Professional Indemnity: Common Policy Exclusions

Professional Indemnity (PI) insurance is designed to cover insureds for their liability to pay compensation for errors and omissions that may arise in relation to professional services they provide. When reviewing a PI policy, its critical to also review and understand any exclusions that apply in the policy.

PI insurance policies will typically contain various exclusions, which are specific situations or circumstances that are not covered by the policy. The types of exclusions vary depending on a range of considerations including the type of profession, nature of the risk, and the insurers underwriting approach and risk appetite. However, as a starting point, here are some examples of the more common exclusions you may see in a PI policy wording.

Known Claim or Circumstance Exclusion

One of the most common exclusions in a PI insurance policy is the ‘Known Claim or Circumstance’ exclusion. While the wording of this exclusion may vary, generally cover is excluded for any:

• claims made on the insured prior to inception of the policy;

• any fact, matter or circumstance known to the insured, at any time prior to the inception of the policy, and which the insured knew or a reasonable person in the insured’s profession could, in the circumstances, be expected to know or have known might give rise to a claim against the insured;

• fact matter or circumstance which were disclosed by the insured to the insurer prior to the inception of the policy, whether in the proposal or otherwise; or

• fact, matter or circumstance which was notified by the insured to any prior insurer.

It is particularly important that you and your client understand the nature and effect of this exclusion.

Fraud and Dishonesty Exclusion

PI policies will generally exclude cover for claims arising from a fraudulent, dishonest or criminal act.

Contractual Liability Exclusion

PI insurance policies often include some form of exclusion relating to contractual liabilities. Contractually assumed liabilities in contracts may include express warranties or guarantees, indemnities, hold-harmless provisions or assuming liability for the work of others. This exclusion can limit cover for any contractual liability assumed by the insured under a contract or agreement. Some PI policies may provide a ‘writeback’, and an example of a ‘writeback’ in this instance is where the exclusion will not apply to liability that the insured would have in the absence of such contract or agreement.

Bodily Injury and/or Property Damage Exclusion

Additionally, many PI insurance policies exclude cover for bodily injury or property damage claims. Again, some policies may provide for a ‘write-back’ for bodily injury and/or property damage claims that arise out of a breach of professional duty owed by the insured whilst providing professional services. The scope of cover provided for these types of claims may vary depending on the insurer and the nature of the professional services undertaken by the insured.

Retroactive Date Exclusion

Conduct of the business prior to the retroactive date (usually stated in the policy schedule) is excluded under the policy. For more information about the types of retroactive dates that can be applied to a PI policy, check out our article: ‘What is the Retroactive Date?’

Trading Loss Exclusion

A trading debt or trading loss is a debt or loss incurred in the course of the insured’s business or trade. As trading debts or losses are generally not compensatory in nature and PI policies are intended to deal with claims for compensation, claims for trading debts or trading losses are generally excluded.

Asbestos Exclusion

It is not uncommon to see an asbestos exclusion in a PI policy due to the high risk and potential costs associated with asbestos. Asbestos related claims can be extremely costly due to the health risks and long latency of asbestos related diseases.  

Understanding What is Not Covered

PI insurance policies can have a range of exclusions that can impact the cover provided so it is essential to carefully review the insurance policy and understand the nature of the exclusions and the potential effect of these exclusions given the type of professional services undertaken by your client. This article only touches upon some of the exclusions and is not intended to be exhaustive. For more information please contact your local underwriter.