What is the Statute of Limitations?
The purpose of the Statute is to establish a time limit for the period during which a party can initiate a legal action after responsibilities under a contract have been discharged.
In the UK, the requirements are contained in the Limitation Act 1980. The Act also prescribes the notice period required to be provided by a claimant to a defendant of the intention to make a claim.
The information provided on this page relates to the United Kingdom, but can usefully be used as an indication of the likely spirit of the law in other countries.
In which jurisdiction does the Statute of Limitations apply?
The Limitation Act 1980 applies in the United Kingdom. There is equivalent legislation in operation in most industrialized countries. You should gain a basic understanding of the legislation that applies in the jurisdiction in which you intend to operate your consulting practice.
What are the implications of the Statute of Limitations for Contractors?
Working as a contractor you simply need to be aware that your exposure to claims for negligence extends for a number of years beyond the point at which you cease trading.
However, this time period is not open-ended and is clearly defined in law - in the UK the position is set out in the Limitation Act 1980.
What are the basic rules and time periods?
The period of limitation is six years for standard contracts but can be twelve years for contracts that were created by Deed.
How does the Statute of Limitations relate to Professional Indemnity Insurance?
For an independent consultant facing a claim of negligence there are two critical dates to consider:
- The date of the event or consulting work that resulted in the claim
- The date that the claim was notified
If the claim is notified after the limitation period has expired, then the claim will not be valid and is referred to as 'statute-barred'.
Duration of Professional Indemnity Insurance cover
Given that a claim could arise at any point during a period of years after a consultant or contractor has ceased practicing it is important that professional indemnity insurance cover remains in place up to the date on which the limitation period expires.
Where can I get advice?
Interpretation of the Limitation Act 1980 is relatively complex. You should seek advice from an appropriately qualified legal or insurance specialist on the interpretation of the law and its application to your own consulting practice.
Your Professional Liability Insurance Broker or Professional Liability Insurance Company will be able to provide guidance in the first instance.
Should I be concerned?
Not overly. As long as you understand the basics and take appropriate advice it is likely that the professional indemnity insurance cover that you purchase will be fit-for-purpose and that the requirement for an appropriate period of Run-off will be flagged to you when you notify your insurer that you intend to cease trading.
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