Professional indemnity insurance differs from many other liability covers. PI is generally written on a claims-made basis, while covers such as public liability and products liability are commonly occurrence-based.
This is an important distinction because it determines which policy responds to a claim.
Under a claims-made PI policy, the relevant policy is generally the one in force when the claim is first made against the insured, even if the professional error occurred several years earlier. Whereas an occurrence-based policy generally responds according to when the event causing the loss occurred, even if the claim is made much later.
The practical effect of these different coverage triggers becomes clear when a single incident leads to claims against parties insured on different bases.
In 2019, an architect designs a block of flats with fire-safety defects, including defective fire stopping and compartmentation.
In 2022, a roofing contractor carrying out hot works on the roof causes a fire that destroys the building. The architectural defects allow the fire to spread more quickly than it should have done.
The building owner brings claims against the architect and roofing contractor in 2024, and individual flat owners bring further claims in 2026.
For the architect’s claims-made PI insurance, the policies in force when the claims are made in 2024 and 2026 are likely to be relevant.
For the roofing contractor’s occurrence-based public liability insurance, the relevant policy is likely to be the 2022 policy – the policy in force when the fire occurred.
The claims arise from the same fire, but different policy years may respond because the two forms of insurance have different triggers.
Claims-made PI policies commonly require an insured to notify circumstances that could give rise to a claim. NBS PI policies also operate on a claims-made basis, making it important for clients to notify any potential circumstances as soon as they become aware of them.
If a circumstance is properly notified during the policy period and a related claim is made later, the policy’s deeming provision may treat that later claim as having been made during the policy period in which the circumstance was notified.
Timely notification of circumstances helps protect the insured’s right to future coverage within a claims-made structure. If a potential problem is identified but not notified, a later policy may exclude cover on the basis that the matter was a prior known circumstance, while the earlier policy may also be unavailable if the notification requirements were not met in time. Proper notification can therefore be critical to preserving the link between the circumstance and the policy period in force when it was first identified.
Notification also enables insurers to take early action, investigate the issue and, where appropriate, support steps to resolve or manage the problem before it develops into a full-blown and expensive court case. The precise notification threshold and requirements will depend on the policy wording.
The same incident can engage different policies and policy years for different parties.
For claims-made PI insurance, the starting point is when the claim was first made and whether a related circumstance was notified under an earlier policy. For occurrence-based insurance, the focus is generally on when the event causing the loss occurred.
The key is to identify when the event occurred, when the claim was made and whether any related circumstance had already been notified. These dates will help determine which policy may respond.
In relation to NBS PI policies notification of claims and circumstances should be given to and deemed to be properly made, if received by: Caytons Claims claims@caytonslaw.com 10A, Tower 42, 25 Old Broad Street, London EC2N 1HQ
See more of our Professional Indemnity Insurance: A Practical Guide for Brokers