A Bristol consultancy receives a £1.5m letter of claim from a former client. The partners are confident: they hold £2m of professional indemnity cover, the policy has been renewed continuously for nine years, and the matter falls squarely within the insured activities. Their broker notifies the insurer the same afternoon. Six weeks later, the insurer’s coverage solicitors write back. They have noted that, fourteen months before the most recent renewal, the firm received a complaint letter from the same client raising broadly similar concerns. That letter was logged on the internal complaints register, reviewed by the managing partner, and closed when the client did not pursue it. It was not disclosed at the following renewal. The insurer reserves its position on avoidance, proportionate remedy and breach of the notification condition precedent — three separate routes to a materially reduced payment, all of them traceable to the Insurance Act 2015.
Of all the classes of commercial insurance reshaped by the Act, professional indemnity (PI) is the one where the reforms bite hardest at claim. The reasons are structural. PI is long-tail: a circumstance can sit dormant for years before crystallising into a claim. Cover is written on a claims-made or claims-made-and-notified basis, which makes the timing of notification load-bearing. Each renewal is a fresh placement, requiring a fresh fair presentation — there is no “no change” rollover. And the universe of facts that might be material is unusually broad, because regulators, complaints, fee earners, partners, near-misses and pipeline matters all feed into the underwriting picture. This article sets out how the Act has reshaped PI claim handling, what insurers can and cannot do under the new regime, and the practical steps Apex recommends at placement, mid-term and at notification.
Why PI is uniquely exposed to the Act
The Insurance Act 2015 applies to all non-consumer insurance contracts entered into, varied or renewed on or after 12 August 2016. In most classes of cover the day-to-day impact is incremental. In PI it is structural, for four reasons.
Long-tail liability. A negligent piece of advice given in year one may not surface as a claim until year seven or eight. The policy that responds is the one in force when the claim is first made (or when a circumstance is first notified), not the one in force when the alleged negligence occurred. That means the fair presentation made at the latest renewal — not the original placement — governs the insurer’s remedies.
Claims-made and claims-made-and-notified triggers. Most UK PI wordings respond either to claims first made against the insured during the period of insurance, or to claims first made and notified during that period. Either way, notification is the trigger that engages cover. A late or defective notification can push the matter outside the policy altogether — independent of any Act remedy.
Centrality of “circumstances”. PI wordings almost universally permit (and often require) the insured to notify “circumstances which may give rise to a claim”. A properly made circumstance notification crystallises cover under the policy in force at the date of notification, so that even if a formal claim emerges years later it is treated as having been made during that earlier period. Get the circumstance notification right, and the claim is captured. Get it wrong, and the claim falls into a later period — by which time cover may have lapsed, the limit may be exhausted, or the insurer may have changed.
Breadth of materiality. Underwriters of PI risks want to know about fee-earner experience, supervisory structures, the firm’s regulatory standing, prior claims and circumstances, complaints, audits, near-misses, M&A activity, changes in service lines, and pipeline matters that could attract litigation. The fair presentation duty under s.3 of the Act translates all of that into a positive obligation backed by proportionate remedies under s.8 and Schedule 1.
At placement: the fair presentation duty (s.3)
Section 3 imposes a duty of fair presentation. The insured must disclose every material circumstance it knows or ought to know, or, failing that, give sufficient information to put a prudent underwriter on notice that further enquiries are needed. Disclosure must be made in a manner that is reasonably clear and accessible.
The “reasonable search” obligation in a PI context
Section 3(5) provides that what the insured “ought to know” is what should reasonably have been revealed by a reasonable search of the information available to it. For a professional services firm this is a wider net than many partners realise. A reasonable search will typically extend to:
- The internal complaints register, including matters opened and closed without payment
- File-level knowledge held by individual fee earners on live and recently closed matters
- Risk and compliance records, including audit findings and file reviews
- Regulatory correspondence — the SRA, ICAEW, RICS, FCA or sector regulator
- Near-miss logs and root-cause analyses
- Insurer correspondence and prior renewal questionnaires
- M&A and lateral hire pipeline material held by management
A search that asks only the managing partner “is there anything we need to disclose?” will not satisfy s.3(5). The decision of the Court of Session in Young v Royal and Sun Alliance Insurance Plc [2019] CSOH 32 underlined that fair presentation cannot be reduced to a cursory check; in that case, prior loss history that should have surfaced did not, and the court found the insured in breach.
Senior management knowledge
Section 4(3) attributes to the insured the knowledge of its senior management. In a partnership this includes the managing partner and the executive committee. In a regulated firm it will typically include the COLP and COFA (for solicitors), the MLRO, the SMF-holders for FCA-regulated firms, and any board members or non-executives with risk oversight responsibilities. The fact that a managing partner did not personally read a complaint letter is no defence if it was within the senior management’s collective knowledge.
Material circumstances commonly missed
In our experience the disclosures most frequently overlooked at PI placement are:
- Undisclosed claims and circumstances. Matters that the firm regarded as “nuisance” or “unmeritorious” and quietly closed
- Regulatory investigations. Including informal enquiries that have not yet matured into a Notice of Investigation. Berkshire Assets (West London) Ltd v AXA Insurance UK Plc [2021] EWHC 2689 (Comm) confirmed that an SFO investigation into a director was material and avoidance was available where it had not been disclosed
- Partnership disputes and settlements. A departing partner who has alleged supervisory failings may seed future claims
- M&A pipeline activity. Acquisition of a competitor brings on the acquired firm’s run-off exposures
- Change of activity scope. Moving into a new sector — for example, a corporate practice taking on volume conveyancing, or an accountancy firm adding tax planning advisory — is a material change that underwriters need to price
At notification: condition precedent compliance
The placement exercise sets the policy up. The notification exercise determines whether a specific claim is captured by it. Most PI wordings make notification of claims and of circumstances a condition precedent to the insurer’s liability — language that the courts construe strictly.
In Aspen Insurance UK Ltd v Pectel Ltd [2008] EWHC 2804 (Comm) the court confirmed that where a clause is drafted as a condition precedent, breach discharges the insurer’s liability for the relevant claim, irrespective of prejudice. In Zurich Insurance plc v Maccaferri Ltd [2016] EWCA Civ 1302 the Court of Appeal addressed the trigger for notification of circumstances. The clause required notification “as soon as practicable” of any “occurrence which may give rise to a claim”. The court held that this required the insured to recognise an occurrence likely to give rise to a claim — not merely a theoretical possibility — and that the obligation was triggered when that recognition was reached, not earlier.
For PI, the operative question is usually whether a circumstance is “likely to give rise to a claim”, “may give rise to a claim”, or some variant. The threshold is wording-specific and matters enormously: too low a threshold and the insured drowns the insurer in precautionary notifications; too high and circumstances fall through the cracks.
Interaction with s.10 and s.11
Notification clauses are almost always drafted as conditions precedent, not as warranties, which means s.10 of the Act (abolishing automatic discharge on warranty breach) does not directly apply. However, s.11 is highly relevant. It provides that compliance with a term whose purpose is to reduce the risk of a particular kind, time, or location of loss cannot be relied on by the insurer if the insured shows that non-compliance could not have increased the risk of the loss that actually occurred.
The orthodox view is that notification provisions do not fall within s.11 because their purpose is administrative — to put the insurer in a position to investigate and reserve — rather than risk-reducing. Insureds have nonetheless argued the point, and the law in this area continues to develop. Brokers should not assume s.11 will rescue a late notification; it usually will not.
At claim: proportionate remedies (s.8 and Schedule 1)
Where there has been a breach of the fair presentation duty and the breach is “qualifying” (i.e. the insurer would have acted differently had it known the truth), s.8 and Schedule 1 set out a graduated remedies regime.
Deliberate or reckless breach. The insurer may avoid the contract, refuse all claims, and retain the premium. In genuine PI cases outright deliberate misrepresentation is rare, but the risk crystallises where an insured has concealed a known circumstance — for example, declining to disclose a complaint letter that had clearly threatened litigation.
Neither deliberate nor reckless. The “if I had known” exercise applies. If the insurer would not have written the risk at all, it may avoid the contract but must return the premium. If it would have written on different terms, those terms are treated as having been incorporated. If it would have charged a higher premium, Schedule 1 paragraph 6 provides for a proportionate reduction of the claim — calculated by applying the ratio of premium actually charged to premium that would have been charged.
The Schedule 1 paragraph 6 calculation has practical bite. If the insurer would have charged £15,000 instead of £10,000, the claim payment is reduced by a factor of 10/15 — a two-thirds payout on what might otherwise have been a full-limit claim. In Jones v Zurich Insurance Plc [2021] EWHC 1320 (Comm) the court addressed material misrepresentation and the remedies framework in detail, confirming that the insurer must be able to evidence what it would have done — typically through a contemporaneous underwriting witness statement supported by rating evidence.
At claim handling: s.13A late payment damages
Section 13A of the Act, inserted by the Enterprise Act 2016, implies a term into every insurance contract that the insurer will pay sums due within a reasonable time. Breach gives rise to a damages claim in addition to the policy proceeds and interest.
What counts as “reasonable time” in PI is genuinely longer than in many other classes. A typical PI claim may require:
- Investigation of complex underlying facts going back years
- Instruction of panel solicitors and, frequently, leading counsel
- Forensic accountancy or technical expert input on quantum
- Engagement with the underlying claimant’s solicitors
- Reserving and reinsurance notifications
These steps are not delay; they are reasonable conduct of a contested claim. The court in Quadra Commodities SA v XL Insurance Company SE [2022] EWHC 431 (Comm), upheld on this point on appeal at [2023] EWCA Civ 432, accepted that an insurer is entitled to a reasonable period to investigate and to take a considered view. The s.13A obligation does not require insurers to pay first and ask questions later.
But where the delay tips into unreasonableness — where coverage is clear, investigations are complete, and payment is being withheld for tactical reasons — s.13A bites. Brokers should document the timeline contemporaneously: dates of notification, dates of insurer correspondence, dates of expert reports, and dates of any settlement positions. A clear paper trail is the foundation of a s.13A argument if one becomes necessary.
What insurers CAN do post-Act
The Act did not disarm insurers; it disciplined them. Insurers remain entitled to:
- Apply the proportionate remedies regime under s.8 and Schedule 1 where there has been a qualifying breach of the fair presentation duty
- Avoid the contract and retain the premium for deliberate or reckless misrepresentation
- Decline cover for breach of a clear, unambiguous condition precedent — including notification and cooperation clauses — subject to s.11 where it applies
- Suspend cover during a warranty breach under s.10, with liability resuming when the breach is remedied
- Contract out of certain provisions in non-consumer contracts, provided the transparency requirements of Part 5 (ss.16–17) are satisfied
What insurers CANNOT do post-Act
Equally, the Act removed several long-standing defensive tools:
- Avoid ab initio for innocent or careless misrepresentation without the proportionate remedy analysis. Pre-Act, any material misrepresentation entitled the insurer to avoid; that is no longer the case
- Discharge themselves automatically on warranty breach. Section 10 abolishes the rule in Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) and replaces it with a suspensory regime
- Refuse a claim because of an unrelated term. Under s.11, a breach of a risk-specific term cannot defeat a claim where the breach could not have increased the risk of the loss that occurred. A breach of a fire-alarm warranty does not defeat a flood claim
- Hide opt-outs in dense slip language. Part 5 requires disadvantageous terms to be drawn to the insured’s attention with sufficient clarity. Burying an opt-out in standard slip wording is unlikely to survive scrutiny
- Delay payment unreasonably. Section 13A exposes insurers to damages where they fail to pay within a reasonable time
Apex’s practical recommendations
For PI placement, mid-term changes and renewal, we recommend the following framework.
The placement memo / disclosure schedule. Every renewal should be accompanied by a structured disclosure schedule that evidences the reasonable search. The schedule should record what was searched, who was consulted, and what was disclosed — and should be retained on the broker file as a contemporaneous record.
The internal “known matters” log. A standing log of partner and senior management interviews, refreshed at least annually, documenting any matters that might be material. This is the firm’s best evidence that the reasonable search was carried out.
Notification protocols. A board-level decision tree for the question “is this a circumstance?” — with named individuals responsible for the decision and a contemporaneous record of the reasoning. The cost of an unnecessary notification is essentially zero; the cost of a missed one can be the whole limit.
Mid-term change management. PI policies typically include a material change provision. New service lines, lateral hires, M&A activity, regulatory enquiries, and senior departures should all be assessed against that provision and notified where required.
Renewal preparation. Treat each renewal as a fresh placement. Do not accept the rollover formulation “no material change since last year” without evidence. A fresh disclosure schedule, a refreshed known-matters log, and a board minute confirming the search are the foundations of a defensible renewal.
FAQs
Q: Does the Insurance Act 2015 apply to my PI policy if it was placed before August 2016? The Act applies to contracts entered into, varied, or renewed on or after 12 August 2016. Any PI renewal since that date is governed by the Act.
Q: What is a “circumstance” for the purposes of PI notification? The definition is wording-specific. Common formulations include “circumstances which may give rise to a claim” or “circumstances likely to give rise to a claim”. The threshold matters: brokers should review the precise wording at placement and ensure the insured understands it.
Q: Can an insurer still avoid my PI policy outright for non-disclosure? Only where the misrepresentation was deliberate or reckless, or where the insurer can show that, properly informed, it would not have written the risk at all. Otherwise the Act requires the proportionate remedy analysis under Schedule 1.
Q: If I notify a circumstance and no claim ever materialises, is there any downside? A precautionary notification crystallises cover for that matter under the policy in force at notification. It will typically be disclosable at future renewals, which may affect premium, but it protects the firm against the matter falling outside cover later.
Q: Does s.11 protect me if I notify a claim late? Usually not. Notification provisions are generally regarded as administrative rather than risk-reducing, so s.11 does not assist. The law continues to develop, but brokers should not rely on s.11 as a fallback for late notification.
Q: How does the proportionate reduction under Schedule 1 paragraph 6 work in practice? The insurer evidences the premium it would have charged had the risk been fairly presented. The claim payment is then reduced by the ratio of premium actually charged to premium that would have been charged. The insurer must be able to evidence its underwriting position contemporaneously.
Q: What can I do if my PI insurer is sitting on a clear claim? Document the timeline, escalate through the broker, and consider the s.13A late payment damages remedy. Insurers are entitled to a reasonable period to investigate, but unreasonable delay is actionable.
Q: Should I treat each PI renewal as a fresh placement? Yes. The fair presentation duty applies at each renewal, not just at the original inception. A “no change” rollover without a fresh search and disclosure exercise leaves the firm exposed.
Related articles in this series
- Insurance Act 2015 Overview — A PI Broker’s View
- The Fair Presentation Duty under the Insurance Act 2015
- The Material Circumstance Test under the Insurance Act 2015
- Warranties Reform under the Insurance Act 2015
- Terms Not Relevant to the Actual Loss (s.11)
- Remedies for Breach under the Insurance Act 2015
- Contracting Out of the Insurance Act 2015
- Condition Precedent vs Warranty Post-Insurance Act
- Late Payment of Claims under the Insurance Act 2015
Reviewed by the Apex Insurance Brokers technical team, May 2026. Apex Insurance Brokers Ltd is authorised and regulated by the Financial Conduct Authority (firm reference 724952) and is registered in England and Wales (Companies House 07014570). This article is general guidance and is not legal advice; insureds should take advice on specific facts.