Professional indemnity cover is written on a claims-made-and-notified basis. That means the policy responds to claims first made against the insured, and to circumstances first notified, during the period of insurance. A circumstance is not yet a claim. It is a fact, matter or event that the insured becomes aware of and that may give rise to a claim at some later date. Recognising a circumstance early, and notifying it, is what carries the right to indemnity forward even if the actual claim arrives years later under a different policy.
Most PI wordings define a circumstance in broad terms - typically any circumstance, fact, matter or event of which the insured first becomes aware and which may, or is likely to, give rise to a claim. The threshold wording matters. A wording that captures anything that may give rise to a claim is wider than one triggered only where a claim is likely. The broker's task is to read the exact wording, because the test the insured must apply before deciding whether to notify is set by that language, not by a general rule.
The principal authority is HLB Kidsons v Lloyd's Underwriters [2008] EWCA Civ 1206. The Court of Appeal considered what an insured must be aware of before a matter becomes a notifiable circumstance. The court drew a distinction between a wording that requires awareness of circumstances which may give rise to a claim and one requiring awareness of a specific problem. The practical point that emerged is that the insured needs a real, as opposed to fanciful, appreciation that a claim may follow - not proof that a claim will succeed. A vague sense of unease is not enough; equally, the insured need not wait for a formal demand.
For regulated professionals the trigger is often a client complaint, a missed limitation date, an error spotted on file, a regulator's enquiry or a demand for a fee refund. Each of these can be a circumstance long before anyone frames it as a negligence claim. Solicitors weighing a possible undertaking breach, and accountants who identify a filing error, both face the same question: is this something that may give rise to a claim? Our guides for solicitors' PI insurance and accountants' PI insurance set out how the claims-made structure shapes that judgement.
Because the awareness test turns on what the insured knew and when, firms benefit from a simple internal rule: escalate anything that could conceivably become a claim to the person who handles insurance, and take a view on notification rather than leaving it to drift. Under-notifying risks losing cover; over-notifying is generally the safer error, though it should be done in a considered way rather than as a reflex. Apex can review a firm's notification wording and help frame a circumstance so that it protects the client's position without overstating the position to insurers.
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.