Professional Indemnity insurance is “claims made,” covering claims made during the policy period, even for past work. Cover must have been in force when the work was done and when the claim is made. If the policy lapses, no cover applies for claims arising from past work. Continuous cover is essential, even after ceasing business or retiring.

This is the date from which you held uninterrupted professional indemnity insurance cover (regardless of whether you changed insurers during this period)) or a date in the past which your insurer has explicitly agreed to cover you from. If you have a claim for work you carried out prior to this date, it would not be covered by your professional indemnity insurance.

If you didn’t buy a Professional Indemnity Insurance policy when you started trading, early work is uninsured. When you realise you need cover, you can request it to include past work, i.e. to include “retroactive cover”. The insurer must be convinced it’s not to cover a known upcoming claim. If satisfied, they may offer retroactive coverage for a higher premium, reflecting the added risk.

If your limit of indemnity is on an “Aggregate” basis, this means that this is the maximum that your insurers will contribute to the total value of all claims made against your firm during the year. For example, if your limit of indemnity is £1,000,000 and you have a claim made against you for £400,000, and another separate claim made against you for £800,000 during the same year, your limit will be exhausted and you would be responsible for the remaining £200,000. Having an aggregate limit of indemnity is not as wide as having an “Any One Claim” limit. See below.

If your limit of indemnity is on an “Any One Claim” basis you can have an unlimited number of separate claims during the year which are covered up to the policy limit. Therefore insuring on an “Any One Claim” basis is more expensive than insuring on an “Aggregate” basis, as the cover is more comprehensive.

Defence costs are referred to within Professional Indemnity Policies. Defence costs simply means the legal costs incurred in instructing solicitors to defend your position if a claim is made against you/your firm. These costs are usually met by your insurer, subject to the policy excess, if it applies to defence costs.

A “defence costs in addition” Professional Indemnity policy covers legal defence costs separately from the indemnity limit, meaning legal expenses do not reduce the amount available to pay claims.

A “defence costs included” policy includes legal defence costs within the indemnity limit, so legal expenses reduce the total amount available to settle claims.

If multiple claims against your firm are deemed to originate from the same source, the insurer may treat them as a single claim, limiting their payout to the “Any One Claim” limit. For example, with a £1,000,000 limit, three £1,000,000 claims might be aggregated into one, leaving you liable for £2,000,000. Aggregation can also benefit policyholders by reducing the number of policy excesses.

The excess applicable to your policy can work in two different ways. It can be “applicable to defence costs” or it can be “not applicable to defence costs”. Misunderstanding how the excess applies to “defence costs” can be a costly mistake. If an allegation of negligence is made against your firm, whether unfounded or not, your insurers may need to instruct solicitors to defend your position.

The legal fees incurred in defending your position are known as defence costs. If your excess is applicable to defence costs, and your excess is say £2,500, you would have to pay the first £2,500 of the incurred defence costs. If the excess is “not applicable to defence costs”, you will only be obliged to contribute towards the actual claim awarded by the court (or as is more common, the amount agreed between your insurer and the claimant as claims do not always reach the court).