Should you keep your Professional Indemnity Insurance in place?

Our Head of Insurance, Elliot Fox, answers the long-standing question

Most contractors will be familiar with the requirement for them to hold Professional Indemnity Insurance, and it is sometimes the discovery of a clause in a contract stating PI insurance must be held that prompts the contractor to purchase the policy.

It is becoming more and more frequent for clauses of this nature to include a requirement that Professional Indemnity Insurance must be in place for a period of six years following the completion of the contract. In the absence of such a requirement it is not uncommon for some, when their contract comes to an end, to cancel their policy or allow it to expire at renewal.   

The decision to lapse Professional Indemnity Insurance may often be done as a way to keep costs down whilst not working, however it is important that contractors fully appreciate how PI Insurance operates, as the consequences of cancelling could be significantly more costly than the premium.

Professional Indemnity Insurance operates on a ‘claims made’ basis, this is set out in the cover Qdos provide by stating that the policy will cover ‘claims first made against the Insured during the Period of insurance’. The effect of this is that should the policy be cancelled, or should the Professional Indemnity Insurance not be renewed and a claim follows, the company would be uninsured for the incident. This is still the case if the claim relates to services provided at a time when the policyholder had Professional Indemnity insurance in place.

When deciding not to renew or to cancel PI Insurance, or any other policy held, it is important contractors understand as far as possible their ongoing exposure to claims, and the potential consequences if the policy is no longer in place.

For full details on the cover, please review the Professional Indemnity Insurance policy wording or get in contact with a member of our team.