Stacking your PI tower: how excess layers work — and the gaps that catch larger firms

If your firm carries a professional indemnity limit measured in the millions, the chances are you are not insured by one policy at all. You are insured by a stack of them. Underwriters are reluctant to put a very large limit on a single PI risk, so the market solves the problem by dividing it: a primary insurer takes the first slice, and further insurers sit above, each responsible for its own band of cover. Brokers call the result a programme, or a tower.

For a managing partner or finance director, the tower is usually invisible until the moment it is tested. That is precisely the wrong moment to discover that the layer which should have paid your largest claim is written on different terms from the layer below it. This piece explains how a layered PI programme fits together, where the structural gaps tend to open, and the questions worth asking before renewal rather than after a notification.

What a tower actually looks like

Picture a firm that wants a total limit of £10 million. Rather than one insurer providing all of it, the cover might be assembled as a £2 million primary layer, a £3 million excess layer sitting above it (written as “£3m excess of £2m”), and a further £5 million layer on top (“£5m excess of £5m”). Each layer is a separate contract, frequently with a different insurer, and each only comes into play once the layers beneath it have been used up. The point at which a layer begins to respond is its attachment point.

These figures are illustrative — every programme is built around the firm’s size, discipline and risk profile, not a fixed template. The principle is what matters: a high limit is normally reached by stacking, not by a single insurer’s cheque. Spreading the risk this way widens the pool of capacity a broker can draw on, lets each insurer size its exposure comfortably, and means the firm is not wholly dependent on one carrier’s appetite at renewal.

Following form — and where it stops following

The critical question about any excess layer is a simple one: does it say the same thing as the layer below? Most excess layers are written “following form”, meaning they adopt the terms, conditions and exclusions of the primary policy. When a programme is genuinely follow-form from top to bottom, a claim that erodes the primary flows cleanly upward on the same basis.

The difficulty is that not every excess layer follows form completely. Some excess insurers apply their own wording, or follow the primary “save as otherwise provided herein” — and it is in those exceptions that trouble lives. Where the wordings diverge you have what the market calls a difference in conditions: a claim that is covered lower down the tower may meet an exclusion higher up, leaving the firm to absorb the shortfall in the middle of a loss it thought was fully insured. A tower is only as coherent as its least generous layer.

The solicitors’ trap: the minimum terms stop at the primary

Law firms face a specific version of this problem, and it is one the Law Society flags directly. A solicitors’ practice in England and Wales must hold compulsory cover that complies with the Solicitors Regulation Authority’s Minimum Terms and Conditions — a mandatory wording that removes many of the exclusions an insurer would otherwise want, and sets the compulsory minimum sum insured (£2 million for most firms, £3 million for those incorporated as companies or LLPs).

But the Minimum Terms apply only to that compulsory primary layer. Top-up or excess cover bought above the compulsory limit is not required to be written on the Minimum Terms, and frequently is not. That means an excess layer can lawfully contain exclusions the SRA prohibits at primary level. A firm that assumes its whole £10 million programme carries the protections of the Minimum Terms may be mistaken above the first slice. The Law Society’s own guidance is explicit that firms should check the wording of top-up cover rather than assume it mirrors the primary.

Four gaps that open quietly

Aggregation working differently across layers. How several related claims are grouped — counted as one loss or as many — decides how quickly a layer erodes and whether the excess above it is ever reached. If layers treat aggregation differently, a series of related matters can exhaust one layer while the layer above declines to attach on its own reading of the facts. Aggregation is a subject in its own right; the point here is that it needs to read consistently up the tower.

Reinstatement that only exists lower down. Some policies allow the limit to be reinstated once during the period; others do not. If the primary reinstates but the excess layers do not, a single large claim can leave the upper reaches of the programme permanently diminished for the rest of the year, even though the primary looks refreshed. The headline limit and the resilient limit are not always the same figure.

Non-concurrent periods. PI is written on a claims-made basis — cover responds to claims first made or notified during the policy period, regardless of when the work was done. If the layers of a tower renew on different dates or run for different periods, a claim notified in an awkward window can be caught by one layer’s terms and fall outside another’s. Well-built programmes keep every layer concurrent for exactly this reason.

An insurer failing mid-tower. Each layer is a separate contract with a separate insurer. If a carrier on one layer becomes insolvent, a claim that erodes up through the tower still has to pass through that failed layer’s band — and there may be nothing there to pay it. The Financial Services Compensation Scheme can assist eligible policyholders where a UK-authorised insurer cannot meet its liabilities, but it is a backstop, not a substitute for choosing financially sound insurers across every layer in the first place.

Fair presentation applies to every layer

One duty runs the full height of the tower. Under the Insurance Act 2015, the insured owes a duty of fair presentation of the risk, and each insurer subscribing to the programme is entitled to that fair presentation. A disclosure that satisfies the primary underwriter but leaves an excess insurer materially in the dark can prejudice cover at that layer specifically. For a firm placing a large programme across several carriers, the presentation of the risk is not a one-insurer exercise — it has to hold up in front of all of them.

What to ask before you sign

A tower is not inherently risky — it is the standard, sensible way to reach a serious limit. The risk is in assuming the layers are identical when they are not. Five questions cut through most of it. Is every excess layer following form to the primary, and if not, exactly where do the wordings diverge? Do all layers share the same policy period and renewal date? Does aggregation read the same way at every level? Is there any reinstatement, and on which layers? And who are the insurers on each layer, and how financially strong are they? A broker who placed the programme should be able to answer all five without hesitation.

Frequently asked

Do all the layers in my PI programme cover the same things?
Not automatically. Only layers written “following form” mirror the primary wording. Where an excess insurer uses its own terms, the cover can differ — a claim paid lower down may meet an exclusion higher up. The only reliable way to know is to compare the wordings, not the limits.

For a law firm, do the SRA Minimum Terms apply to the whole tower?
No. The Minimum Terms and Conditions apply to the compulsory primary layer only. Top-up cover bought above the compulsory limit need not be on the Minimum Terms and often is not, so it can carry exclusions that would not be permitted at primary level. Check the top-up wording rather than assume it matches.

What happens if one insurer in my tower goes bust?
A claim eroding up through the programme still has to pass through the failed layer, which can leave a gap. The Financial Services Compensation Scheme may help eligible policyholders where a UK-authorised insurer cannot pay, but the better protection is choosing sound insurers on every layer and reviewing their financial strength at renewal.

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.