A claimant’s well-timed Part 36 offer can swing the economics of a professional negligence claim by hundreds of thousands of pounds before a single witness gives evidence.
Civil Procedure Rules Part 36 sits in the background of every defended PI claim and front of mind for every panel solicitor. Its cost-shifting mechanism rewards the party that pitched their offer correctly and punishes the party that pushed too hard. For a professional firm under a costs-inclusive PI limit, a poorly handled Part 36 sequence is not merely procedurally embarrassing — it eats the indemnity cover from the inside. This guide explains how Part 36 actually operates in PI claims, who decides whether to make or accept an offer, and how defence costs erosion changes the calculus.
Part 36 is a costs-shifting regime. Either party — claimant or defendant — can make a formal offer to settle in a specified form. If the offer is not accepted and the case proceeds to judgment, the offer’s economic consequences depend on whether the judgment is at least as advantageous as the offer.
If a claimant’s Part 36 offer is not beaten by the defendant at trial — that is, the claimant achieves a judgment at least as good as the offer — the claimant is entitled, in normal circumstances, to interest on the damages at an enhanced rate from the expiry of the offer’s relevant period, indemnity-basis costs from that date, interest on those costs at an enhanced rate, and an additional sum (a percentage uplift on damages, subject to a statutory cap). The effect is to make the trial considerably more expensive for the defendant than the underlying liability alone would suggest.
If a defendant’s Part 36 offer is not beaten by the claimant at trial — that is, the claimant fails to obtain a judgment better than the offer — the claimant pays the defendant’s costs from the expiry of the relevant period, in addition to bearing their own costs from that date. In a PI context where the claimant is often a former client and not a serial litigant, this is a serious deterrent to running a marginal case to trial.
In professional indemnity, three features make Part 36 particularly sharp. First, claims are typically defended with the insurer in control of the wallet but the insured carrying reputational exposure — their incentives on settlement can diverge from the insurer’s. Second, the costs-inclusive nature of most primary PI limits means that costs uplifts under Part 36 erode the indemnity cover available to settle. Third, the early-evidence-light, late-evidence-heavy structure of professional negligence claims means that the right Part 36 offer often cannot be calibrated until expert evidence is exchanged — long after the most attractive procedural window has closed.
The policy mechanics that govern Part 36 in PI are the consent to settle clause, the costs treatment of the limit, and the defence costs erosion provisions.
Under most regulated wordings, the insurer controls the defence and therefore controls Part 36 strategy on the defendant side. The insurer’s panel solicitor is the offeror of record. The insured’s role is to be consulted, but consent to settle clauses determine the limits of that role. Where the insured wishes to make or accept a Part 36 offer that the insurer opposes — or vice versa — the QC clause becomes the resolution mechanism, as it does for any settlement disagreement.
On a costs-inclusive limit (the SRA Minimum Terms default for primary cover) every pound of claimant costs paid under a Part 36 cost shift is a pound off the available indemnity. A successful claimant Part 36 offer, with indemnity-basis costs and a 10% damages uplift, can take a GBP 1,000,000 claim and turn it into a GBP 1,400,000 outflow against a GBP 2,000,000 limit. Where the firm faces multiple claims in the same period, this erosion matters across the whole book of business, not just the one file.
On a costs-in-addition limit, the picture changes. Defence costs and claimant costs sit outside the indemnity. The insurer’s calculus shifts towards a more robust defence because the legal bill does not eat the cover.
The Solicitors Regulation Authority Minimum Terms and Conditions of Professional Indemnity Insurance, at clause 5.2, prevent qualifying insurers from blocking settlement at the MTC primary limit on terms otherwise acceptable to the insured. This includes acceptance of a claimant’s Part 36 offer. RICS and other regulated wordings vary; the insurer’s veto can be broader.
Two further provisions affect the analysis. The Civil Procedure Rules, Part 44, govern the court’s general discretion as to costs and interact with Part 36 to determine the order ultimately made. The Insurance Act 2015, sections 13 and 13A, impose an implied term that insurers handle claims and make payments within a reasonable time. An insurer that drags its feet on a clear Part 36 acceptance exposes itself to a separate claim for damages.
Consider an engineering consultancy with a GBP 5,000,000 limit on a costs-inclusive basis and a GBP 50,000 deductible. A claim is brought for GBP 1,500,000 alleging negligent design of a foundation system. After exchange of expert evidence, the panel solicitor estimates that the trial outcome is most likely a finding of around GBP 700,000 in damages with the claimant likely to beat any defendant offer of GBP 500,000 or less.
The claimant makes a Part 36 offer of GBP 750,000. The insurer and the consultancy disagree on response. The consultancy considers that GBP 750,000 understates the case and wishes to make a counter-offer at GBP 450,000. The insurer wishes to accept GBP 750,000.
Independent senior counsel advises that the prospects of beating the claimant’s GBP 750,000 offer at trial are around 35%. The QC clause does not support a contest. The insurer accepts GBP 750,000. Defence costs to that point are GBP 220,000. Total outflow: GBP 970,000 against the GBP 5,000,000 limit.
Had the parties run to trial, with the claimant achieving the predicted GBP 700,000 judgment but with the Part 36 offer beaten, the costs picture changes. The claimant gets indemnity-basis costs from the offer date — projected at GBP 380,000 — plus enhanced interest, plus a 10% uplift on damages of GBP 70,000. Add defence costs of GBP 320,000. Total: roughly GBP 1,470,000 against the GBP 5,000,000 limit. The Part 36 acceptance saved GBP 500,000 of cover.
Part 36 exposure is shaped by underlying policy structure. At renewal:
Apex’s view: Part 36 is the single area where defence economics most often surprise the insured. Firms expect the indemnity number to be the headline cost and discover, late in the case, that the costs uplift is the bigger figure. We push every PI buyer to understand the costs treatment of their primary layer before they bind, and to engage early and seriously with claimant Part 36 offers when they land. The reflex to reject is often the most expensive instinct in a PI claim.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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