Have you ever queried what some of the terms on your professional indemnity (PI) insurance policy mean? Below we outline questions we are commonly asked by consultants.

1. What does my PI policy cover me for?

Your PI insurance policy is designed to protect you for claims made by third parties arising out of a breach of your professional duty up a maximum amount (i.e., the limit of indemnity on your PI policy).

Your policy wording contains the terms and conditions of your policy coverage. It is important to realise that your policy won’t cover you for absolutely everything. There are common exclusions on PI policies such as asbestos, dishonesty, the supply of goods, construction work, and proximity.

For example, if a claim was made against your practice stating that you negligently specified a product containing asbestos, then it is very likely that your PI policy will exclude cover.

Some policies might even exclude coverage for when you engage sub-consultants that are not in the same profession as you, or they might even exclude cost estimates claims.

Make sure you have taken the time to carefully read your policy schedule and wording. If you have any questions, you should speak to your broker.

You might also like to read our previous article that outlines “Who can be named on your PI policy?”

2. What does the aggregate limit mean?

Your PI policy will usually state an “aggregate limit”. This is the maximum total amount your insurer will pay for all claims that occur during the same policy year.

Your policy wording (and sometimes the policy schedule) may also refer to a “reinstatement” extension. That is, following a claim, the number of times the limit of indemnity will be reinstated for a new, unrelated claim. Policies typically provide between one and five reinstatements.

For example, let’s assume your PI limit of indemnity is $10m and your aggregate limit is $60m with five reinstatements. If you make a claim for $10m in your policy year, then your limit of indemnity will be reinstated to $10m. You would then have four reinstatements left during that policy year. That would mean your insurer could, in theory, pay out five more claims (at no more than $10m per claim) for that policy year.

If you had a very unfortunate year, and your insurer ends up paying out six claims each totalling $10m (so a total of $60m), and there was a further claim for $2m, your policy would not cover this claim (or any further claims) during the policy year as you have exceeded the reinstatement limit.

3. What is a “claims made” policy versus an occurrence based policy?

PI insurance is a “claims made and notified” policy. This is different to “occurrence” based policies, such as public liability, health, home and car insurance policies.

Each PI policy is typically for a one year period and will cover new claims made during that policy period, provided that the insurer is notified in that same period and before the expiry of that period.

If you do not renew your PI policy then you will have no cover for any new claims that may arise from previous or future work.

For example, consider the below scenario:

This scenario illustrates that, if you need broader or extra cover in one policy year, you also need to maintain the extra cover in future years, for as long as you are exposed to a risk or claims arising out of that project.

An occurrence based policy will cover claims arising out of events that occur during the policy period irrespective of when a claim is lodged. For example, an incident covered by public liability insurance occurs in January 2025 but a claim is not made until January 2026, then the policy active at the time of that incident (i.e., in January 2025) will respond to that claim.

4. What does retroactive date mean?

Your PI policy will list a “retroactive date”. Often the retroactive date is “unlimited”, and in that case your insurer is covering new claims arising out of all your past work, no matter how long ago the work was done.

However, if for example the retroactive date on your policy was 2 March 2026, then this policy would only cover you for a claim that arises out of work that you did on or after 2 March 2026, and this policy would not provide any cover at all for claims arising out prior work. An insurer will usually impose this kind of retrospective date if you were performing professional services prior to that date without having any PI insurance cover in place. If you take the risk of trading without insurance in certain years, insurers are unlikely to agree to cover this gap by later providing retrospective cover for that period.

5. Why are notifications so important?

Given your PI policy is a “claims made” policy, it is essential that as soon as you become aware of a potential complaint (of breach of professional duty) that you notify your insurer, usually via your broker. Your broker can advise you of the notification process, which will likely require completing a notification form and may also include liaising with claims managers.

You should make a notification even if you believe the complaint is not justified and irrespective of whether the complaint is verbal or in writing, and whether it is by a client or a third party.

If you don’t notify circumstances that could lead to a claim, especially before the end of your policy term, you may not be covered at all. Whilst not all notifications turn into claims, the best approach is to always notify a potential claim.

To recap, it is essential that you take the time to carefully read your PI policy and the policy wording. Plus, notify potential claims promptly, and set up processes within practices to help staff keep management informed of any problems on projects, so that notification can be made if required.

Lisa Wastell-Anthony
Risk Manager

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.