Two regional architectural practices agree heads of terms for a merger. The smaller practice — three partners, around £600,000 in fee income — will fold into the larger, becoming a regional office of the combined entity. The legal work is straightforward. The integration of the practices' Professional Indemnity Insurance is not, and it is one of the areas where transactions of this shape most often run into trouble after completion.
PI cover is claims-made, the merger reshapes who carries the liability for past work, and the wording detail in the merger documents determines whether everyone is properly protected once the combined practice is trading. This article explains the moving parts. It is written for principals on either side of a practice merger, sale, MBO or de-merger, and for the legal and broking advisers supporting them.
For the broader picture of architects' PI, the Architects PI Insurance UK Guide 2026 is the pillar; for the ARB minimum requirements that frame the cover, see the ARB minimum terms article.
Why claims-made cover complicates a transaction
The single fact that drives this whole topic is that architects' PI is written on a claims-made basis. The policy in force when the claim is notified pays — not the policy in force when the work was done. That has been the standard since the early 1980s for almost every professional indemnity class.
In ordinary practice this presents no difficulty: the architect renews the policy each year, the retroactive date covers all past work, and any claim notified in any future year is picked up by the policy then in force.
A merger or sale changes the architecture of who holds the policy. If the selling or absorbed practice winds up its entity and its policy lapses on completion, the question becomes: which policy responds to a claim notified next year against work done by that practice five years ago? If the answer is "no one's", the seller's principals are personally exposed, and the buyer who relied on the seller having effective historic cover has a problem too.
The transaction documents have to deal with this expressly. They almost always do; the form they take varies.
The four main structures
There are four common ways UK architectural practices handle PI continuity through a transaction, with progressively different cost and risk profiles.
Run-off cover on the selling practice's policy. The seller takes out run-off cover for the agreed period (six years recommended, twelve years where deeds are in play) on its existing policy, and the buyer takes none of the seller's historic PI obligation. This is the cleanest from the buyer's perspective and the most expensive for the seller. The seller pays a single run-off premium up-front, normally calculated as a multiple of the last working policy premium across the run-off period. The cover continues to respond to claims notified during the run-off period in respect of work done before completion.
Buyer absorbs the seller into its own policy with retroactive extension. The buyer's PI policy is extended to provide retroactive cover for the seller's past work. The buyer's insurer underwrites the additional historic exposure and prices for it. The seller does not need to take out run-off (because the buyer's policy is now picking up the historic work) but typically gives warranties to the buyer about the state of the disclosed claims history. This is common where the practices' insurers can be aligned and where the buyer is a substantially larger entity that can absorb the additional risk.
Successor practice continues the seller's policy. Where the merger structure preserves legal continuity — for example a partnership absorbed into an LLP or company that is treated for PI purposes as the same practice — the policy can continue uninterrupted, with the new entity formally substituted as the insured. This is administratively simpler but only works for certain transaction structures.
Combination of seller run-off plus buyer prospective cover. The seller takes a shorter run-off period (often three or six years) and the buyer takes on the residual risk through its own policy, with the cost split between the parties as part of the deal economics. This is sometimes used where the seller has limited cash to fund full run-off and the buyer can absorb some of the historical exposure efficiently.
What the merger or sale agreement should address
A well-drafted merger or sale document treats PI specifically. From a broker's perspective the elements that materially matter are:
A clear statement of which party carries what historic PI obligation, and the structure (run-off, retroactive extension, etc.).
A timetable: when is the seller's run-off cover bound, when does the new entity's policy take effect, is there any gap. PI cover gaps of even a single day are a problem because a claim notified in the gap day has no policy to respond to.
Warranties from the seller to the buyer about: the state of the seller's claims and notifications history, any matters known to the seller that could become claims, compliance with the seller's PI policy conditions, no material non-disclosures to the existing insurer.
Indemnities, typically capped, from one party to the other for breach of the warranties.
Treatment of the seller's pre-completion deductible: which party bears the excess on a pre-completion claim notified post-completion.
The procurement of run-off cover — who places it, who selects the insurer, who pays the premium. In most cases the seller places run-off through their incumbent broker; the buyer may want approval rights over the insurer and the level of cover.
Reciprocal obligations to notify the other party of any matter coming to the notifying party's knowledge after completion that could become a claim against the former practice.
Consequences if the seller's run-off cover lapses for non-payment or other reason during the run-off period — usually a buyer step-in right to fund continued cover and recover from the seller.
This list is not exhaustive but covers the points that most often surface as friction in transactions where one or other side did not address PI properly in the documentation.
Specific complications
A few patterns recur. They are worth flagging because they regularly catch advisers off guard.
Different retroactive dates. Where seller and buyer have been insured by different insurers with different retroactive dates, the merger of policies can leave a coverage gap on a particular slice of past work. Specifying full retroactive cover on the combined policy is the cleanest fix; it requires the combined-policy underwriter to accept the historical exposure.
Sole-practitioner sale to a larger practice. Often the cleanest structurally, because the sole practitioner's policy can be lapsed with run-off and the larger practice carries on with its own policy. Run-off premium for a small practice is usually modest; the awkward part is funding it if the sale consideration is staged rather than up-front.
Practice continuation via key-partner buy-out. Where one or more partners buy out a retiring partner, the practice continues but the retiring partner has personal exposure on work done during their time. Whether the practice's continuing policy covers a former partner depends on the policy wording — most policies do (the cover is for the practice and named individuals, including former individuals for work done while at the practice) but some do not. The buy-out agreement should clarify.
Three-way merger or larger consolidations. Each predecessor practice's historic work needs to be identified and a policy arrangement made to cover it. Often the simplest approach is to lapse all predecessor policies with run-off (each separately funded) and write a single forward-looking policy for the new combined entity.
Cross-border practices. Practices that have worked on EU or other international projects may have specific cover for that work; the merger arrangements need to preserve it. Likewise practices that have worked under specific framework agreements (NHS, MoD, local authority) where the framework requires particular insurance terms.
Failed transactions. If a merger or sale collapses mid-process and one party has already adjusted PI cover in anticipation, restoring the previous arrangements is sometimes possible but not always; insurers may require fresh underwriting. Avoid making PI changes that can't be unwound until the deal is materially certain.
How long the PI tail actually is
The legal limitation periods for claims against architects in the UK are six years for ordinary contracts, twelve years for deeds, with additional latent-damage provisions under the Latent Damage Act 1986 that can extend the period further where damage is not reasonably discoverable.
In practical terms this means that claims relating to work done up to twelve years before notification are entirely plausible, claims relating to work done fifteen to twenty years before notification are possible under latent-damage provisions, and architects involved in mergers and sales should structure run-off to cover the realistic worst-case tail of their longest deed appointments.
A retiring sole practitioner whose longest open deed is on a project completed in 2018 should be carrying run-off cover that extends to at least 2030 (twelve years from 2018) on that specific project's exposure. Across the practice as a whole, six years of run-off is the ARB-recommended minimum and the practical floor, but architects with significant deed-based historic work should consider longer.
How the conversation typically runs at Apex
When a merging or selling architectural practice comes to us, the early conversation is about establishing the seller's policy details — incumbent insurer, current limit, current retroactive date, claims and notifications history — and the buyer's policy details on the other side. From that we can assess whether the cleanest arrangement is run-off, retroactive extension, or policy continuation, and we can present that view to the practice's solicitors who are drafting the merger documents.
The placement work then runs alongside the transaction work — run-off quotes from the seller's insurer (and possibly competing quotes), retroactive extension quotes from the buyer's insurer, sequencing of cover so there is no day's gap at completion. The cost discussion is part of the deal negotiation; we provide the figures, the parties allocate them.
We are PI brokers, not transaction lawyers; the legal drafting of the merger or sale agreement is for the practice's solicitors. What we provide is the insurance side of the conversation in a form the lawyers can drop straight into the documents.
For the Architects PI Insurance UK Guide 2026 or the ARB minimum terms article, the links are above. To talk about a transaction in flight, the architects sector page or contact page is the starting point.