Professional indemnity cover is written on a claims-made basis for a defined policy year, but a firm's risk profile rarely stands still for twelve months. New hires join, partners retire, service lines expand, offices move, and firms merge or split. Each event can change the risk the insurer agreed to underwrite at inception. A mid-term adjustment is the mechanism by which broker and insurer bring the policy back into alignment with the risk actually being run.
Common triggers include a change in fee-earner headcount (partners, directors, employed professionals, consultants and contractors); the addition of a new practice area; a merger, acquisition, buy-out or team lift-out; the departure of a book of work with a leaving principal; a change of legal entity or trading name; an office relocation or the opening of a new office, particularly into a new jurisdiction; a material change in fee income; and a change in the cyber or data-handling profile — for example a new practice-management system, or work that materially increases the volume of personal data processed.
Not every change requires immediate notification, and the policy wording is the primary reference. In practice, headcount changes, new service lines, M&A activity and relocations should be flagged to the broker as they happen.
Under section 3 of the Insurance Act 2015 the insured owes a duty of fair presentation of the risk at inception, at renewal, and at any variation of the contract. A mid-term adjustment is a variation. The duty requires disclosure of every material circumstance the insured knows or ought to know, or sufficient information to put a prudent insurer on notice that it needs to ask further questions. Section 4 sets out the reasonable-search standard: the firm's knowledge is taken to include information held by senior management and by those responsible for the firm's insurance, and a reasonable search of information available within the firm is expected.
For a corporate insured that ordinarily means the compliance principal, the firm's insurance contact and the practice-area heads should be consulted before a material variation declaration is signed off.
PI wordings commonly include a notification-of-changes clause requiring the insured to tell the insurer, via the broker, of specified events during the policy year. These clauses often list headcount changes above a stated threshold, changes in the nature of the professional services provided, changes in ownership or control, and changes to the firm's regulated status. Many wordings condition cover in respect of the new risk on prior written agreement from the insurer — a condition precedent to liability. Where a wording is drafted that way, silence is not an option.
Insurers usually reserve the right to require a mid-term declaration form, to charge an additional premium, to impose amended terms (for example a higher deductible for a new practice area) or, in rare cases, to decline the additional risk.
Worked example. A three-partner high-street solicitors firm buys out a retiring principal from a neighbouring practice mid-year and takes on his book of residential conveyancing and probate work. The firm becomes a four-partner practice with a higher conveyancing weighting than the insurer originally rated.
The managing partner notifies the broker within 30 days of completion. The broker completes a mid-term declaration under the Insurance Act 2015 s.3 fair-presentation duty, disclosing the incoming partner's claims and circumstances history, the fee-income split projected to year-end, and the change in headcount. The insurer accepts the revised risk and charges an additional premium of £3,400 pro-rated to the remainder of the policy year. The incoming partner's book of work is confirmed as covered from the date of the buy-out.
Had the firm not notified, a subsequent claim would fall to be considered under the Insurance Act 2015 s.8 proportionate remedies for a qualifying breach of the duty of fair presentation at variation — remedies that range from additional-premium recovery through amended terms to avoidance where the insurer would not have written the varied risk at all.
Worked example. A commercial-focused architects practice takes on its first bespoke high-net-worth residential project mid-year, working with a private client on a listed building. Residential and heritage schemes are rated differently by PI insurers because of the claims profile. The practice tells the broker before starting on site. A mid-term declaration is made, the insurer requires a modest additional premium and a slightly higher deductible for residential claims, and the work proceeds on a compliant basis.
Mid-term adjustments are rarely difficult when handled promptly, and the additional premium is usually a fraction of the exposure. The moment a firm is negotiating a buy-out, planning a new service line, or short-listing a candidate whose arrival would materially change the fee-earner mix, the broker should be part of the conversation. Apex Insurance Brokers advises professional firms on PI mid-term adjustments across the professions we serve, including solicitors, architects, accountants, IFAs and surveyors.
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.