The Contracts (Rights of Third Parties) Act 1999 and professional indemnity
Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Last reviewed 2026-08-05
Most professionals think of their duty of care as running to the client who hired them. The Contracts (Rights of Third Parties) Act 1999 changed that default. It carved an exception into the old rule of "privity of contract" — the principle that only the parties to a contract can enforce it. Since the Act came into force, a named or identifiable third party can, in certain circumstances, enforce a contractual term in their own name, even though they never signed anything.
That matters for PI because your policy responds to your legal liability to others. If the law lets more people bring a claim against you, the pool of potential claimants under your cover grows. Understanding when the Act bites — and how firms routinely switch it off — is part of managing your exposure.
What the Act actually does
Under section 1 of the Act, a third party may enforce a term of a contract in two situations:
- the contract expressly says the third party may enforce it; or
- the term purports to confer a benefit on the third party — unless, on a proper reading, the parties did not intend the term to be enforceable by them.
The third party must be identified in the contract by name, as a member of a class, or by description. They do not have to exist when the contract is made — a future purchaser or tenant can qualify, for example.
Where the Act applies, the third party gets the same remedies they would have had if they were a party — typically the right to sue for damages for breach. Sections 2 and 3 add important detail: the contracting parties may lose the ability to vary or cancel the relevant term without the third party's consent once rights have crystallised, and the professional can rely against the third party on the same defences that would have been available against the client.
Why this reaches your PI cover
A PI policy indemnifies you against sums you become legally liable to pay because of a negligent act, error or omission in your professional services. The trigger is a valid claim against you. The 1999 Act can create a valid claim from someone you never contracted with directly.
The clearest example is in construction and property. A consultant — an architect, engineer or surveyor — is appointed by a developer. The developer later sells or lets the building. Historically, downstream parties (funders, purchasers, tenants) secured rights through a collateral warranty: a separate signed deed. Increasingly, appointments instead include a third-party rights schedule that relies on the 1999 Act to grant those same beneficiaries a direct route to sue the consultant, without a separate document.
Either way, the effect on your PI is similar: more parties can bring a claim arising out of the same piece of work. Your insurer will usually be relaxed about third-party rights that mirror your existing obligations to the client, but wary of terms that expand your duty — wider liability, longer limitation periods, or fitness-for-purpose wording that goes beyond reasonable skill and care.
Signing appointments with third-party rights? Make sure your PI actually responds to them.
Get a PI quote →Switching the Act on or off
The Act is a default that parties can contract around. Two opposite drafting choices are common:
| Approach | What it says | Effect on PI exposure |
|---|---|---|
| Exclude the Act | A clause stating that no one who is not a party has rights under the 1999 Act to enforce any term. | Narrows the pool of claimants to the contracting parties. The most common default in commercial contracts. |
| Grant defined rights | A third-party rights schedule naming specific beneficiaries and the terms they may enforce. | Controlled, deliberate exposure — manageable if the rights mirror your duty and are capped. |
| Say nothing | Silent on the Act. | Riskiest — a benefit-conferring term could give an unintended third party enforceable rights. |
Excluding the Act is often the safest starting point, because it keeps your liability contained to the client you actually negotiated with. But where a project genuinely needs downstream parties to have recourse, a tightly-drafted third-party rights schedule is usually preferable to leaving the position uncertain. If you are arranging PI cover, tell your broker which approach your standard contracts take.
A different Act, often confused
Do not conflate the 1999 Act with the Third Parties (Rights against Insurers) Act 2010. They sound similar but do different jobs:
- The 1999 Act is about contractual rights — letting a third party enforce a term of the contract between the professional and their client.
- The 2010 Act is about insurance — it lets a claimant proceed directly against the insurer where an insured professional or firm becomes insolvent, transferring the insured's rights under the policy to the claimant.
Both broaden who can ultimately recover, but through different mechanisms. The 1999 Act widens who can sue you; the 2010 Act affects who can pursue your insurer if you are no longer around to be sued.
Practical steps for professionals
- Read the third-party rights clause in every appointment. Know whether the Act is excluded, granted in a schedule, or left silent.
- Check the granted duty matches your PI. Rights that impose a higher standard than reasonable skill and care, or a fitness-for-purpose obligation, may fall outside standard PI wordings.
- Watch limitation and net-contribution. Third-party rights that strip out helpful protections increase exposure. Keep them aligned with the underlying appointment.
- Tell your broker. If you routinely grant third-party rights, that belongs in your PI disclosure, so cover is arranged with those obligations in mind.
Common questions
Does the 1999 Act mean anyone can sue me?
No. A third party can only enforce a term if the contract identifies them and either expressly gives them the right or confers a benefit intended to be enforceable. General members of the public are not caught.
If my contracts exclude the Act, am I fully protected?
Excluding the Act removes rights that would arise under it, but it does not remove liabilities you create by other means — for example a separately signed collateral warranty, or a duty of care owed in tort. Cover still needs to reflect those.
Will my PI policy cover a third-party claim?
Generally yes, provided the claim relates to your professional services and the underlying obligation falls within your policy's terms. Problems arise when third-party rights impose duties wider than your PI insures — which is why the wording of each appointment matters.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This guide is general information, not advice on a specific policy or a substitute for your policy wording.