PI Insurance: Limits Of Indemnity

Insurers now face potential risks for costs above their limit of liability. In a recent case professional indemnity insurers were ordered to pay the claimant’s legal costs of up to £1m, in addition to the limit of indemnity of £2m. This is the first time that the court has exercised its power to award costs against a non-party in a PI context.

The insured was a firm of architects who was found negligent for £2.07m. Insurers paid the £2m limit of indemnity (their total liability under the policy). The claimant was also awarded its costs, which were estimated to be in the region of £1 million. The insured was insolvent and couldn’t pay. So who did pay? Insurers had paid up to their limit, so they were out of the picture, right? Unfortunately not.