A professional indemnity policy responds to civil liability arising from a breach of professional duty. Most wordings then carve out liability that the insured has assumed by contract and would not have carried at common law. The clause is usually drafted along the lines of liability arising from any express warranty, guarantee, penalty clause or liquidated damages provision, to the extent that liability would not have attached in the absence of that term.
The point of the exclusion is not to punish the insured for signing a contract. It is that underwriters price the risk of a professional failing to exercise reasonable skill and care. They do not price the risk of a professional promising an outcome, agreeing an unlimited indemnity, or accepting a fixed sum payable on delay regardless of fault.
Most modern wordings are drafted so that the exclusion applies only to the extent that liability would not have arisen without the assumed term. That drafting matters. Where a claim can be pleaded as ordinary negligence and also as breach of a fitness-for-purpose warranty, the negligence element usually remains covered and the additional exposure created by the warranty does not. Where the only route to liability is the contractual promise, the whole claim can fall outside the policy.
MT Hojgaard A/S v E.ON Climate and Renewables UK [2017] UKSC 59 illustrates the underlying legal problem. The Supreme Court held that a contractor could be bound by a more demanding standard buried in a technical schedule even where the contract also required reasonable skill and care. A double obligation of that kind is a live PI issue: the higher standard may be enforceable against the professional and uninsured at the same time.
Design-led practices carry this exposure most visibly. The position for architects and for engineers is shaped by construction contracts that routinely propose fitness-for-purpose language. Technology firms face the same issue in a different vocabulary, where service level agreements and uptime commitments do the work that a performance warranty does elsewhere, and IT consultants should read those schedules with the exclusion in mind.
The practical options are limited and all of them are commercial. Negotiate the term out. Cap it. Ask the insurer to consider the specific contract, since some will write back a limited element of assumed liability on a named appointment. Or accept the term with open eyes, record the decision, and price it. What does not work is signing and assuming the policy will follow. Apex reviews appointment wording against the client's policy before signature where the client asks for it, and flags terms that sit outside cover.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.