Runoff Insurance

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Runoff Insurance
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Runoff insurance is a variant of insurance which can be brought to provide coverage for claims arising after the professional has ceased work or retired. This is a special area of insurance so professionals must seek advice from the expert or related lawyer. The role of the professional is to ensure that he is properly covered both at the time of the occurrence and when the claim is made. The professional may need to arrange runoff insurance for a period of time after the claim because there is often a long delay between an occurrence and a claim. That insurance can be needed for example when there are deficiencies in projects documentation. To minimize subsequent claims, the professionals have to make sure that the documentation is well prepared and that they set out specific responsibilities in their contracts with clients beforehand and deal with complaints promptly (A. Surahyo 2018, s.119).

Insurance for contractors

We can say about runoff insurance in case the contractor faces potential liabilities during construction and mostly afterward for a large number of years. There are two types of insurance we can say about in this case (D. F. Turner 2014, s. 79):

  • The first is for contractors who perform only the occasional design and built scheme. That option insure each project by a single premium on a once and for all basis until the expiry of liability, but this is not popular with insurers and difficult to obtain.
  • The second option is for contractors who engage in design and build work regularly. It is more satisfying for contractors and probably all that they can obtain. This is annually renewable insurance that covers complaints brought in the current year, whenever they were caused. When the contractor ceases to engage in design and build work, it will be necessary to continue runoff insurance for years as remains until his potential liabilities are extinguished.

Runoff D&O Insurance

In the market depending on conditions, insureds may be effective in getting carriers to increase the asset threshold for subsidiaries to 30 percent of the insured parent company's consolidated assets as of the time of the new subsidiary's acquisition or creation. This coverage applies only to claims arising from acts committed after the new entity became a subsidiary. That insurance is for those entities which assume all liabilities of subsidiaries that they purchase from the previous owner. To cover claims arising from wrongful acts committed before the subsidiary was purchased, there is a separate runoff directors and officers insurance. There is also a possibility to build- in this coverage to the ongoing directors and officer's policy for the parent company, but this solution is not accepted by many insureds. They don't want their directors and officers runoff insurance limits of liability eroded by claims arising from acts that took place before the management control of the new subsidiary (L. Goanos 2014, s.82).


Author: Joanna Milowska