Partnership cover (PI)

Partnership cover is professional indemnity (PI) insurance arranged for a traditional unincorporated partnership of regulated professionals, indemnifying the firm and its partners against civil liability for negligent acts, errors, and omissions, in a context where each partner bears joint and several personal liability.

Definition §

A traditional partnership is a relationship between persons carrying on business in common with a view to profit, governed by the Partnership Act 1890. Partners share profits and losses, contribute capital, and bear personal liability for the firm's obligations. Section 9 of the Partnership Act 1890 provides that every partner is jointly liable for the firm's debts and obligations incurred while they are a partner. Section 10 provides that the firm is liable for the wrongs of any partner acting in the ordinary course of business of the firm or with the authority of the co-partners. Section 12 imposes joint and several liability on partners for those wrongs.^[1]

Partnership cover is the PI policy that responds to this combined exposure. The named insured is typically the firm in its trading name, with the policy schedule listing the partners individually (or by reference to the firm's partnership deed). Cover responds to civil liability arising from the partnership's professional business, whether the underlying act was that of a partner, employee, or consultant acting in the firm's name.

The economic significance of partnership cover is amplified by the joint and several liability rule. A claim against the firm can, on enforcement, be pursued against any single partner for the full amount of the judgment. That partner can then seek contribution from the other partners, but the practical risk falls heavily on individuals. PI insurance neutralises this for the partners' benefit by paying the claim out of the policy proceeds, so that the partners' personal assets are not exposed to the underlying loss.^[1]

Where the firm has insufficient PI cover, or where the claim exceeds the limit of indemnity, the partners' personal assets remain at risk for the uninsured balance. The choice of limit is therefore a partnership-level decision with personal consequences. Brokers commonly advise that the limit should be calibrated to the largest realistic transaction value handled by the firm, with a margin for severity.

Legal / Regulatory basis §

The Partnership Act 1890 is the foundational statute. Sections 9, 10, and 12 establish the liability framework that PI cover is designed to address.^[1] Section 14 deals with persons held out as partners, who may be liable for the firm's obligations even if not formally admitted to the partnership. Section 17 governs the liability of incoming and outgoing partners, with implications for the period of cover required.^[1]

The Insurance Act 2015 governs the placement of the policy. The duty of fair presentation in sections 3 to 8 requires the partnership to disclose every material circumstance known or which ought to be known to the partners. Knowledge is attributed across the partnership in accordance with section 4: the firm is taken to know what is known to any of its partners and senior management. Failure to make a fair presentation triggers the insurer's remedies in section 8.^[2]

For solicitors' partnerships, the SRA Indemnity Insurance Rules and the SRA Minimum Terms and Conditions (MTC) prescribe the form of PI cover. The MTC require a per-claim limit of two million pounds for partnerships (other than LLPs and incorporated practices, which carry a three million pound minimum), full prior acts cover, and a six-year run-off on closure. Permitted exclusions are limited.^[3]

For accountancy partnerships, the ICAEW PII Regulations require continuous PI cover.^[4] For surveyors' partnerships, the RICS Rules of Conduct 2022 impose corresponding minimums.^[5] For insurance intermediaries operating as partnerships, FCA MIPRU 3.2.7R applies on the same terms as to other intermediary structures.^[6]

The Solicitors Act 1974 underpins the regulatory framework for solicitors and provides the statutory basis on which the SRA prescribes minimum PI cover for partnerships.^[7]

How it works in practice §

Placement begins with a comprehensive proposal form completed by the partnership. The form covers the partners' qualifications, the firm's trading history, breakdown of work by discipline, fee income, claims history, and known circumstances. The disclosure exercise must capture the knowledge of all partners and senior staff, in line with the Insurance Act 2015's attribution rules.^[2]

The policy schedule names the firm and lists the partners. Care is required when partners join or leave: a new partner is typically added to the schedule by endorsement, while a departing partner remains covered for acts performed during their partnership tenure. The continuity of cover for departing partners is important because their joint and several liability for pre-departure acts can persist long after departure.^[1]

In claim handling, the policy responds to claims first made during the policy period and arising from acts after the retroactive date. Notification is the responsibility of the firm, typically through the managing partner or a designated risk officer. The insurer appoints defence solicitors and conducts the defence in cooperation with the firm. Settlement decisions are taken in accordance with the policy, often with a QC arbitration mechanism for unresolved disputes.

Particular care is required where a claim arises from the act of a single partner. The firm and the other partners are vicariously liable under section 10 of the Partnership Act 1890, and the policy responds on that basis. The partner whose act gave rise to the claim is also personally liable. Where the underlying act amounts to dishonesty, the policy's dishonesty exclusion may engage as to the dishonest partner but, under the MTC for solicitors, the policy must still respond to the innocent partners' joint and several liability to the claimant.^[3]

On dissolution, the partnership arranges run-off cover for the standard six-year period (longer for some professions). The run-off policy covers claims first made after dissolution but arising from acts during the partnership's operation. Departing partners remain covered for the duration of the run-off in respect of their pre-departure acts; the firm's run-off policy is the principal vehicle for this protection.

The partnership may also need to address changes in trading vehicle. Many traditional partnerships have converted to LLPs since the Limited Liability Partnerships Act 2000 came into force. On conversion, the existing partnership's PI cover does not automatically transfer to the LLP. A separate LLP policy is normally arranged, with run-off cover for the former partnership to address claims relating to pre-conversion acts.^[8]

Common variations §

Variations include the size of the partnership, the practice areas covered, and the limit of indemnity. Large multi-discipline partnerships often arrange a tower of cover with a primary layer and one or more excess layers, while smaller firms typically operate with a single layer matching the regulator's minimum or a modest enhancement.

Some partnerships include partner-only consultants or fee-earner consultants who are not formal partners but who are integrated into the firm. PI policies should clarify whether such persons are within the definition of 'insured' and whether their acts trigger cover.

Treatment of incoming and outgoing partners varies. Most policies extend cover automatically to new partners as they join, on notification to the insurer. Departing partners are typically covered for their pre-departure acts under the firm's policy and run-off, although a personal indemnity arrangement may be added to provide certainty.

Partnerships with international offices or partners in other jurisdictions face additional complexity. PI cover may need to be arranged across multiple wordings to address foreign regulatory requirements, with master policy and local policy structures used to coordinate cover.

The relationship between the firm and its partnership deed is significant. The deed typically governs how PI cover is procured, who has authority to bind the firm in negotiations with insurers, and how PI premium is allocated between partners. A well-drafted deed eases the placement process and reduces the risk of internal disputes about cover decisions.

Example §

A three-partner accountancy partnership renews its PI cover with a per-claim limit of two million pounds, an aggregate limit of four million pounds, full prior acts cover, and a retroactive date matching the firm's incorporation date in 2010. A claim arises from negligent tax advice given by one of the partners in 2022. The insurer accepts notification, appoints defence solicitors, and settles the matter for 380,000 pounds, all within the per-claim limit. Under section 10 of the Partnership Act 1890, all three partners would otherwise have been jointly and severally liable for the full amount; the policy meets the loss and protects their personal assets. If the partnership dissolves in 2028, run-off cover for six years would protect the former partners against claims first made after dissolution but arising from their partnership-era acts.

See also §

• /wiki/professional-indemnity-insurance/ — the policy framework
• /wiki/llp-pi/ — comparison with LLP structure
• /wiki/sole-practitioner-cover/ — comparison with sole trader structure
• /wiki/run-off-coverage/ — cover after dissolution
• /wiki/practising-certificate-insurance/ — regulatory dimension
• /wiki/solicitors-indemnity-fund/ — post-six-year arrangements
• /wiki/dishonesty-exclusion/ — interaction with partner misconduct
• /wiki/insurance-act-2015/ — statutory backdrop

References §

1. ↑ Partnership Act 1890, sections 9, 10, 12, 14, 17 — https://www.legislation.gov.uk/ukpga/Vict/53-54/39
2. ↑ Insurance Act 2015, sections 3-8 — https://www.legislation.gov.uk/ukpga/2015/4
3. ↑ SRA Indemnity Insurance Rules and SRA Minimum Terms and Conditions — https://www.sra.org.uk/
4. ↑ ICAEW PII Regulations — https://www.icaew.com/
5. ↑ RICS Rules of Conduct 2022 — https://www.rics.org/
6. ↑ FCA Handbook, MIPRU 3.2.7R — https://www.handbook.fca.org.uk/handbook/MIPRU/3/
7. ↑ Solicitors Act 1974 — https://www.legislation.gov.uk/ukpga/1974/47
8. ↑ Limited Liability Partnerships Act 2000 — https://www.legislation.gov.uk/ukpga/2000/12