Claims-made policies: notifying circumstances, retroactive dates and run-off cover

A claims-made policy responds to claims first made against you and notified to the insurer during the policy period, for work or events after the retroactive date. Professional indemnity, management liability and cyber policies are usually claims-made. The key protection is section 40(3) of the Insurance Contracts Act 1984: if you notify the insurer in writing of facts that might give rise to a claim as soon as reasonably practicable after becoming aware of them and before the policy expires, the insurer cannot refuse a later claim merely because it was made after the policy ended. So when something goes wrong, notify the circumstances before renewal, keep your retroactive date when switching insurers, and buy run-off cover when you stop trading.

This guide is part of the liability claim mistakes overview. Examples are illustrative. Notification problems often overlap with non-disclosure on the new proposal, and disputes can go to AFCA.

Claims-made versus occurrence

	Occurrence (most public liability)	Claims-made (most PI, management liability, cyber)
Which policy responds	The one in force when the injury or damage occurred	The one in force when the claim is first made and notified
Retroactive date	Not usually relevant	Work or events before it are not covered
What happens after cancellation	Past occurrences remain covered by the old policy	No cover for later claims unless circumstances were notified or run-off is bought
Key action	Report incidents promptly	Notify circumstances before the policy expires

For a fuller comparison of the cover types, see public liability versus professional indemnity.

What counts as a "circumstance"

A circumstance is a fact or situation that might give rise to a claim, even if no one has demanded anything yet. Examples:

a client complains that your design or advice has caused a problem;
you discover an error in your own work that a client has not noticed;
a project runs badly over time or budget and the client blames you;
a former employee threatens an unfair dismissal or discrimination claim (management liability);
you detect suspicious access to your systems (cyber).

Policies define what notice must contain, typically: what happened, when, who is involved, why a claim might follow and the possible amount. A vague "we might get claims one day" is unlikely to be enough.

Worked example: notifying before renewal

An illustrative IT consultancy's PI policy runs from 1 July to 30 June.

May 2026: a client says a data migration has corrupted records and it is "looking into its options". No demand is made.
Option A: the consultancy writes to its insurer in May describing the complaint, the project and the potential loss. In September 2026 the client sues for $280,000. Under section 40(3), the 2025–26 policy responds, even though the claim arrived after that policy ended.
Option B: the consultancy says nothing and renews with a new insurer from 1 July. The new proposal asks whether it is aware of any circumstances that might lead to a claim, and it answers "no". In September the claim arrives. The old insurer was never notified; the new insurer may rely on its prior known circumstances exclusion and the non-disclosure. The consultancy could be left without cover.

Retroactive dates and switching insurers

The retroactive date is the earliest date of work or events covered. When you switch PI insurers:

ask the new insurer to match your existing retroactive date (often called continuous cover);
disclose all known circumstances on the new proposal, because the new policy will usually exclude them;
notify those circumstances to your old insurer before the old policy ends.

If the new insurer will only offer a retroactive date from its start date, all your earlier work becomes uninsured for claims made in future.

Run-off cover when you stop

If you retire, sell the business, close a company or move to employment, claims about past work can still be made. Limitation periods for many contract and negligence claims are six years in most states from when the cause of action accrues, and longer or later-running periods can apply for latent damage and personal injury, so exposure can last years.

Options:

Option	How it works	Watch out for
Run-off policy	A claims-made policy for past work, renewed or prepaid for several years	Cost, and whether it can be renewed
Buyer's policy	A business buyer's PI covers work by the business before the sale	Only if negotiated and the buyer's retro date covers it
Professional association requirement	Some professions require run-off for a set number of years	Check your professional or licensing body

Illustrative cost thinking: if your annual PI premium was $3,200, insurers often price run-off for later years at a fraction of that because no new work is being done, but the first-year run-off may cost close to a normal premium. Get quotes before you stop trading.

Section 54 and late notification

Section 54 can protect against some late notifications, by limiting the insurer to reducing the claim for the prejudice caused rather than refusing it. How it applies to claims-made policies has been tested in the courts many times and the answer depends on the facts. Do not treat it as a substitute for notifying circumstances on time.

A notification checklist

Write to the insurer or broker, not just a phone call.
Describe the facts, dates, people and potential loss.
Send it before the policy expires, and as soon as reasonably practicable.
Keep a copy and the acknowledgement.
Disclose the circumstance on any new proposal.
Do not admit liability to the client.

Frequently asked questions

Will notifying a circumstance raise my premium?

It might. But not notifying risks the claim not being covered at all, which is a far larger cost.

What if I only find out about the problem after the policy ends?

If no notification was made during the period, the old policy usually will not respond. Your current policy may respond if the circumstance was not known when you took it out and your retroactive date covers the work.

Are cyber policies claims-made?

Many cyber liability sections are claims-made, and first-party sections such as response costs may be triggered by discovery of an incident. Check each section.

Is public liability ever claims-made?

Occasionally, for particular risks or markets, but most Australian public liability policies are occurrence-based. Check the schedule.

Sources

Federal Register of Legislation — Insurance Contracts Act 1984, sections 40 and 54
Professional Standards Councils — scheme insurance requirements for professions
AFCA — complaints about professional indemnity claims by small businesses
ASIC — claims handling obligations