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Professional indemnity explained
"Commercially reasonable rates" is a contract qualifier that limits your duty to maintain PI insurance to cover the market offers at reasonable cost. It matters because it decides whether a reduction in cover is a breach.
Part of: Professional indemnity insurance
In short
"Available at commercially reasonable rates" is a qualifier often attached to clauses requiring you to maintain professional indemnity insurance for years after a project. It means you need only keep the required cover while the market offers it at a price and on terms a reasonable business would accept. It is usually judged objectively, not by what you would like to pay. Most such clauses still require you to notify the client promptly if cover becomes unavailable. The qualifier is widely relied on where insurers have moved fire safety and cladding cover to aggregate limits or excluded it.
"Commercially reasonable rates" is a qualifier added to a contractual promise to maintain professional indemnity (PI) insurance. A typical clause says you will keep PI at a stated limit for a stated period "provided that such insurance is available at commercially reasonable rates". The qualifier turns an absolute promise into a conditional one. If the market stops offering the required cover at a price, or on terms, that a reasonable business in your position would pay, you are not in breach simply because you did not buy it.
It does not let you drop cover because you would rather save money. The test is usually treated as objective: what the market charges businesses like yours for that cover, not what you would like to pay. Most clauses that use the phrase also require you to tell the client promptly if cover stops being available, so they can decide how to protect themselves.
The qualifier is common in construction professional appointments and in the collateral warranties that sit alongside them, and it appears in many bespoke consultancy agreements too. It is usually attached to the clause requiring PI for 6 or 12 years after completion, covered in our guide to PI to be maintained for 6 or 12 years.
Exact wording varies between standard forms, editions and amended versions, and clients' lawyers often amend it. Do not assume the wording in your contract matches a form you have seen before. Read the actual clause, including any definitions of "commercially reasonable", any notice requirement, and whether the qualifier applies to the whole PI obligation or only part of it. Our pages on collateral warranties and PI and JCT and NEC appointment PI requirements show where the clause usually sits.
| Clause feature | What to look for | Why it matters |
|---|---|---|
| Qualifier present? | "available at commercially reasonable rates" or similar | Without it, failing to maintain cover is a breach in itself |
| Scope | Whole PI duty, or limit only, or period only | A partial qualifier leaves part of the promise absolute |
| Notice | "forthwith", "promptly" or a fixed number of days | Missing the notice step can be a breach even if the qualifier applies |
| Carve-outs | Aggregate or reduced cover allowed for named risks | Often used for fire safety, cladding, asbestos and pollution |
| Who decides | Silent, joint, or expert determination | Silence leaves disputes to negotiation or the courts |
Many clauses are silent on who decides. In practice, the professional raises the issue, usually backed by evidence from their broker that the cover is unavailable or only available at an abnormal price. The client then accepts the position, asks for more evidence, or disputes it. Some bespoke contracts give the decision to the client or to an expert. If the clause is silent and the parties disagree, the question would ultimately be one of fact for a court or adjudicator, looking at market conditions at the time.
Price alone is not always the answer. Rates commonly differ by profession, claims history and work mix. A premium that has doubled may still be "commercially reasonable" if the whole market moved, while cover that is simply not offered for a type of work is a clearer case. Good evidence is what wins the argument: market approaches, declinatures and written quotes collected by your broker.
The biggest real use of the qualifier in recent years has been fire safety and cladding. After the Grenfell Tower fire, many PI insurers restricted cover for external wall and fire safety work, moving it to an aggregate limit, sub-limiting it, or excluding it. A professional who promised "£10m each and every claim" for 12 years may find that later policies only give fire safety cover on an aggregate basis, or not at all. See cladding and fire safety exclusions in PI and PI availability for fire safety and EWS1 work.
Regulators have adapted too. The RICS professional indemnity insurance requirements effective 1 July 2025 allow fire safety cover to be written on an aggregate basis, and allow defence costs for that cover to sit within the limit. Many contracts now spell out a similar carve-out so the professional is not in breach when the market only offers aggregate cover for those risks.
If cover changes in a way that falls short of the contract, put it in writing promptly. A good notice letter is short and factual. It identifies the contract, states the PI term that can no longer be met, explains what cover is now held (limit, basis, any new exclusion or aggregate sub-limit), and says that the required cover is not available at commercially reasonable rates, with the broker's evidence attached or available on request. It should also offer to discuss how the client might protect itself, for example through its own insurance.
Send it to the person and address named in the contract's notices clause, which may not be your day to day contact. Keep a copy with your renewal file. Repeat the exercise at each renewal while the shortfall continues, because the market may change in either direction.
An architect's appointment requires £5m each and every claim with a commercially reasonable rates qualifier. At renewal, no insurer approached will offer fire safety cover above £2m aggregate. The architect's broker documents the market approaches, and the architect writes to each affected client explaining the change. The architect is likely to have complied, subject to the exact wording.
A small engineer's premium rises sharply after a claim, but the full cover is still offered. Dropping to a lower limit to save money is unlikely to be protected by the qualifier, because the cover was available on terms the market was offering to firms with a similar record.
Before each renewal, ask your broker for a written summary of any terms that fall short of your contracts, and evidence of what the market offered. Then notify affected clients in good time.
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It means you must keep the required PI cover only so long as the market offers it at a price and on terms a reasonable business in your position would accept. It is usually judged objectively against the market, not against what you want to pay, and is commonly paired with a duty to notify the client if cover becomes unavailable.
Many contracts do not say. In practice the professional raises it with evidence from their broker, and the client accepts or challenges it. Some contracts give the decision to the client or an expert. If there is a dispute, a court or adjudicator would usually look at market conditions at the time.
Usually yes. Most clauses with the commercially reasonable rates qualifier also require prompt notice to the client. Even where the contract is silent, telling the client in writing is sensible, because it lets them decide how to protect themselves and reduces the risk of a dispute later.
Not automatically. An aggregate limit is a different basis from each and every claim. Unless the contract carves out fire safety or the qualifier applies because each and every claim cover is unavailable, you may fall short. Check the wording with your broker and notify the client if your cover differs.
Only by agreement with the client, usually through a formal variation. That is much harder than asking for the qualifier while the contract is being drafted, when it is a common and widely understood request. If you are already bound by absolute wording, speak to your broker well before renewal about how to keep meeting it.
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