A dishonesty extension in a professional indemnity policy restores cover for claims arising from the dishonest, fraudulent, criminal or malicious acts of partners, directors or employees of the insured firm. PI policies ordinarily exclude dishonesty; the extension carves cover back in but ring-fences the dishonest individual from any benefit and usually limits the firm’s recovery to losses owed to clients.
The extension is standard on solicitors’ PI policies under the SRA Minimum Terms and Conditions, where it is compulsory. It is common on accountants’, surveyors’ and architects’ policies too, but the wording varies more between insurers in those markets. For a wider view of how PI wordings are constructed, see the Ultimate UK Professional Indemnity Insurance Guide 2026.
What the dishonesty extension means in PI insurance
A core principle of professional indemnity cover is that the policy responds to professional negligence — the inadvertent error, omission or breach of duty. It does not respond to deliberate wrongdoing, because insuring deliberate wrongdoing would create a moral hazard and, in some respects, be against public policy.
The general dishonesty exclusion in a PI policy reads, in summary, that the insurer will not pay any claim arising from a dishonest, fraudulent, criminal or malicious act or omission of the insured or any person acting on its behalf.
The dishonesty extension reverses that exclusion in a defined way. It says the insurer will pay claims arising from the dishonest acts of partners, directors, members or employees, but only where the dishonest individual would not themselves benefit from the cover, and (in most wordings) only where the claim is brought by a client of the firm rather than a third party.
The economic point of the extension is to protect the firm’s clients from rogue-employee fraud — a partner running off with client money, an employee misappropriating an estate, a bookkeeper diverting funds — without allowing the wrongdoer to use the firm’s insurance to escape personal liability.
How it works in practice
The mechanics of the extension typically work like this:
The insurer pays the claim to the affected client. Once the dishonest act is established and the loss to the client quantified, the PI insurer treats the claim like any other PI claim and indemnifies the firm.
The dishonest individual is excluded from the cover. The wording explicitly states that no cover is provided for the person who committed or condoned the dishonesty. So if a single partner has misappropriated client money, that partner cannot rely on the policy; the innocent partners and the firm can.
The insurer takes subrogation rights. Having paid the client, the insurer is subrogated to the firm’s rights against the dishonest individual and will pursue recovery from them, often in parallel to any criminal proceedings.
The “imputation” question matters. PI policies generally treat the knowledge of one partner or director as imputed to the firm. The dishonesty extension carves back from that imputation: an innocent firm is not denied cover just because one partner was dishonest.
In the solicitors’ market the wording is dictated by the SRA Minimum Terms and Conditions, which require the policy to respond to client claims even where the firm itself was complicit, subject only to a final-decision exclusion where every principal of the firm participated in or condoned the dishonesty. This produces a wider extension than appears in most non-solicitor wordings.
Worked example with realistic figures
A two-partner firm of chartered accountants in Bristol with annual fee income of £600,000 carries £1m PI cover with a £2,500 excess. The policy contains a standard dishonesty extension with a £500,000 sub-limit in the aggregate.
Partner A handles the audit of a long-standing client. Over eighteen months, Partner A diverts £180,000 from the client’s account into a personal account, generating false bookkeeping entries to disguise the transfers. The fraud is uncovered when the client’s new finance director performs a forensic review.
The client sues the firm. Partner B, who knew nothing of the fraud, notifies the PI insurer.
Under the policy:
- The dishonesty extension responds. The £180,000 client loss is covered, less the £2,500 excess.
- Partner A is excluded from the cover; the policy responds for Partner B and the firm’s vicarious liability.
- The insurer pays the client £177,500 and is subrogated to the firm’s claim against Partner A for the full £180,000.
- The £500,000 aggregate sub-limit on the extension is reduced by the gross loss paid, leaving £320,000 of dishonesty cover for the remainder of the policy year.
If the firm had no dishonesty extension, the ordinary dishonesty exclusion would apply and the insurer would decline. The innocent partner and the firm would face the full £180,000 from their own resources, plus the difficulty of recovering from Partner A.
These figures are illustrative. Sub-limits, excesses and recovery rates vary by firm and insurer.
When this matters most
The dishonesty extension matters most for firms that handle client money, client property or sensitive client information. The exposure points are well established:
- Solicitors holding funds in client account or acting on estates, conveyances and trusts.
- Accountants acting as trustees, executors, or where staff have access to client bank mandates.
- Independent financial advisers handling client investment funds or having authority to instruct on client portfolios.
- Insurance brokers and credit brokers holding client premium or claim funds.
- Property managers and managing agents holding tenant deposits, service charge funds or rental income.
- Recruitment and payroll firms processing client payroll or holding bond money.
It also matters for any partnership or LLP where one partner could conceivably act dishonestly and the innocent partners need protection against being personally liable. Most professional partnerships fall into this category.
For sole traders the extension still has value because employees can commit the dishonest act; the sole-trader principal is the “innocent” insured.
Common variations and market wording
Wordings differ in important ways:
Aggregate sub-limit vs full limit. Solicitors’ policies under the SRA MTC carry the dishonesty extension at full policy limits. Accountants’, surveyors’ and architects’ policies often apply an aggregate sub-limit — frequently £250,000, £500,000 or £1m — separate from the main limit.
Defined “dishonest acts” vs broad wording. Some wordings list dishonest, fraudulent, criminal and malicious acts. Others stick to dishonest acts only, which can narrow the cover for claims involving criminal acts that are not strictly dishonest.
Discovery period. Most extensions require the dishonest act to be discovered during the policy period or shortly after. Late-discovered historic fraud can produce notification difficulties.
Innocent partner cover. The strongest wordings explicitly preserve cover for innocent partners regardless of the level of complicity at the top of the firm. Weaker wordings only respond if “no partner” knew or condoned the act.
Client-only restriction. Many wordings restrict the extension to claims by clients of the firm. Third-party claims, where the dishonest act has injured someone who is not the firm’s client, may not be covered.
Repayment of insurer. Some wordings require the firm to repay the insurer if it later recovers from the dishonest individual.
Related concepts
The dishonesty extension sits alongside the breach of contract cover, which addresses the related but separate question of cover for breaches of contractual obligations. It also interacts with the civil liability extension where the firm faces civil claims that have both negligent and dishonest elements. Firms holding client funds will also want to understand how the loss of documents extension treats records relating to client money.
Frequently asked questions
Is the dishonesty extension automatic on UK PI policies?
For solicitors regulated by the SRA, dishonesty cover is compulsory and built into every conforming policy under the Minimum Terms and Conditions. For other regulated professions, the extension is usually offered as standard on the main wording but is not universally automatic. Smaller package policies may exclude dishonesty altogether or apply a low sub-limit. Always check the schedule.
Does the extension cover dishonesty by the only principal of a sole-trader firm?
No. The extension protects innocent insured persons from the consequences of a co-principal’s or employee’s dishonesty. Where the sole principal of the firm is the dishonest party, there is no innocent insured to claim cover. In that case the client typically looks to a compensation fund (where one exists, such as the SRA Compensation Fund) or pursues the individual personally.
Does the policy cover the criminal defence costs of the dishonest individual?
No. The dishonest individual is excluded from cover. Criminal defence costs for that individual are not insured. The policy may, depending on wording, cover the legal costs of innocent partners or the firm in responding to civil proceedings arising from the dishonest act, and sometimes the costs of internal investigation.
Does the extension apply to dishonest acts by subcontractors or consultants?
Wordings differ. Some extensions apply to “any person acting on behalf of the insured”, which can pick up subcontractors and consultants. Others limit the extension to partners, directors, members and employees. Where work is regularly subcontracted, check the wording or specifically request that subcontractors be brought within the extension.
What is the difference between a dishonesty extension and crime or fidelity insurance?
A dishonesty extension on PI covers the firm’s liability to clients arising from a dishonest act. Crime or fidelity insurance is a separate first-party cover for the firm’s own losses from employee theft, computer fraud and similar. The two overlap but address different exposures. A firm that holds client money is usually advised to carry both.
Are deliberate breaches of regulation covered as dishonesty?
Generally no. The dishonesty extension covers fraud and theft, not knowing or reckless breaches of regulatory rules. A solicitor who deliberately breaches the SRA Code is engaged in misconduct, not necessarily dishonesty, and the policy response depends on whether the regulator’s investigation produces a civil claim by a client.
How does the extension interact with run-off cover?
Run-off cover continues to respond to claims notified after the firm has closed, including dishonesty claims relating to acts during the working period. The extension’s terms — including the sub-limit and discovery requirements — apply to the run-off in the same way as to the working policy. A firm closing down with an aggregate sub-limit that has already been partly used carries the reduced limit into run-off.
Can the dishonesty extension be enlarged for a higher fee?
Yes, in most markets. Higher sub-limits, broader trigger wording and inclusion of subcontractors can usually be negotiated, particularly for larger or better-risk firms. Insurers will want to see strong supervisory controls — segregation of client account, dual authorisation, regular reconciliation — before offering a wider extension.
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About Apex Insurance Brokers Ltd
Apex Insurance Brokers Ltd is a Bristol-based insurance broker authorised and regulated by the Financial Conduct Authority, firm reference number 724952. The firm is registered at Companies House under number 07014570. We can be contacted at info@apexinsurancebrokers.co.uk or on 0117 325 0027.
Last reviewed: May 2026 by Apex Insurance Brokers Ltd.
Important: this article is general information, not advice on your specific circumstances. For advice on PI insurance for your firm, contact us on 0117 325 0027 or info@apexinsurancebrokers.co.uk.