Breach of contract cover: what PI insurance does and does not pick up
What a PI policy is actually insuring
A professional indemnity policy responds to civil liability arising from the professional services described in the schedule. Broader wordings say exactly that — civil liability, however arising — while narrower ones are limited to negligence, or to negligent act, error or omission. The distinction matters, because a claim can be framed in contract, in tort, or under statute, and a negligence-only wording gives an insurer more room to argue about how the claim is pleaded. Where you have a choice, a civil liability basis is generally the more robust starting point.
Whichever basis applies, insurers are pricing a professional’s duty to exercise the reasonable skill and care of a competent practitioner in that field. They are not pricing a promise that the outcome will be perfect, that a design will be fit for a stated purpose regardless of the state of knowledge at the time, or that a project will complete on a particular date.
Why liability assumed under contract is commonly excluded
It is common market practice for UK PI wordings to exclude liability assumed under contract, or under any guarantee, warranty or penalty clause, to the extent that the liability would not have existed in the absence of that agreement. Wordings vary and you should read your own; the label ranges from “contractual liability” to “assumed liability” to a stand-alone “warranties and guarantees” exclusion.
The underwriting logic is straightforward. Insurance is priced against a duty the insurer can assess — competent professional performance. If a firm can enlarge its own liability by signing a document, the insurer has underwritten an unknown. So the exclusion is really a boundary marker: the policy follows the general law, and a firm that contracts beyond the general law does so on its own balance sheet.
The write-back, and what it preserves
Most contractual liability exclusions are not absolute. They are commonly drafted with a write-back: cover is preserved to the extent that liability would have attached in any event, independently of the contractual term. In practice that means a claim pleaded as breach of an appointment is usually still insured, provided the substance of the allegation is a failure of skill and care. What falls outside is the increment — the extra exposure the firm created by promising more than the law required.
Reading the write-back carefully is worth the time. Some are wide and effectively restore everything except pure guarantees; some are narrower, and some sit alongside a separate exclusion for liquidated damages or agreed penalties that no write-back touches.
The promises that most often fall outside
Four recur across appointments, framework agreements and procurement templates:
Fitness for purpose. An obligation that a design, system or deliverable will be fit for a specified purpose is a strict obligation. It does not depend on fault, so it sits outside a skill-and-care wording almost by definition. This is the single most common uninsured promise in construction and engineering appointments, and it appears in technology and consultancy contracts too.
Guarantees and warranties of outcome. Any promise that something will work, will achieve a stated performance figure, or will comply with a specification without qualification carries the same problem.
Liquidated damages and penalty clauses. Agreed sums payable on delay or non-performance are contractual creations, not damages for negligence, and are frequently excluded expressly.
Indemnities and hold-harmless clauses. An indemnity can require a firm to reimburse a client for losses on a basis wider than the law of damages allows — without proof of breach, without remoteness limits, sometimes covering the client’s own contributory fault. That surplus is generally uninsured.
How liability caps interact with cover
A cap in your client contract does not extend your policy, and your policy does not enforce your cap. They are separate instruments that need to be read together.
Two failure modes are common. The first is a cap set above the policy limit — or no cap at all — which leaves the firm personally exposed for everything above the limit of indemnity. The second is subtler: a cap expressed as “the amount recoverable under the consultant’s professional indemnity insurance”. That sounds protective, but it invites the client to argue about what the policy would have paid, and it can leave the firm carrying the gap if cover is declined for a reason unrelated to the client, such as late notification. A cap fixed as a stated sum, tested against the limit actually purchased, is generally the cleaner arrangement. Our framework for sizing a PI limit works through how contractual minimums feed that decision.
Net contribution and the sharing of blame
A net contribution clause limits a consultant’s liability to the share of the loss that is fairly attributable to that consultant, rather than leaving them jointly and severally liable for the whole. It reduces contractual exposure rather than extending insurance, but it is one of the few contract terms that reliably shrinks the number an insurer might otherwise have to pay. Clients often resist it. Whether it survives negotiation, and in what form, is one of the terms worth escalating rather than conceding quietly.
What to do before you sign
Treat contract review as an insurance task, not only a legal one. Search the draft for “fit for purpose”, “warrant”, “guarantee”, “indemnify” and “liquidated”. Check the required limit and whether it is each and every claim or in the aggregate — a distinction covered in our note on how the limit basis works. Check how long cover must be maintained after completion, because that is a run-off commitment. Where a term cannot be removed, at least price it: the firm is then carrying that risk knowingly rather than discovering it during a claim.
Frequently asked questions
Does professional indemnity insurance cover breach of contract?
Usually yes, where the substance of the breach is a failure to exercise reasonable skill and care — that is what the write-back to the contractual liability exclusion typically preserves. What commonly falls outside is liability that exists only because the contract created it: fitness-for-purpose obligations, guarantees of outcome, liquidated damages and wide indemnities. Wordings differ, so the exclusion and its write-back need reading together.
Why do PI policies exclude liability assumed under contract?
Because insurers underwrite a professional’s duty of reasonable skill and care, which they can assess and price. A firm that signs a strict obligation can enlarge its own liability without the insurer knowing. The exclusion keeps the policy aligned with the liability the general law would impose, and the write-back preserves cover for the part that would have existed anyway.
Is a fitness-for-purpose obligation ever insurable?
Rarely on a standard PI wording, because it imposes liability without fault. Some insurers will consider limited amendments for specific contracts, but that is an underwriting conversation to have before signature, not a default. The usual answer is to negotiate the obligation down to reasonable skill and care.
Should our contract cap match our PI limit?
They should be set with each other in mind. A cap above the limit leaves the firm exposed for the excess; a cap defined by reference to whatever the insurance actually pays can leave the firm carrying the shortfall if cover is disputed. A stated monetary cap, checked against the limit purchased and the aggregation position, is generally the more predictable arrangement.
This page is general insurance information about how UK professional indemnity policies are commonly structured. It is not legal advice, and it is not a statement of what any particular policy covers. If a claim, a circumstance or a contract term is in issue, read your own wording and take advice on your own facts.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.