In brief
- When a law firm ceases without a successor practice, the SRA minimum terms require six years of run-off cover for claims arising from its past work.
- On a merger or acquisition, a successor practice may take on the prior practice’s liabilities instead, so the structure of the deal decides who pays.
- After the six-year period, the Solicitors Indemnity Fund, now run directly by the SRA, provides cover for certain later claims.
- Run-off premiums are set by the insurer and depend on the firm’s profile; they are often discussed by reference to the annual premium, but there is no standard figure.
- The premium falls when income is falling, so plan it into any closure, retirement or sale early and line up funding before the firm ceases.
What run-off cover is
Claims against solicitors can arrive long after the work was done. A conveyancing error, a defective will or a missed limitation date may not come to light for years. Run-off cover exists so that when a firm stops practising, clients who later discover a problem still have an insurer to claim against.
For firms regulated by the SRA, run-off is part of the minimum terms and conditions that every qualifying policy must contain, set out in the SRA Indemnity Insurance Rules. When a firm ceases practice without a successor practice, the policy in force at that point extends the period of insurance by six years, covering claims made in that period in respect of the firm’s past work. Run-off is not optional, and it is provided by the insurer on risk when the firm ceases, not by a new insurer chosen at the time.
The cover protects clients, but it also protects the former principals, who could otherwise face claims personally. For a retiring sole practitioner, it is a large part of what makes a clean exit possible.
Run-off cover responds to claims made during the six-year period about work done before the firm ceased. It does not cover new work, so a firm in run-off cannot continue to practise under it. Principals who intend to keep working, for example as a consultant to another firm or as a freelance solicitor, need separate arrangements for that future work.
When run-off is triggered, and when it is not
Run-off is triggered when a firm ceases to practise and there is no successor practice. Typical situations include a sole practitioner retiring without a buyer, partners deciding to close, a firm that cannot continue for financial reasons, and some mergers or sales where the acquiring firm is not treated as a successor.
It is not triggered where a successor practice takes on the prior firm’s liabilities, which is common on a properly structured merger or acquisition. The minimum terms also deal with firms that cannot obtain renewal cover. As the SRA explains in its guidance on professional indemnity insurance, such a firm enters an extended policy period, during which it cannot take on new business after the first 30 days and must plan to close in an orderly way if cover is not found, after which run-off applies.
Because the consequences are significant, partners should understand which situation applies well before any decision to close, merge or sell is final.
Successor practices on a merger or acquisition
A successor practice is, broadly, a firm that carries on the business of the prior practice. Whether one exists depends on a range of factors in the minimum terms, such as whether the new firm acquires the prior firm’s goodwill, takes on its staff and clients, uses its name or premises, and holds itself out as continuing its practice.
Where a successor practice exists, its insurer is generally expected to cover claims arising from the prior practice’s work, and the selling firm does not need to buy run-off. The minimum terms also allow the firm to elect, before it ceases, whether the prior practice should be covered under run-off or as a prior practice under the successor’s insurance, provided the successor’s insurer has agreed. If no valid election is made, standard run-off terms apply.
For a buyer, taking on the prior practice’s history can increase its own premium and risk, which is why this question belongs in the valuation and in heads of terms. Our guides to how law firms are valued and buying a professional practice cover the wider deal. The SRA’s warning notice on mergers, acquisitions and sales also stresses the need for proper due diligence on both sides.
After six years: the Solicitors Indemnity Fund
Claims can still arise after the six-year run-off period has ended. For many years, cover for those later claims has been provided by the Solicitors Indemnity Fund (SIF). The future of SIF was uncertain for several years, with proposals to close it debated between the SRA, the Law Society and the profession.
The current position is that SIF continues. The Law Society’s page on SIF and post six-year run-off cover explains that the SRA took direct control of the running of SIF on 1 October 2023, and that cover after the six-year period is currently provided by SIF at no additional cost. The SRA’s Solicitors Indemnity Fund page confirms that SIF applies once the six-year run-off period has expired. The Law Society notes that the SRA has said it would consult before introducing any charge in future.
The scope and terms of SIF cover are set by its own rules, which can change, so check the current position on the SRA website, and with your insurance broker, when planning a closure.
How run-off premiums are priced
The run-off premium is set by the insurer on risk when the firm ceases, under the terms of the policy. It is often discussed by reference to the firm’s annual premium, and sometimes quoted as a multiple of it, but there is no standard figure and the cost varies widely from firm to firm.
The factors that drive it are similar to those for annual cover:
- The firm’s work type mix, particularly higher-risk areas such as conveyancing, wills and probate, and personal injury.
- The firm’s claims history and any notified circumstances.
- The size of the firm and its fee income.
- The quality of its risk management, supervision and file records.
- The terms of the policy in force when the firm ceases.
Ask your insurance broker, at each renewal, how run-off would be priced under your current policy and whether the insurer will indicate a figure. Knowing the likely cost years in advance turns it from a shock into a planned expense. Remember too that the premium is a debt: an unpaid run-off premium can be pursued against the firm and, in a partnership or where guarantees have been given, against the principals personally.
Planning a closure
A well-planned closure protects clients, staff and the former principals. Run-off is one strand of a wider plan that usually includes:
- Deciding the route: sale, merger with a successor practice, or closure with run-off.
- Obtaining a run-off quotation early and building it into the closure budget.
- Informing the SRA and clients, and arranging for files, documents and client money to be dealt with properly.
- Billing and collecting WIP and debtors, which often fund much of the closure.
- Settling the lease, staff obligations and supplier contracts.
- Repaying or refinancing any borrowing and resolving partners’ capital and guarantees.
Where the closure is part of a retirement, the remaining partners may need to fund an outgoing partner’s capital as well. See partner buy-out finance and succession finance, and our guide to partner retirement and succession funding.
Funding the run-off premium
Run-off usually becomes payable when the firm’s income is winding down and exit costs are peaking, so funding it from cash can be difficult. The main options are:
- Premium finance, which spreads the run-off premium over instalments. Some providers will consider this for a ceasing firm, often with personal guarantees from the principals. See professional indemnity finance.
- A term loan to the firm or the principals, repaid from WIP collection, the sale proceeds or personal resources.
- Collecting WIP and debtors before cessation, sometimes supported by WIP finance to bring cash forward.
- Building the cost into a sale, where the buyer and seller agree how run-off or successor cover will be handled.
Funding is easier to arrange while the firm is still trading and has accounts, a fee pipeline and a clear plan. Leaving it until after cessation narrows the options considerably. Our PII premium finance guide explains how premium finance agreements work and what to check.
We are a whole-of-market commercial finance broker with access to 300+ lenders, including premium finance providers and specialist professions lenders. We can source funding for run-off premiums alongside the wider costs of a closure, sale or retirement, and approach suitable lenders on your behalf. Finance is subject to status, lender criteria and approval. Where the borrower is a sole trader or a small partnership, finance of £25,000 or less can be regulated consumer credit, and we will say at the outset if that applies. See our work with solicitors and law firms or make an enquiry.
Common questions
How long does solicitors’ run-off cover last?
Under the SRA minimum terms, run-off extends the period of insurance by six years after the firm ceases practice without a successor practice. After that, the Solicitors Indemnity Fund provides cover for certain later claims.
How much does run-off cover cost for a law firm?
It is set by the insurer on risk when the firm ceases and depends on work type, claims history, size and policy terms. It is often discussed by reference to the annual premium, but there is no standard figure. Ask your insurance broker for an indication early.
Do I need run-off cover if my firm merges?
Not if the other firm is a successor practice that takes on your firm’s liabilities, or where a valid election is made for the prior practice to be covered under the successor’s insurance. Otherwise, run-off applies. Take advice from your insurance broker and solicitor.
Has the Solicitors Indemnity Fund closed?
No. The SRA took direct control of SIF on 1 October 2023, and the Law Society explains that post six-year cover is currently provided at no additional cost. See the Law Society’s SIF page for the latest position.
Can run-off cover be paid in instalments?
Often, yes. Premium finance can spread the cost, usually with guarantees from the principals, and a term loan is an alternative. Funding is easier to arrange before the firm ceases. See professional indemnity finance.
What happens if the run-off premium is not paid?
The premium remains a debt that the insurer can pursue, against the principals personally in a partnership or where they have given guarantees. Plan the cost into any closure so that it does not become a problem after the firm has stopped trading.
Official sources
This guide is for general information only and should not be treated as legal, tax, accounting or financial advice. Funding availability and lender requirements depend on individual circumstances.
