PI cover in the UK is written on a claims-made basis. The policy responding is the one on risk when the claim is first made against the insured, or when a circumstance is first notified to insurers. Confusing the two can move a matter from a policy year the insured is happy with to one they are not.
A claim is a formal demand from a third party. In PI wordings it usually means a written communication asserting a right to compensation or a remedy, or the issue of proceedings. The claim exists in the outside world: the client, the counterparty or their solicitor has said, in terms, that the professional is answerable for something. The trigger is the insured's receipt of the demand.
A circumstance is different. It is a set of facts of which the insured has become aware, and which may give rise to a claim. There is no demand yet. Policy wordings typically require notification of any circumstance the insured becomes aware of, or that a reasonable professional would recognise as likely to lead to a claim. The trigger is awareness of the facts, not any communication from a third party.
Every well-drafted PI wording contains a deeming clause. If a circumstance is validly notified during the policy year, any claim later arising out of it is deemed to have been made during that same year, regardless of when the formal claim lands. The current policy responds; the later policy does not.
If the insured lets the year run out without notifying a circumstance they were aware of, and the formal claim arrives in the following year, the claim may be caught by the known circumstances exclusion of the new policy - see known circumstances exclusion - and refused by the old policy because no claim was made in that year. The professional can find themselves uninsured for something they knew about at the time.
The courts have looked closely at what a notification must contain. In Kajima UK Engineering v Underwriter Insurance [2008] EWHC 83 (TCC), Akenhead J held that a notification must identify the facts sufficiently for insurers to understand what may be coming. A generic sweep-up notice - a bare statement that the insured foresees possible claims from a range of projects - is unlikely to bite. The notification must tie the future claim to the facts before insurers at the time.
In HLB Kidsons v Lloyd's Underwriters [2008] EWCA Civ 1206, the Court of Appeal considered a notification made about a tax planning product. It examined whether the notice conveyed enough about the underlying facts to fix later claims to the policy year. Rix LJ's judgment is the reference point on the standard of specificity a valid notification must meet.
The point was tested again in McManus Seddon Runhams v European Risk Insurance Company [2013] EWHC 18 (Ch), where a firm of solicitors argued that a broad notification covered a range of files. The court declined to read it so widely. Blanket notifications are not a substitute for identifying the specific matters concerned.
Example (illustrative only, not advice on any actual policy). An accountancy firm receives an email from a client complaining about a personal tax return. The client is angry. They have not demanded money, instructed solicitors or identified a loss figure. Strictly this is not yet a claim - but it is plainly a circumstance the firm is aware of.
Under the duty of fair presentation in section 3 of the Insurance Act 2015, and under the notification condition of the policy, the firm should notify the circumstance during the current policy year. See circumstance notification explained. The notification should describe the client, the return, the period covered, the nature of the complaint and the potential exposure.
If the firm does not notify, and a formal letter of claim arrives four months later in a new policy year, the deeming clause of the earlier policy cannot help. The new policy may refuse to respond on known circumstances grounds.
Apex Insurance Brokers acts for firms in solicitors' PI, accountants' PI, architects' PI and surveyors' PI. The judgement call between claim and circumstance is one Apex will talk through on the facts - what the wording says, what the deeming clause requires, and the level of detail needed to meet the Kajima and Kidsons standard.
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.