It’s quite common to see a client asking to be named on your professional indemnity (PI) insurance policy in consultancy agreements. On the surface, it might not seem like a big ask, however in practice, it usually reflects a misunderstanding of how PI insurance works, and agreeing to it can be problematic.

In practice, your PI policy already protects your client. If they suffer a financial loss because of your professional negligence, the policy provides the financial backing to meet a valid claim. That’s the protection they really need. They don’t have to be named on the policy for that to work.

If you’re asked to add a client as an insured, it’s usually enough to explain that PI insurance is designed to cover the professional, not the client, and that insurers generally don’t allow clients to be included. You can reassure them that you maintain appropriate cover and are happy to provide evidence of insurance in line with the contract.

An insured party under a PI insurance policy has the benefit of the cover provided, allowing them to make a claim and receive legal defence from the insurer. PI insurance, is designed to protect you for civil claims arising from alleged negligence in the performance of professional services. It isn’t intended to provide cover to the person or organisation receiving your services. Furthermore, if your client were named as an insured, the insurer would effectively be covering both the party alleged to be negligent and the party bringing the claim. That creates an obvious conflict of interest, and it’s one of the main reasons insurers are generally unwilling to agree to it.

Clients may request being a named insured on your PI insurance policy as they assume that it will make it easier to recover losses if something goes wrong. In other cases however, the clause within the proposed agreement could have simply been copied across from other types of insurance, like public liability, where adding additional insureds is much more common. It’s also important to look carefully at any contractual wording that treats PI insurance in the same way as other types of liability cover, or that requires something the PI insurance simply won’t provide. Whatever the reason, it doesn’t sit comfortably with how PI insurance operates.

Your client needs to retain their own liability for any negligent act or omission and should obtain “single project insurance” for projects they are working on. Refer to our Practice Guide – Single Project Insurance.

Differentially, your clients are more often added as additional insured parties on a public liability policy because they may be exposed to risk if something goes wrong on-site. For example, if a member of the public is injured due to a design error or a construction accident related to your work, the client could be held vicariously responsible. By being added to the public liability insurance, the client’s interests are protected in case they are sued or held liable for the incident.

Some insurers may agree to include related entities as insureds, such as parent companies, subsidiaries, or joint venture vehicles where you have a direct interest. This is very different from naming a client. As a general rule, clients are not acceptable insured parties under PI policies.

PI insurance is one of the key safeguards for your practice. A clear understanding of how it works will help you push back confidently when needed and avoid agreeing to terms that could undermine your protection.

Stephanie Petreski
Contract Advisor

This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.