Wiki — new firm PI checklist

A checklist for a professional firm buying professional indemnity insurance for the first time — the questions to answer before you place cover, and the ones you cannot afford to answer after. Written for solicitors, accountants, architects, surveyors, IFAs and management consultants setting up in the UK.

Before you speak to a broker: the ten-minute prep

The single biggest cause of a first PI placement going sideways is a proposal that is filled in in a hurry. Before you make the first call, get the following in one place:

• Legal entity. Sole trader, partnership, LLP, limited company. Name exactly as it will appear at Companies House or on your practising certificate.
• Regulator and any professional-body membership. SRA, CLC, ICAEW, ACCA, AAT, FCA, ARB, RICS, RIBA — the regulator sets the minimum limit and often the wording, and the broker needs to know before quoting.
• Trading start date and first invoice date. These are not always the same and both matter for the retroactive date discussion.
• Fee income forecast for the first twelve months. An honest estimate, split by work type if you can — mainstream consulting versus higher-risk niche work will be priced differently.
• Prior work history. Did you leave a firm that carried PI on your previous work? If so, the retro date matters more than the limit.
• Any live matters, complaints or circumstances. Anything you have been told might become a claim needs to be on the table at inception, not later.

Cover — the insuring clause and what it should say

A professional indemnity policy indemnifies the practice against civil liability arising from acts, errors or omissions in the provision of the covered professional services. The wording matters. Look for:

• A defined "insured" that names the practice, partners, employees and any consultants you use.
• A defined "professional services" clause that captures every activity you charge fees for. If your practice earns fees for something the wording does not name, you may not be covered for it.
• Defence costs treatment — whether they sit in addition to the limit or erode it. Both are legitimate; you should know which you are buying.
• Standard extensions where you need them: loss of documents, dishonesty of employees, court attendance costs, defamation, breach of confidentiality, Ombudsman awards where relevant.

Limit of indemnity

The minimum limit is set by your regulator. The SRA MTC minimum is £2 million (£3 million for LLPs and companies). RICS requires £250,000 to £10 million depending on turnover under its scheme. ICAEW requires cover of 2.5 times gross fee income subject to minimum and maximum bands. FCA-regulated IFAs sit under IPRU-INV 13 with a formula tied to income and activities. Check the current requirement with your regulator and buy at least that; buying more is a business judgement about the risk profile of your practice and your clients' expectations.

Retroactive date

Claims-made PI covers claims made against you during the policy year in respect of acts done on or after the retroactive date. For a genuinely new practice with no prior professional history the retro date can be inception — because there is nothing before to worry about. For a practice that has taken on work already done elsewhere, or for a professional bringing a book of prior work into a new firm, the retro date should push back to cover that earlier work. Get this wrong and you have a gap between when you did the work and when the policy will respond.

Run-off — think about it before you need it

Every PI policy contemplates the day the firm closes. When that day arrives you need run-off cover: a policy that responds to claims made against the closed firm in the years after closure, in respect of work done while it was open. Run-off runs for a period set by your regulator — six years for most SRA firms, six years for ICAEW, two years for the LSS Master Policy — and is generally paid as a single premium at closure. You cannot buy it retrospectively; you buy it from the same insurer, at closure, at a rate that reflects the exposure. Knowing this at inception affects who you place your primary cover with.

Disclosure — your duty at inception

Under the Insurance Act 2015 a commercial insured owes a duty of fair presentation of the risk. That means disclosing every material circumstance you know or ought to know, in a manner reasonably clear and accessible to a prudent insurer, at inception and again at renewal. For a new practice this means disclosing:

• Every professional's prior claims and prior circumstances (not just the ones that became claims).
• Any regulatory investigation, disciplinary matter or client complaint against any principal.
• The full activity mix, including any work you know you will be doing but have not started.
• Any prior refusal, cancellation or non-renewal of PI cover.

Non-disclosure gives the insurer a remedy that can range from proportional adjustment of a claim to avoidance of the policy from inception. It is the single most avoidable reason a first PI placement fails at claim.

The final sanity check before you bind

Before you sign the proposal and pay the premium, read the schedule and satisfy yourself that: the insured is named correctly, the limit is at or above the regulatory minimum, the professional services clause covers what you actually do, the retro date is right, defence costs are as you expect, the excess is one you can fund, and every material fact you disclosed is captured on the schedule or the endorsement. If any of those are wrong, the policy is easier to fix now than after a claim.