Subrogation gives a professional indemnity insurer the right to step into the insured's shoes and pursue any third party who contributed to the loss the insurer has paid. In principle it is a neutral mechanism for allocating loss. In practice, the insurer's appetite for recovery and the insured's commercial, reputational and professional interests can pull sharply in different directions.
Three scenarios recur. The first is where the third party targeted by the subrogated claim is a firm with whom the insured has an ongoing relationship — a sub-consultant, a specialist adviser, or a repeat referrer. A surveyor's PI insurer may want to pursue the structural engineer whose report the surveyor relied on; the surveyor may work with that engineer on ten other current instructions. The second is where the insurer favours aggressive litigation to maximise recovery, while the insured would prefer a quicker commercial resolution that preserves relationships. The third arises at settlement — the insurer may hold out for a higher figure than the insured, whose overriding interest is closure and continued trading.
English law does not leave the insured without protection. In Groom v Crocker [1939] 1 KB 194 the Court of Appeal confirmed that where the insurer has the conduct of litigation in the insured's name, it owes an implied duty of good faith and reasonable regard to the insured's interests as well as its own. That is not a duty to prefer the insured — the insurer retains commercial autonomy — but it constrains conduct that would cause the insured avoidable harm.
The principle sits alongside the recovery framework in Napier v Hunter [1993] AC 713, where the House of Lords set out the equitable basis on which insurer and insured share proceeds where the insured is not fully indemnified. More recent authority, including Endurance Corporate Capital Ltd v Sartex Quilts & Textiles Ltd [2020] EWCA Civ 308, has continued to emphasise that indemnity insurance is a good faith relationship in which each party's interests are to be taken into account.
Most PI policies contain express conditions requiring the insured to co-operate with recovery efforts and not to prejudice the insurer's rights. These conditions are legitimate but do not oblige the insured to accept every tactical decision without question. Read together with the implied duty of good faith, they envisage a co-operative process, not an insurer monologue.
ICOBS 8.1 requires insurers to handle claims promptly and fairly, and not unreasonably to reject a claim or reduce settlement. The fair-treatment principle informs recovery conduct on the insured's own policy. Where the insured is within scope, the FCA Consumer Duty (PRIN 2A) requires insurers to deliver good outcomes and avoid foreseeable harm — including harm to the insured's wider commercial interests where the insurer controls the process.
An insured who considers the insurer's course unreasonable is not without recourse. Options include: seeking a documented explanation of the tactical rationale; instructing separate solicitors at the insured's own cost to advise on the conflict; requesting a defined settlement authority that requires the insured's consent above a threshold; invoking any policy dispute-resolution clause (many PI wordings contain an arbitration or expert-determination route); and, for eligible complainants, referring the matter to the Financial Ombudsman Service.
Early, transparent communication is worth more than any later dispute mechanism. When notifying a circumstance under the PI policy, Apex will typically raise the ongoing-relationship question at the first meeting with insurers: who might be pursued in recovery, what commercial ties exist, and what the insured's preference is. An agreed litigation strategy and a defined settlement authority, recorded at the outset, save argument later.
Worked example (illustrative only). An architect's PI insurer pays a £400,000 indemnity to a developer following a design defect. Investigation reveals that approximately 50% of the underlying responsibility lies with the M&E consultant on the project, with whom the architect has 15 ongoing instructions. The insurer proposes an aggressive £200,000 subrogated claim against the M&E firm. The architect is concerned that hostile proceedings will destroy the working relationship.
The architect engages independent counsel to negotiate with the insurer. The parties agree in writing that (a) a commercial resolution will be attempted first, through a without-prejudice approach to the M&E firm's PI insurer; (b) if proceedings become necessary, the architect will have input on litigation strategy; and (c) any settlement above an agreed threshold requires the architect's consent. A negotiated recovery of £120,000 is achieved without proceedings, the relationship survives, and the architect continues to instruct the M&E firm on live projects.
Apex arranges PI cover for solicitors, architects, surveyors, accountants and other professionals. Recovery conduct after a paid claim is one area the firm's broking service pays particular attention to — flagging conflict scenarios early, documenting settlement authority, and, where necessary, helping the insured obtain independent advice. Related reading is available at the foundational subrogation entry and the recoveries practice note. Profession-specific PI guides cover architects, solicitors 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.