The raison d’etre of professional indemnity (PI) insurance is to cover negligence.

The English commonlaw formulation of “negligence” is a failure to use reasonable skill and care.

Breach of contract is also covered by PI insurance, but this cover is subject to an exclusion of onerous liability accepted in contract. This is market standard, and has been the case for over three decades.

The acid test for “onerous” is liability over and above negligence ie greater or stricter than a failure to use reasonable skill and care.

Here is an example of this exclusion, written in more explicit terms than is sometimes the case:

Any liability assumed by any Insured under any express contract, agreement, indemnity, penalty clause, liquidated damages clause, guarantee or warranty except to the extent that such liability would have attached to such Insured in the absence of such express contract, agreement, indemnity, penalty clause, liquidated damages clause, guarantee or warranty.

Please note carefully the caveat that it does not apply to liability which would have existed in the absence of the contractual clause.

Critically this means that the PI cover is not “turned off” and will continue to apply to liability within the reasonable skill and care parameters, and which is not otherwise excluded (war or terrorism for example).

Accepting a contract containing onerous terms does not mean that PI is invalidated therefore. The firm will still have cover for negligent performance of its services, subject otherwise to the policy terms and conditions.

However any additional liability created by the onerous contract terms will be uninsured, and would have to be met by the firm’s own resources.