A severability clause protects the innocent members of a firm when one individual has been dishonest or has failed to disclose something material. It treats the policy as if it were a separate contract with each insured, so one person's wrongdoing does not bring down cover for everyone.
A partnership or company buys a single PI policy covering all partners, directors and staff. If one partner commits fraud, or conceals a material fact when the policy is placed, ordinary insurance principles could allow the insurer to avoid the whole policy for misrepresentation or to rely on a dishonesty exclusion across the board. The innocent partners would be left exposed for something they knew nothing about.
A severability clause has two related effects:
For solicitors, the SRA Minimum Terms and Conditions effectively require this protection: the compulsory wording prevents an insurer from refusing to indemnify innocent insureds because of another's dishonesty, and limits the insurer to recovery against the wrongdoer. Many voluntary-market wordings for accountants, insurance brokers and other professions adopt the same approach, though the breadth varies and should be checked.
The duty of fair presentation under the Insurance Act 2015 also interacts here. The Act allows proportionate remedies for non-disclosure, but a robust severability clause goes further by ring-fencing innocent insureds from the consequences of a colleague's deliberate concealment.
Severability is the difference between a single rogue partner being a personal disaster and being a firm-ending event. In professions where client money or sensitive advice is handled, the risk of one individual acting dishonestly is real, and the cost to the innocent majority can be severe without this protection.
Apex checks the severability wording when placing partnership and corporate PI cover, paying particular attention to how knowledge is imputed and how the dishonesty exclusion is drafted. For sector detail see the solicitors PI guide, the accountants PI guide and the insurance brokers PI guide.
Not all severability clauses are equal. Some sever only the proposal and not the exclusions; some impute the knowledge of directors and partners more readily than that of junior staff; some cap the innocent-party protection at a sub-limit. The key questions are whose knowledge is treated as the firm's, whether the dishonesty exclusion is applied person-by-person, and whether the insurer's recovery rights are limited to the wrongdoer. These details decide how much protection the innocent majority really has.
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.