Notifying circumstances to your PI insurer

An accountant should tell their professional indemnity insurer in writing about any claim, and about any circumstance that might reasonably give rise to a claim, as soon as reasonably practicable and in any event before the policy period ends. Notifying late can leave the matter falling between two policies, cut the indemnity back to what an earlier policy would have paid, or leave the firm repaying the insurer for any prejudice the delay caused.

What is the difference between a claim and a circumstance?

Under the minimum approved policy wording used by ICAEW, ICAS and Chartered Accountants Ireland, a claim is any written or oral demand for compensation or damages, or the assertion of a right against the insured, and it includes any complaint or reference to an ombudsman. A client saying on the phone that they expect the firm to pay an HMRC penalty is a claim.

A circumstance is anything short of that which may give rise to a claim. The ICAEW PII Regulations (guidance paragraph 6.8) say circumstances should be judged objectively: if something might reasonably give rise to a claim, the insurer should be told immediately, even if the allegations are vague or unspecified and even if the partner personally thinks liability is unlikely, because liability is a legal question for the courts. Typical examples in a practice include:

• discovering that a return, election or claim for relief was filed late or not at all;
• a client querying why their tax bill rose after an HMRC enquiry into advice the firm gave;
• a solicitor or a new accountant asking for copies of working papers with no explanation;
• a client refusing to pay a fee because they say the work was wrong.

When does the policy say you must notify?

Clause C2 of the minimum wording sets two duties. Under C2.1 the insured must give written notice of any claim as soon as reasonably practicable. Under C2.2, if during the period of insurance the insured becomes aware of any circumstance which may give rise to a claim, written notice must also be given as soon as reasonably practicable, and in no event later than the last day of the period of insurance. C2.1 also requires notice of reasonable cause to suspect dishonesty or fraud by any present or former partner, director, member, employee, consultant or subcontractor.

ICAEW’s guidance adds practical expectations. One person at principal level should coordinate claims and notifications and should treat prompt notification as a first priority, not waiting for developments or for a detailed report (paragraph 6.6). All staff should report possible problems to that person (paragraph 6.7), and possible claims should be a regular agenda item at principals’ meetings (paragraph 6.9). ACCA’s PII guidance factsheet says the same: practitioners should promptly notify claims or circumstances which could reasonably give rise to a claim, and failing to do so could seriously prejudice the firm’s right to an indemnity. AAT tells licensed members to inform their broker of potential claims immediately and not to admit liability unless the broker or insurer advises it.

Why is it worth notifying something that may never become a claim?

Professional indemnity insurance works on a claims made basis: the policy in force when a claim is first made, or when the circumstance was first notified, is the one that responds, whatever year the work was done. Clause C2.3 of the minimum wording extends cover to a claim made after the policy has expired if it arises from a circumstance properly notified under C2.2. A valid notification therefore fixes the claim to that year’s policy, its limit and its terms, even if the client does not issue proceedings until years later or the firm has since changed insurer.

It also brings in cover for costs. The definition of defence costs in the minimum wording includes the costs of investigating any circumstance notified in accordance with the policy, so the insurer can fund early legal advice or a specialist review of the file while the problem is still small.

The timescales make this important. A negligence claim can normally be brought for six years under sections 2 and 5 of the Limitation Act 1980, and section 14A gives a further three years from the date the client knew enough to sue, subject to the 15 year longstop in section 14B. HMRC itself can assess income tax and capital gains tax up to 4 years after the tax year under section 34 of the Taxes Management Act 1970, 6 years where the loss was brought about carelessly and up to 20 years where it was deliberate under section 36. Problems with tax advice therefore often surface long after the work, which is why the existing page on limitation periods for claims is worth reading alongside this one.

What happens if you notify late?

The consequences depend on the wording, but the ICAEW minimum wording shows the main risks:

• The new policy limits what it pays. Under clause D1.3, if a circumstance is notified to the current insurer but the firm knew about it earlier and should have notified it under a previous policy, the insurer will not exclude the claim but will limit the indemnity to what the earliest such previous policy would have paid had it been properly notified. If the old limit or excess was less favourable, the firm bears the difference.
• The firm repays prejudice. Under clause D2, where a breach of a policy condition, such as late notification, has prejudiced the insurer in handling or settling a claim, the insurer pays the claimant in full but the firm must reimburse whatever would not have been payable without that prejudice. A delay that lets a small error grow, or loses the chance to make a protective claim for relief, can cost the firm directly.
• The matter falls between policies. Clause E7 excludes claims arising from anything notified under an earlier policy, so the earlier policy must deal with those. A circumstance that was known but never notified, and then not disclosed at renewal, is the classic gap.

Policies outside the minimum wording may be stricter, so read your own claims conditions. The renewal proposal will also ask about known circumstances, and answering it without mentioning one engages the duty of fair presentation covered in what to disclose on a PI proposal form.

What should the notification say?

Notice must be in writing. It is usually sent through the firm’s broker and should be factual and complete enough for the insurer to identify the matter later. A useful notification covers:

1. the client, the engagement and the engagement letter that applied;
2. the work done, by whom and when, and the relevant tax years or accounting periods;
3. what has happened or been discovered, and how the firm became aware of it;
4. the possible loss to the client, even as a rough range, and any deadlines that could still reduce it;
5. copies of the key correspondence, and confirmation that nothing has been admitted.

After notifying, do not admit liability, offer compensation or waive fees without the insurer’s agreement, and keep the file intact.

What extra care is needed around renewal?

The ICAEW guidance (paragraph 6.10) recommends that before the proposal form is completed, every principal confirms in writing, after asking the staff who report to them, that they know of no claim or circumstance that may give rise to a claim. The same paragraph warns that the period between completing the proposal and the renewal date is critical, and anything arising in that period must be notified as a matter of great urgency. If you are moving insurer, notify the outgoing insurer of everything known before the old policy expires, because C2.2 requires circumstances to be notified no later than the last day of the period of insurance.

The same applies when a firm ceases or merges. ICAEW says that before entering the assigned risks pool, existing insurers must be told of all claims and circumstances before the policy expires, and the same logic applies before any move into run off cover or to a successor firm’s policy.

How might this work in practice?

Illustration only. A firm’s policy runs to 30 June. In March a junior notices that a client’s claim for a relief was never submitted and the time limit has passed. The manager decides to wait and see whether the client notices. In July, after renewing with a new insurer and answering no to the question about known circumstances, the client’s new accountant raises the point and the client demands compensation.

The old policy has expired without notice of the circumstance. The new insurer may say the firm knew about it before inception and failed to disclose it. Under wording like D1.3 the most the firm can expect is the indemnity the old policy would have given, and under D2 it may have to repay any prejudice. Had the manager notified in March, the claim would have attached to the old policy.

What mistakes do firms make?

• Treating notification as an admission. It is a policy requirement, not a concession to the client.
• Waiting until a formal letter arrives. ICAEW expects notification once a claim might reasonably arise.
• Letting each partner decide alone. Claims should run through one coordinator so nothing is missed.
• Telling the broker by phone and never confirming in writing.
• Forgetting that complaints, ombudsman references and fee disputes can be claims too.

Firms that review their common causes of negligence claims and their client complaints procedure at the same time usually find circumstances they had not recognised as notifiable.

Solar Protect runs fee protection schemes for accountancy and bookkeeping practices. See how our accountant schemes work or read fee protection schemes for accountants.

Related Accountapedia entries

• Should an accountant admit a mistake to a client
• PI insurance when buying or merging practices
• Any one claim or aggregate PI cover for accountants
• Insurance an accountancy practice needs
• Minimum professional indemnity insurance for accountants

Sources

• ICAEW: Pii minimum approved policy effective 1 september 2021
• ICAEW: Pii regulations effective 1 october 2026
• ACCA: Professional indemnity insurance requirements
• AAT: Pii
• legislation.gov.uk: Act 1980 c. 58, section 2
• legislation.gov.uk: Act 1980 c. 58, section 5
• legislation.gov.uk: Act 1980 c. 58, section 14A
• legislation.gov.uk: Act 1980 c. 58, section 14B
• legislation.gov.uk: Act 1970 c. 9, section 34
• legislation.gov.uk: Act 1970 c. 9, section 36

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.