PI insurance when buying a book of clients

An asset purchase looks simpler than buying a whole firm, but the professional indemnity picture is more nuanced. Retroactive dates, vendor run-off, warranty language and insurer notification all need attention before completion.

What "buying a book" means for PI

Buying a book of clients is an asset purchase. Under an asset structure the acquirer picks up a defined package — typically the client relationships, working files, work-in-progress, sometimes staff under TUPE, occasionally goodwill and the vendor's trading name — without acquiring the vendor's corporate shell. The vendor entity survives completion. Historical trading, historical liabilities and, importantly, the historical professional indemnity policy remain attached to that surviving entity rather than moving to the acquirer.

This structural point drives the whole PI analysis. Your incoming policy insures your practice for work carried out by you under your regulatory authorisation. It does not automatically respond to work carried out by the vendor before completion. If a former client of the vendor issues a negligence claim eighteen months after the deal completes, the claim points backwards to the practitioner who did the work, not to the firm now holding the file.

The client-transfer mechanics also matter. Client relationships are not automatically portable. Under the Data Protection Act 2018 and UK GDPR, personal data of individual clients can only be transferred on a lawful basis, and clients typically need to be informed of the change of controller. Retainer novation, engagement letter refresh and a clean audit trail of client consent all sit inside the acquirer's regulatory perimeter. Getting this administrative work right protects both the transaction and the PI position that follows it.

Retroactive-date implications

Professional indemnity cover in the UK is written on a claims-made basis. Two dates matter: the policy period, which fixes when a claim must be notified, and the retroactive date, which fixes how far back the insured work can reach. Any negligent act committed before the retroactive date is excluded, regardless of when the claim is made.

On an asset purchase the acquirer has a choice to negotiate. Option one is a clean-line retroactive date set at completion. Under this structure the acquired book carries forward only work done by the acquirer after completion, and everything before that date is left to the vendor's run-off arrangements. This is often the cleanest position, and the option most insurers prefer.

Option two, less common, is a retroactive date matched to the earliest date of the vendor's own exposure on that book. This gives the acquired clients continuity of cover under a single policy but transfers the historical tail to the acquirer's insurer, which will price accordingly. Insurers may require a full claims history from the vendor, evidence of no known circumstances, and often an indemnity from the vendor covering pre-completion negligence.

The commercial allocation of pre-completion risk in the SPA drives which retroactive date is workable. Trying to set retroactive dates before the SPA position is agreed can produce a policy that does not match the deal.

Can the vendor's PI transfer to you?

In practice, no. A PI policy is a personal contract between the insurer and the named insured entity. In an asset purchase the acquirer is not the named insured, and insurers are rarely willing to novate cover from one legal entity to another as part of a client-book sale. Even where the acquirer takes over the trading name, the underlying regulatory authorisation stays with the vendor, and the policy follows the authorisation.

What can happen is that the acquirer arranges its own new policy or endorses its existing policy to reflect the enlarged exposure, while the vendor separately arranges run-off. The two policies then operate in parallel: the vendor's run-off responds to claims arising from pre-completion work; the acquirer's live cover responds to claims arising from post-completion work.

Share purchases behave differently. If the buyer acquires the vendor entity itself, the existing PI policy generally continues in force at renewal, subject to any change-of-control clause. Change-of-control provisions typically require insurer consent, and the insurer may re-underwrite or price the enlarged risk. Under the Contracts (Rights of Third Parties) Act 1999, third parties cannot generally enforce a PI contract in their own right unless the policy expressly says so, which most professional PI policies do not.

Run-off from the vendor — length and cost

Run-off cover is the mirror image of the retroactive date. It closes the tail on work done before cessation, allowing claims that emerge after the vendor ceases to trade to be met from a policy still in force. Minimum periods are set by profession. Under the SRA Minimum Terms and Conditions, solicitors must arrange six years of run-off. Under RICS Rules of Conduct Rule 9, chartered surveyors are expected to hold cover for six years post-cessation. Under ICAEW Bye-law 61, accountants must arrange run-off for at least two years and cover of at least 2.5 times gross fee income. IFAs regulated under IPRU-INV 13 have parallel expectations aligned to the FCA's requirements on adequate resources.

Cost varies. Some insurers offer run-off as a multiple of the last live premium, typically two-and-a-half to three times spread over the run-off period; others charge a single lump sum at cessation. Where the current underwriter has withdrawn from the class the vendor may need to buy standalone run-off in the open market, at prices that may sit materially above the last in-force premium.

The SPA should state who pays. A common structure is for the vendor to fund run-off from sale proceeds, with the acquirer taking comfort from an escrow or price adjustment mechanism if run-off is not put in place within an agreed period after completion.

Warranty and indemnity in the SPA

The Sale and Purchase Agreement is where residual PI risk is allocated between vendor and acquirer. Standard warranties typically include: that the vendor has maintained PI cover meeting professional-body minimums throughout the relevant period; that no material claims or circumstances have been notified; that all files and records are complete and compliant with data-protection rules; and that the vendor is not aware of any facts that could give rise to a future claim.

Warranties are then backed by indemnities. A specific indemnity covering pre-completion professional negligence is often the most important protection the acquirer negotiates. The indemnity should sit alongside the run-off cover rather than replace it — run-off provides the insurance response; the indemnity covers uninsured or under-insured exposures such as deductibles, aggregate erosion or gaps in retroactive dates.

Practical drafting points to raise with legal advisers include: caps and time limits on the indemnity; whether it survives the vendor's dissolution; whether personal guarantees from the selling principals are appropriate; and whether the acquirer can control the defence of any pre-completion claim that could affect its own reputation with the acquired client base. The interplay between warranty, indemnity and run-off is where a well-briefed broker can help the legal team pressure-test the deal against real claims scenarios.

Notifying your own insurer of the material change

Under the Insurance Act 2015, commercial insureds owe a duty of fair presentation of risk at inception, renewal and on any material variation. Acquiring a book of clients is almost always a material variation. The enlarged fee income, the changed client mix, the potential adoption of staff and the introduction of new work streams all sit within what a prudent insurer would want to know before pricing the risk.

Practical advice is to notify at signing rather than completion, with a follow-up confirmation once the deal closes. Notifying at signing gives the insurer time to underwrite the endorsement, quote any additional premium and issue revised policy documentation before the acquirer starts carrying the risk. Notifying only at completion, or after, can leave the acquirer exposed if the insurer takes the view that the risk changed materially before consent was given.

For FCA-authorised firms there is a parallel regulatory notification under SUP 15.3.1R, which requires firms to notify the FCA of matters likely to be of material significance. Acquisitions that materially change the firm's business model, its regulatory permissions in practice, or its financial resources typically meet that threshold. The two notifications are separate exercises but should be planned together.

Sector nuances — solicitors, accountants, IFAs, surveyors

Solicitors face the most prescriptive regime. The SRA MTC contains "successor practice" and "prior practice" rules that can attribute the vendor's historical liabilities to the acquirer where the acquiring firm holds itself out as a continuation of the vendor's practice. If successor-practice status is triggered, the acquirer's policy responds to pre-completion claims and the vendor's run-off obligation may be discharged. Careful drafting of the acquisition, the letters to clients and the branding of the enlarged firm can determine which side of the line the deal falls.

Accountants under ICAEW Bye-law 61 have the 2.5x fees limit and the two-year run-off requirement. Because ICAEW's rules apply per firm rather than per book, the acquirer typically arranges a fee-income endorsement and the vendor arranges run-off separately.

IFAs authorised under IPRU-INV 13 face additional considerations around client-money segregation and, on advisory books, potential exposure to legacy pension-transfer or drawdown claims. Fair presentation to the acquirer's insurer should include a detailed breakdown of the acquired advice files by product type and vintage.

Chartered surveyors under RICS Rules of Conduct Rule 9 will need Red Book valuation work identified separately in any endorsement. Long-tail exposures on high-value valuation work make retroactive-date and run-off structuring particularly important in surveying acquisitions.

Common pitfalls and red flags

Frequently asked questions

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