Accountants and auditors arranging professional indemnity cover sit under two overlapping rule sets. The ICAEW PII Regulations (and the equivalent rules of ACCA, CAI and ICAS) set the policy floor — minimum limits, qualifying insurer status, run-off cover, and the inability to exclude liability for civil claims arising from regulated work. The Insurance Act 2015 sits above the policy as the statutory framework governing how the firm presents its risk to the insurer. A failure under the Act can give the insurer remedies that the professional body cannot waive.
Section 3 of the Act imposes a duty of fair presentation on the insured. Every material circumstance which the firm knows or ought to know must be disclosed before the contract is concluded — including at renewal, which is a new contract — in a manner reasonably clear and accessible to a prudent insurer. The companion entry on section 3 fair presentation sets out the test in full.
Materiality is judged by reference to what would influence a prudent insurer's decision to write the risk or set the terms. For accountants and auditors the recurring categories are these.
An HMRC enquiry into a client is not always material. An enquiry that names the firm, criticises the advice given, or signals that HMRC may issue an adviser-conduct notice under the enabler penalty regime almost certainly is. The same applies to enquiries into schemes notified under DOTAS where the firm acted as promoter or introducer.
A qualified audit opinion, an emphasis-of-matter paragraph going to going concern, or a modified opinion issued by a predecessor auditor on a client the firm has subsequently taken on — each of these can put the firm in the line of fire if the client later fails. The SAAMCO framework limits but does not extinguish the exposure; see SAAMCO for accountants and auditors.
Historic involvement in disguised remuneration, employee benefit trusts, contractor loan arrangements and similar structures continues to generate notifications years after the work was done. The loan charge cohort in particular has produced a steady flow of professional negligence claims against advisers and introducers. Past involvement is material whether or not a claim has yet been made.
An adverse FRC audit quality review finding, an open ICAEW Professional Conduct Department investigation, an open ACCA disciplinary matter, or a formal complaint that has not yet progressed to a claim — all are material. M&A reliance letters where the target has subsequently underperformed sit in the same category.
Section 3(5) requires the firm to make a reasonable search of information available to it. In a multi-partner practice that means circulating a structured disclosure questionnaire to every partner and to the heads of audit, tax, corporate finance, restructuring and forensic teams. A single email asking for anything to disclose is not a reasonable search. The questionnaire should specifically prompt HMRC correspondence, FRC contact, ICAEW or ACCA correspondence, complaints logged in the past 24 months, and matters discussed at risk committee.
Many firms now combine accounting and audit work with FCA-regulated activity — typically investment business under DPB licensing, consumer credit broking, or insurance distribution conducted through a sister entity. Both streams must be disclosed on the PI renewal. An accountancy PI policy will not respond to a regulated-activity claim, and a separate appointed-representative arrangement does not relieve the firm of its disclosure duty on the main policy. See the accountants' PI guide and the IFA PI guide for how the two policy structures interact.
Worked example — illustrative only. A 15-partner accountancy firm with a sizeable tax practice approaches its PI renewal in October. HMRC has opened enquiries into three contractor-loan arrangements the firm advised on between 2017 and 2020. No client has yet complained, no claim has been intimated, and the partners arranging cover view the enquiries as client matters rather than firm matters.
Under section 3 the position is straightforward. The HMRC enquiries are circumstances the firm knows about. A prudent insurer would consider them material because they create a foreseeable route to a professional negligence claim once any client receives an assessment and looks for someone to pay it. The partner arranging the renewal must disclose them.
If the enquiries are not disclosed and HMRC subsequently issues an adviser-conduct notice, the firm's exposure crystallises and the insurer is likely to argue a qualifying breach under section 8. The remedies range from proportionate premium adjustment to avoidance, depending on whether the breach is deliberate or reckless.
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.