The signature on the renewal proposal is the moment a firm’s PI cover is most likely to be quietly undermined.
The Insurance Act 2015 rewrote the law of disclosure for commercial insurance and replaced the old common-law duty of utmost good faith with a statutory duty of fair presentation. Five years on, the practical reality at PI renewal is that many professional firms still treat the renewal proposal as an administrative form rather than a legal disclosure. That is a mistake, and an expensive one. Section 3 of the Act sets out what the duty actually requires, section 7 sets out the standard for what the firm should know, and section 8 with Schedule 1 sets out what the insurer can do if the duty is breached. Buyers who understand the framework are in a much stronger position when something contentious arrives.
The duty of fair presentation under section 3 of the Insurance Act 2015 requires the insured to disclose every material circumstance which it knows or ought to know, or — failing that — sufficient information to put a prudent insurer on notice that further enquiries are needed. The disclosure must be made in a manner which would be reasonably clear and accessible to a prudent insurer, and every material representation as to a matter of fact must be substantially correct. Material representations as to expectation or belief must be made in good faith.
A material circumstance is one that would influence the judgement of a prudent insurer in deciding whether to take the risk and on what terms. For a professional indemnity renewal the obvious examples are circumstances likely to give rise to a claim, regulatory investigations or interventions, criminal proceedings against principals, major changes to the firm’s risk profile such as a new service line, a new sector, a single client exceeding a threshold percentage of fees, or material changes to risk management procedures. Less obvious examples include lateral hires from troubled firms, the loss of a quality accreditation, or the firm taking on work on a no-win-no-fee basis where previously it had not.
Section 7 sets the knowledge standard. The insured is treated as knowing what is known to its senior management and to those responsible for arranging the insurance. The insured ought to know what it should reasonably have discovered through a reasonable search of information available within the organisation. For a partnership or LLP, that means asking partners and senior staff before signing the proposal. For a corporate, it means a structured pre-renewal enquiry covering at least the practice areas, the file review process, complaints log, and any current or threatened litigation. A casual ask-around in the partners’ meeting is not a reasonable search.
The practical machinery is the renewal proposal form. Most insurers issue an annual proposal asking specific questions on turnover, fee split by sector, claims history, circumstances, and any changes since the previous renewal. The form is usually signed by a principal of the firm. Where the broker has prepared a market submission summarising the firm’s risk, the submission itself forms part of the presentation and the broker’s accuracy in describing the risk matters. A misdescription in the broker’s submission is the firm’s responsibility if it has signed off on the document.
If the firm breaches the duty of fair presentation, section 8 of and Schedule 1 to the Insurance Act 2015 set out a sliding scale of remedies. Where the breach is deliberate or reckless, the insurer can avoid the contract from inception, refuse all claims, and keep the premium. Where the breach is neither deliberate nor reckless, the remedy depends on what the insurer would have done with a fair presentation. If the insurer would not have written the risk at all, it can avoid the policy and return the premium. If the insurer would have written the risk on different terms, the policy is treated as containing those different terms. If the insurer would have charged a higher premium, claims are paid on a proportional basis — the actual claim multiplied by the ratio of premium actually charged to premium that would have been charged.
The proportional remedy is the one that matters most often in practice. A firm that under-disclosed a single circumstance is unlikely to face avoidance for that omission. It is much more likely to face a reduction in claims payments at the moment it most needs the full limit. A claim of £600,000 paid at 70% because the insurer would have charged 30% more premium with full disclosure is a £180,000 problem for the firm.
The Act allows the parties to contract out of these provisions under section 16, but any contracting-out term that puts the insured in a worse position than the Act must be drawn to the insured’s attention in clear and unambiguous terms before the contract is concluded. PI policies aimed at the SME market generally do not contract out. Wholesale and excess layer wordings sometimes do, and a contracting-out clause that has not been properly highlighted is unlikely to bind the insured under section 17.
Section 11 of the Act adds a separate protection. Where a policy term — including a condition on disclosure — is not relevant to the actual loss, the insurer cannot rely on a breach of that term to refuse the claim, provided the insured can show that the breach could not have increased the risk of the loss that actually occurred. The provision is more often relevant to claims notification and risk management warranties than to renewal disclosure, but it is worth raising whenever the insurer’s declinature feels mechanical.
A mid-sized accountancy practice renews its PI cover with a new insurer at 1 July 2025. The renewal proposal asks whether the firm is aware of any circumstance likely to give rise to a claim. A senior partner is aware of an HMRC enquiry into a tax planning structure the firm advised on three years earlier but, because no formal claim has been received from the client, does not include it. The proposal is signed in good faith on the basis that no claim has arrived.
In November 2025 the HMRC enquiry produces a settlement and the client serves a letter of claim alleging £1.8m of losses. The firm notifies the claim to its new insurer. The insurer investigates, finds the partner’s awareness of the HMRC enquiry, and asserts a breach of the duty of fair presentation.
The insurer agrees the breach was not deliberate or reckless. Its underwriting file shows that with full disclosure it would still have written the risk but at a premium 40% higher. Under Schedule 1, the claim is paid proportionally: £1.8m at the ratio of premium paid to premium that would have been paid produces a payment of approximately £1.29m. The firm self-funds the £510,000 shortfall plus the additional excess. A proper disclosure of the HMRC enquiry at renewal would have produced a more expensive policy but no shortfall on the eventual claim.
Run the reasonable search early. Circulate the renewal proposal to every partner and to the heads of each practice area at least four weeks before renewal, with a clear instruction to identify any circumstance that might be material.
Treat circumstances broadly. The test is what would influence a prudent insurer, not what the firm thinks should influence one. When in doubt, disclose.
Review the broker’s submission line by line before it goes to the market. If the broker has summarised the firm’s risk management in language the firm cannot stand behind, change the wording before it is sent.
Document the search. Keep a short note of who was asked, what was reviewed, and what was disclosed. The note is your evidence under section 7 if a dispute emerges later.
Re-check the position immediately before inception. The continuing duty under section 5 means that anything emerging between submission and inception must also go to the insurer. A short email to the broker confirming “no further matters since submission” is sufficient and worth doing.
Apex’s view: the proportional remedy under Schedule 1 is the quiet killer in PI claims, and insureds rarely see it coming because there is no avoidance and no formal coverage decision until the claim is paid down. We see far more reductions on otherwise valid claims than outright declinatures. The defence is process: a documented reasonable search before each renewal, a sign-off by more than one principal, and a written record of what was disclosed. None of that is expensive, and all of it tends to be missing when an insurer applies a proportional reduction. If your broker is not driving that process, drive it yourself.
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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