Professional indemnity insurance: what every practice needs to know

What it does

If a client says that your design, advice or supervision caused them loss, for example through an error, an omission or a failure to meet a duty of care, PI insurance can pay for the cost of defending the claim and, if it is upheld, compensation, subject to the terms, the limit and the excess. Without it, a single claim could threaten a practice's survival and leave clients unpaid.

Why it matters

• Professional expectations. In many places, regulators and professional bodies expect or require architects to hold adequate and appropriate cover. In the UK, the professional code for architects sets expectations about insurance.
• Clients. Many clients, lenders and public bodies require a minimum level of cover in the appointment.
• Protection. It protects clients, who can recover loss, as well as the practice.

Without it, a single claim could threaten a practice's survival and leave clients unpaid.

Key features of a policy

• Claims-made basis. Most PI policies cover claims made during the policy period, not just work done in the period. That means cover must be maintained, and the history of the practice's work matters.
• Limit of indemnity. The maximum the insurer will pay, either per claim or in total. Some contracts specify a minimum.
• Excess. The amount the practice must bear on each claim.
• Retroactive date. The date from which past work is covered.
• Run-off cover. If a practice closes, cover for claims arising after closure, often needed for many years because defects can emerge late.
• Defence costs. Whether they are within or additional to the limit.
• Exclusions. Matters not covered, such as certain kinds of pollution, asbestos, cladding, fire safety, contractual liabilities beyond the normal duty, or work in particular countries. These are very important to read.
• Territory and jurisdiction. Where the work is, and where claims can be brought.

Practical points

• Use a specialist broker who understands design practices.
• Be honest on the proposal form. Failure to disclose relevant facts can allow the insurer to refuse a claim.
• Notify circumstances promptly. If you think a problem may become a claim, tell your insurer and broker as the policy requires.
• Do not admit liability or settle without the insurer's agreement, as the policy usually requires.
• Check contracts. Do not agree liabilities that your insurance does not cover. Take care with warranties, indemnities, "fitness for purpose" duties and unusual terms. See How to write a good appointment agreement.
• Check cover for international work. See Working with a local architect of record.
• Review every year as the practice and its work change.

Other insurance

A practice may also need public liability, employer's liability (where there are employees, often compulsory), office contents, cyber, and others. Ask a broker.

In short

PI insurance protects clients and practices. Understand your policy, be honest, keep it renewed, and take care with the contracts you sign.

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