What is dishonesty of employees cover in professional indemnity insurance?

Reviewed by Apex Insurance Brokers · Last reviewed 2026-08-05

The core idea

A standard PI policy responds to claims arising from negligence — honest mistakes, bad advice, errors and omissions in your professional work. But not every loss involving your firm is an honest error. Sometimes an employee acts dishonestly: misappropriating client money, falsifying records, colluding in a fraud, or deceiving a client for personal gain.

Many insurers would otherwise exclude deliberate, dishonest or fraudulent conduct from a PI policy. The dishonesty of employees extension carves that exclusion back — so that the innocent firm is not left uninsured for the wrongdoing of a member of staff. It recognises a simple point of fairness: the business, its partners and its clients should not carry the full cost of one person’s dishonesty.

How the cover actually operates

In practice the extension tends to work in one or both of two ways, and it is worth checking which your wording provides:

• Third-party (liability) protection. Where an employee’s dishonesty causes a client or other third party to suffer loss, and a claim is brought against your firm, the policy responds to your legal liability — much as it would for a negligence claim.
• First-party (own loss) protection. Some wordings go further and cover the firm’s own direct financial loss — for example money or property stolen from the business by an employee. This overlaps with fidelity insurance and is not present in every PI policy.

The distinction matters. A firm assuming its PI covers its own stolen funds may find the extension only reaches a client’s loss, leaving the business itself exposed. If protecting your own balance sheet against internal theft is the priority, a dedicated fidelity or commercial crime policy is usually the right tool.

Common conditions and limits

Dishonesty extensions almost always come with conditions. Typical features include:

• The wrongdoer cannot benefit. The employee who committed the dishonest act — and usually anyone who condoned or colluded in it — gets no benefit from the cover.
• Principals and owners are often excluded. Cover is generally for the dishonesty of employees. Dishonesty by the partners, directors or owners themselves is frequently outside the scope, because they are the insured. Larger firms sometimes negotiate wider terms.
• A separate or sub-limit may apply. The extension can carry its own limit of indemnity, which may be lower than the main PI limit, and its own excess.
• Discovery and notification. Because fraud is often hidden, wordings may specify how and when loss must be discovered and notified. Prompt notification once you suspect dishonesty is important.

Because these terms vary considerably between insurers, the wording is what governs — not a general expectation of what “PI covers dishonesty”. Ask us to check your dishonesty extension against how your firm actually handles client money and data.

Dishonesty cover vs fidelity vs crime insurance

These three overlap and are easily confused. The clearest way to separate them is by whose loss is being protected and how broad the trigger is.

Put simply: the PI dishonesty extension is anchored to your professional liability; fidelity is the classic first-party answer to a dishonest employee stealing from you; and crime insurance is the broadest of the three, reaching external fraudsters as well as internal ones. Many firms carry a combination, and a good broker’s job is to make sure the covers dovetail rather than leaving a gap between them.

Why it matters for regulated professions

For some professions, dishonesty cover is not optional. Solicitors’ firms in England and Wales must hold PI insurance that meets the Solicitors Regulation Authority’s Minimum Terms and Conditions, which require cover to respond even where the loss involves dishonesty — reflecting the profession’s duty to protect client money. Other regulated professions, including accountants under their professional bodies, face requirements to hold adequate PI cover, and dishonesty exposure is a natural part of that conversation.

Any firm that handles client funds, holds money on account, or has staff able to authorise payments or move assets carries a real dishonesty exposure — law firms, accountants, financial advisers, surveyors, property managers and consultancies among them. The larger the sums passing through your hands, the more the strength of this extension matters.

Disclosure: getting the cover to respond

Under the Insurance Act 2015, a commercial policyholder owes a duty to make a fair presentation of the risk to the insurer before the policy is placed or renewed. For dishonesty cover, that means being candid about your controls: how client money is segregated, who can authorise payments, what checks exist on staff, and whether there is any history or suspicion of internal wrongdoing. Failing to present the risk fairly can give the insurer remedies that affect a later claim, so accuracy at proposal stage is part of making the cover reliable.

Common questions

Does professional indemnity insurance always cover employee dishonesty?

No. Many base PI wordings exclude dishonest and fraudulent acts. Cover for employee dishonesty is usually provided by a specific extension, which may be included as standard, offered as an option, or subject to its own limit — so it is essential to check the wording rather than assume it is there.

Does it cover dishonesty by the business owner or directors?

Usually not. The extension is typically aimed at the dishonesty of employees, and the person who committed the act cannot benefit from the cover. Dishonesty by principals, partners or directors — the insured themselves — is commonly excluded, though wider terms can sometimes be negotiated for larger firms.

Should I also buy fidelity or crime insurance?

Possibly. If your main concern is protecting the firm’s own money against internal theft, a fidelity policy is the direct answer; if you also want protection against external fraud, forgery and social-engineering scams, commercial crime insurance is broader. A broker can map your PI dishonesty extension against these so the covers complement each other. Talk to Apex about the right combination.

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 reading your policy wording.