as an example, if you had such a policy for 4 years with no break in cover in-between, then you would be covered by each policy individually for their respective cover periods.

If you had cover in place for four years continuously then your retroactive date should be the date of inception of the first years’ policy. A claim relating to work carried out in year one will be covered even if it does not materialise until the fourth year, provided the claim is notified within the period of insurance.

What I am trying to get at is that, for example, a short break in cover between each policy would not make any difference as each policy in effect runs in 'silo mode' with continuous cover being irrelevant.

Where there is a break in cover and retroactive cover is not provided each policy will run in “silo mode” – i.e. claims relating to work which was carried out prior to inception of the current policy would not be covered. If continuous cover is maintained with retroactive date being date of inception of the first years’ policy as described above a claim relating to work carried out in previous periods of insurance should be covered. If there is a break in cover but the insurer is willing to provide full retroactive cover for subsequent inceptions then the effect would be the same as holding continuous cover.

Can PI insurance, assuming it doesn't by default, be extended to cover an individual personally (Re: Zeity's post which highlighted an example of where an individual was held personally liable) or would you need to take out another insurance product to provide this cover?

Whilst PI insurance will be issued in your trading (usually limited company) name cover will automatically cover errors or negligent acts or omissions carried out by directors and employees in respect of the normal business activities of the insured.

[blacjac]

Yes. That is what the "limited" in Limited Company means.

Read Zeity's post.

you are not as protected as you think you are........

[cojak]

I'm getting irritated by agents who want me to accept dodgy projects saying, "but I've never heard of anyone being sued!" when I bring up due diligence - they're not happy with, "they'll sue you before they get to me matey, you then just have to get the money out of me..."

[The Wikir Man]

Are they likely to sue?

Depends how badly you mess up!!

[expat]

That was going to be another question I was going to ask separately.

Is this true as this approach seems to suggest you need to stay with the same insurance provider ad infinitum in case you get sued for a historic contract.

I would have thought if you are sued for a historic contract then you would need to speak to the insurance provider who covered you at the time of that contract.

The policy insures you against the claim, not against your actions during the contract. Therefore you need to be covered at the time of the claim.

Do you really think if one of your ex clients tried to sue you and the company was closed down then that would be the end of it?

Yes. That is what the "limited" in Limited Company means.

As director you are responsible for running the company, so not being insured could be considered negligent ..... to the interests of the company's shareholders. Are they likely to sue?

[Clippy]

Appreciate the insight - couple of follow up questions.

PI insurance is almost always written on a ‘claims made’ basis. This means that the policy will only cover claims (or circumstances that may give rise to a claim) which are made against the insured and notified to the insurer during the period of insurance, regardless of when the wrongful act which led to the claim occurred.

In many cases insurers will not be willing to provide cover for work carried out prior to policy inception and will apply what is called a ‘retroactive date’ to their policies. The effect of the retroactive date is to restrict the insurer’s liability only to claims which arise from work carried out by the insured after the specified date.

In most cases the insured will be able to specify their retroactive date based on previous insurance held or will be able to request cover without a retroactive date when applying for PI insurance. A ‘claims made’ PI policy that does not have a retroactive date is better for the insured because there will be no restriction on when the wrongful act must have occurred provided a valid policy is in force at the time the claim is made against the insured and notified to the insurer.

So, as an example, a combination of the fact that PI insurance is invariably written on a 'claims made' basis and the PI policy having no retroactive cover means that the policy will only cover you for claims raised during the period it is actively in effect. Correct?

If so, and as an example, if you had such a policy for 4 years with no break in cover in-between, then you would be covered by each policy individually for their respective cover periods.

What I am trying to get at is that, for example, a short break in cover between each policy would not make any difference as each policy in effect runs in 'silo mode' with continuous cover being irrelevant.

If a 'claims made' policy is allowed to lapse, or is cancelled, any losses suffered thereafter will be your responsibility. As it is possible for a wrongful act claim to be brought against you after you have ceased trading it would be recommended to take out run-off cover for your own peace of mind.

Can PI insurance, assuming it doesn't by default, be extended to cover an individual personally (Re: Zeity's post which highlighted an example of where an individual was held personally liable) or would you need to take out another insurance product to provide this cover?

[The Wikir Man]

If a 'claims made' policy is allowed to lapse, or is cancelled, any losses suffered thereafter will be your responsibility. As it is possible for a wrongful act claim to be brought against you after you have ceased trading it would be recommended to take out run-off cover for your own peace of mind.

WIS

Not necessarily - you should make sure that there is insurance in place that covers you. Whether that is insurance in the company name, insurance in your name, or cancelled insurance which has an appropriate run off period is up to you.

I really should give up this IT lark and go into insurance and legal advice.....

[Qdos Contractor]

PI insurance is almost always written on a ‘claims made’ basis. This means that the policy will only cover claims (or circumstances that may give rise to a claim) which are made against the insured and notified to the insurer during the period of insurance, regardless of when the wrongful act which led to the claim occurred.

In many cases insurers will not be willing to provide cover for work carried out prior to policy inception and will apply what is called a ‘retroactive date’ to their policies. The effect of the retroactive date is to restrict the insurer’s liability only to claims which arise from work carried out by the insured after the specified date.

In most cases the insured will be able to specify their retroactive date based on previous insurance held or will be able to request cover without a retroactive date when applying for PI insurance. A ‘claims made’ PI policy that does not have a retroactive date is better for the insured because there will be no restriction on when the wrongful act must have occurred provided a valid policy is in force at the time the claim is made against the insured and notified to the insurer.

If a 'claims made' policy is allowed to lapse, or is cancelled, any losses suffered thereafter will be your responsibility. As it is possible for a wrongful act claim to be brought against you after you have ceased trading it would be recommended to take out run-off cover for your own peace of mind.

Public Liability, on the other hand, is generally written on a ‘losses occurring’ basis and will cover events which occur during the period of insurance even if the resultant claim is not made until after the policy has lapsed. Therefore, where a company has ceased to trade, run-off cover should not be required.

In some (rare) cases an insurer may issue a ‘claims made’ PL policy – it is recommended that you check your existing policy documentation to see which type of cover you have.

[The Wikir Man]

Personally, I am disappointed that the regular posters from the insurance providers (QDos?) have so far failed to provide any insight to this debate.

At the time of writing this, they are currently logged on and viewing General - must be more important stuff in there that requires their attention.

You could *gasp* ring them and ask them? Or even PM them?

[Clippy]

Personally, I am disappointed that the regular posters from the insurance providers (QDos?) have so far failed to provide any insight to this debate.

At the time of writing this, they are currently logged on and viewing General - must be more important stuff in there that requires their attention.

[blacjac]

How can they come after you personally? It doesn't appear I can sue the directors of a recruitment company who can't pay me for my work.

You can, but you probabally can't afford the lawyers you would need to make it work...........

[The Wikir Man]

So contractors should have insurance in the OWN name rather than the for their company?

Not necessarily - you should make sure that there is insurance in place that covers you. Whether that is insurance in the company name, insurance in your name, or cancelled insurance which has an appropriate run off period is up to you.

[contractor79]

How can they come after you personally? It doesn't appear I can sue the directors of a recruitment company who can't pay me for my work.

[Wanderer]

So they can come after you personally.

So contractors should have insurance in the OWN name rather than the for their company?