Limitation determines how long after negligent work a claim can be brought, and it shapes why professional indemnity cover must be maintained long after an engagement ends. The Limitation Act 1980 sets the framework. A claim in contract must be brought within six years of the breach under section 5. A claim in the tort of negligence must be brought within six years of the damage occurring under section 2 - which can be later than the breach itself.
Because economic loss from professional negligence is often hidden, section 14A of the Act, inserted by the Latent Damage Act 1986, gives claimants an alternative period of three years from the date they had the knowledge required to bring the claim. Section 14B imposes a fifteen-year long-stop from the negligent act, beyond which most negligence claims cannot proceed regardless of knowledge.
Law Society v Sephton & Co [2006] UKHL 22 clarified when the cause of action accrues in negligence claims involving contingent liabilities. The House of Lords held that a purely contingent liability - one that may never crystallise - is not itself actual damage, so time does not start to run until measurable loss is suffered. This can significantly extend the period during which an accountant remains exposed.
Where a defendant deliberately conceals relevant facts, section 32 of the Act postpones the start of the limitation period until the claimant discovers, or could with reasonable diligence have discovered, the concealment. In fraud-related audit claims this can push exposure well beyond the ordinary periods.
Because a claim can be brought years after the work was done - and after a firm has stopped trading - professional indemnity on a claims-made basis must be kept in force through run-off. A firm that ceases without run-off leaves its former principals exposed to claims that limitation still permits. Apex explains run-off and its triggers on the accountants PI guide, and the same latent-damage reasoning shapes long-tail exposure for surveyors.
Where a limitation deadline is approaching but the parties are still investigating or negotiating, they sometimes enter a standstill agreement that suspends the running of time by consent, avoiding the need to issue protective proceedings. For an accountant on the receiving end, a request for a standstill is a signal that a claim is being contemplated and is usually a circumstance that ought to be notified to PI insurers. Agreeing or refusing a standstill is a decision better taken with insurer involvement, because it affects the timing and conduct of any eventual claim.
Limitation and the claims-made basis of PI cover pull in different directions and must be managed together. Limitation defines the window in which a claimant may sue; the claims-made policy defines which insurer responds, by reference to when the claim or circumstance is first notified rather than when the work was done. A firm that lets cover lapse, or fails to notify a circumstance in the correct policy year, can find that a claim is still live under limitation but no longer covered. Keeping cover continuous and notifying promptly is what closes that gap.
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.