Claims-made cover: why notifying a circumstance in time can save your firm’s PI claim

Most firms think about their professional indemnity cover twice a year: once at renewal, when the premium lands, and once more if a letter of claim arrives. In between, the policy sits in a drawer. That hides the single most important thing about how PI cover works — and the moment at which a firm most often, and most avoidably, loses the protection it has paid for.

That moment is not the claim. It is the point earlier, sometimes years earlier, when someone in the firm first realises a piece of work might have gone wrong. What the firm does with that realisation — whether it tells its insurer, when, and in what form — can matter more than the size of the limit or the breadth of the wording. This piece explains why, and why in a larger firm that decision belongs at the top of the house.

What “claims-made” actually means

Professional indemnity is almost always written on a claims-made basis, and that basis is easy to misread. The instinctive assumption is that the policy in force when you did the work is the policy that covers it. It is not. On a claims-made policy, the cover that responds is the one in force when the claim is made against you — or, importantly, when you notify a circumstance that later turns into a claim.

The practical consequence is that today’s policy carries the risk of yesterday’s work. Advice you gave three years ago, if it produces a claim today, is dealt with by today’s insurer — provided the firm has held continuous cover with a retroactive date reaching back far enough to catch that old work. This is why an unbroken chain of cover matters, why the retroactive date is worth checking line by line when you switch insurer, and why a firm that closes still needs run-off cover. Claims-made cover protects the present against the past; break the chain and the past is left uncovered.

The circumstance: your right to notify early

Sitting alongside the claim is a second, quieter trigger that is the real subject of this article: the circumstance. A circumstance is not a claim. It is any incident, fact, matter, act or omission that may give rise to a claim — the missed deadline, the drafting error someone has just spotted, the client who has gone quiet in a way that feels ominous, the transaction that has started to unravel. No one has yet demanded anything. But the firm can see how a demand might come.

A claims-made policy gives you the right to notify that circumstance to your insurer while the policy is in force. Do so, and something valuable happens: any claim that later grows out of that notified circumstance is treated as having been made in the year you notified it, and is met by that year’s policy — however many years later the claim actually arrives, and whoever your insurer is by then. You have, in effect, reserved your cover at today’s prices and on today’s terms for a problem that has not fully materialised.

An example makes it concrete. Suppose a firm spots in 2026 that a piece of advice may have been wrong, notifies it as a circumstance, and a formal claim only lands in 2028. The 2026 policy responds, not the 2028 one — even if by 2028 the firm has a higher excess, a new exclusion, a different insurer, or no cover at all. The notification, made in time, has done its job.

Where firms get caught: the renewal gap

The flip side is where the damage is done. If a firm knows about a circumstance and does not notify it before the policy renews, it walks into a gap that can be very hard to climb out of.

Each renewal of a PI policy is a fresh contract, and under the Insurance Act 2015 a business buying insurance owes a duty of fair presentation — it must disclose what it knows, including circumstances that might give rise to a claim. The proposal will ask. So the firm faces a fork: disclose the known circumstance to the incoming insurer, who will almost certainly exclude that specific matter; or stay silent and put the whole renewal at risk of being unwound for non-disclosure. Meanwhile the outgoing insurer, who could have accepted the notification, will say — correctly — that nothing was notified while its policy was on risk. The claim can end up sitting between two policies, welcomed by neither. That is the notification gap, and it is self-inflicted: the cover existed, and the firm did not use it in time.

This is why notification and disclosure are best handled together. The circumstance you should have notified mid-year is the same fact you must disclose at renewal, and leaving it to the last minute forces both decisions into the worst possible moment — part of the wider discipline of getting your fair presentation right.

Why this is a board decision, not a fee-earner’s

For a sole practitioner, the person who made the error and the person who decides whether to notify are the same. In a larger firm they are not, and that gap is where the risk concentrates. The fee-earner closest to a wobbling matter is the one least able to judge it dispassionately: notifying feels like an admission, it can look bad at appraisal time, and there is always a hope the problem will quietly resolve. Across a big firm the result is a structural bias towards under-notification — each individual reason not to pick up the phone is understandable, and collectively they leave the firm exposed on precisely the matters it most needs to protect.

So the decision should not rest solely with the individual involved. In regulated practices the compliance officers — a COLP in a law firm, the equivalent risk lead elsewhere — and ultimately the managing partner or board carry it. What matters is a clear internal route: everyone knows a possible problem gets escalated promptly to a named person, who applies a consistent, unemotional test to whether it is a notifiable circumstance and errs towards notifying rather than hoping. The point is not to notify everything — it is to make sure the decision is taken by someone looking at the firm’s protection rather than at their own file.

Blanket notifications, without crying wolf

Firms sometimes ask whether they can simply notify everything as a precaution near renewal — a “blanket” or laundry-list notification. Used properly, precautionary notification is a legitimate tool, and a firm that has genuinely identified specific concerns is entitled to put them to its insurer. But it has limits. A notification must describe a real circumstance with enough specificity to be valid; a vague, catch-all “something somewhere might go wrong” is not a notification and will not hold. Notify the facts you can point to, not a general anxiety, and give the insurer enough to identify the matter later. Done well it protects the firm; done as an empty formality it gives false comfort.

Getting the mechanics right

The principle is simple; the execution is where cover is won or lost. Notify in writing, to the insurer or through your broker, and keep a dated record of exactly what you said — a notification you cannot later evidence is worth little. Notify promptly, and certainly before the policy renews, rather than sitting on a concern. Describe the circumstance factually and avoid admitting liability or offering settlements before the insurer is involved, because doing so can prejudice the very cover you are trying to trigger. And tell your broker early: a good broker will help you judge whether something is notifiable, frame it so the notification is valid without overstating the problem, and manage the conversation so reserving your cover does not itself sour the renewal.

Autumn is renewal season for much of the profession — solicitors in particular have long clustered around a common renewal date at the start of October — which makes now the moment to look at any matters quietly worrying the firm and decide, deliberately, whether to notify them before the policy turns over. It is a far better conversation to have in September than in the week after a letter of claim arrives.

Frequently asked

Should we notify a circumstance even if we think the claim will probably come to nothing?
Usually, yes — that is what the mechanic is for. If there is a real, identifiable reason to think a claim could follow, notifying it in the current policy year locks that year’s cover onto any claim that does emerge. The judgement is whether the concern is specific enough to be a genuine circumstance rather than a vague worry, and a broker can help you draw that line. The mistake firms regret is rarely over-notifying — it is deciding a matter would blow over and then finding it did not.

We are moving to a new insurer at renewal. Does that affect an older matter we already know about?
It can, significantly. A known circumstance is something you must disclose to the incoming insurer, who will typically exclude it — so the time to notify is before you leave the current insurer, while its policy is still on risk. Notify the outgoing insurer first, then present the renewal fairly. Switching insurer with an un-notified known problem is one of the more common ways firms end up in a coverage dispute.

Who inside the firm should actually make the call?
As a rule, not the individual whose matter it is. The cleaner arrangement is a standing route to a named person — a compliance officer, risk lead or managing partner — who applies a consistent test and decides on the firm’s behalf, with its protection rather than any individual’s record in mind. Write the route down, so nobody has to invent it in the middle of a bad week.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This article is general information, not advice on a specific policy.