Professional Indemnity Insurance & Contract Assignments Explained
When consultants or contractors take on work, the conversation regarding the contract often turns to Professional Indemnity (PI) insurance. One area that regularly raises questions is assignments under contract.
At first glance, assignments might seem like a simple legal formality – but from an insurer’s perspective, they can have a big impact on risk, liability, and ultimately how cover responds.
What is an assignment?
An assignment happens when the benefit of a contract is transferred to another party. For example, a property developer may sell on a development, and the new owner inherits the rights to pursue claims under professional appointments and collateral warranties.
On the face of it, this seems fair and straightforward, but from an insurer’s perspective, every assignment potentially changes the risk profile.
Why insurers may limit the number of assignments under PI cover
Typically an insurer may wish to limit the number of assignments to one or two unless agreed but the insurers, there are main reasons for this –
- More potential claimants
Each assignment creates a new party with the right to bring a claim. The professional may never have had any direct relationship with that party, but the liability still follows. - Loss of control
Professionals lose visibility and control over who they are ultimately answerable to. Defending a claim from someone you’ve never dealt with is naturally more challenging. - Extended liability
Assignments can significantly prolong the “tail” of liability. A project may change hands several times, and each new owner has rights to sue. This can extend exposure far beyond what was originally intended. - Claims inflation
Multiple beneficiaries mean multiple potential claims. Insurers then face questions of aggregation (is it one claim or several?), which can escalate costs quickly.
The insurer’s balancing act
By capping the number of permitted assignments, insurers can keep cover proportionate to the premium charged and avoid being dragged into disputes by parties far removed from the original professional-client relationship.
Added value: Collateral warranty reviews
The good news is that many of the insurers we work with offer collateral warranty reviews as part of their PI cover. This can be invaluable, as these reviews highlight where clauses (such as unlimited assignments) might expose professionals to unnecessary risk. By flagging these issues early, insurers help ensure contracts remain insurable and manageable.
In summary
Assignments may feel like a technicality, but they have real implications for how PI policies respond. Insurers aren’t being difficult when they impose limits – they’re making sure the risk remains fair, transparent, and sustainable for everyone involved.
As your broker, we will always assist as much as possible. However, if your PI policy does not include a collateral warranty or contract review service, we strongly recommend speaking with a solicitor. They will be able to advise on the terms of the contract and suggest any necessary amendments to ensure your position is properly protected.
Further Reading
Understanding Collateral Warranties in Insurance
Understanding Your Professional Indemnity Insurance Contract
Professional Indemnity Insurance for Engineers
