Professional Indemnity Insurance can protect consultants, accountants, engineers, doctors and other professionals when a client alleges that their work was negligent, wrong or incomplete. But no policy covers every claim. Professional Indemnity Insurance Exclusions set out the situations an insurer will not pay for, even when the allegation concerns professional work.
Exclusions are not traps. They mark the edges of the cover. Most are there because another type of insurance handles the risk, or because no insurer can cover the risk. However, the precise wording matters. Two policies can treat the same allegation differently, and the facts of a claim can decide whether an exclusion applies.
This guide explains how exclusions work and which categories appear in real Indian PI wordings. It also shows how to check your own policy before you buy or claim. Where we quote a clause, we name the source. That clause applies only to the named product.
What Is Not Covered Under Professional Indemnity Insurance?
Professional Indemnity Insurance may exclude claims arising from fraud, dishonesty or deliberate wrongdoing; claims or circumstances known before the policy began; liability taken on under a contract beyond what the law would impose; and bodily injury or property damage where the wording excludes it. Policies also often exclude fines, penalties, war and nuclear risks. These are examples, not a universal list. Actual exclusions, and any exceptions to them, depend on the policy wording, endorsements and facts.
Key Takeaways
- An exclusion removes a specific risk from cover. It is different from a limit, a deductible or a policy condition.
- All three Indian wordings reviewed excluded fraud or criminal acts, contractual liability beyond legal liability, fines and penalties, war, nuclear risks and work before the retroactive date.
- The treatment of bodily injury, known circumstances, defamation, pollution and insolvency differed between the wordings.
- Some exclusions have built-in exceptions (“carve-backs”), and paid extensions can modify some.
- Read the exclusions together with the insuring clause, definitions, schedule and endorsements.
What Are Professional Indemnity Insurance Exclusions?
An exclusion is a clause that removes a defined type of claim, loss or circumstance from the cover. If an exclusion applies, the insurer is not obliged to pay for that claim, even if it would otherwise fall within the policy.
Insurers include exclusions for three main reasons:
- To avoid overlap. Injuries to employees, for example, are usually dealt with under employer’s liability or workmen’s compensation cover.
- To remove uninsurable risks. Deliberate wrongdoing and many fines are examples.
- To keep the cover focused and priced. Insurers exclude risks such as war, nuclear incidents or asbestos because they are catastrophic or hard to price.
How exclusions fit with the rest of the policy
A PI policy works in layers. The insuring clause says what the policy covers – usually claims for a negligent act, error, or omission in the professional services described in the schedule. The definitions fix the meaning of words like “claim” and “professional services”. The exclusions then carve out specific situations. Conditions set duties the insured must meet. Limits and deductibles set how much the insurer pays. Endorsements can add, remove, or change any of these.
This is why two policies can treat the same allegation differently. One policy may exclude defamation outright. Another may cover unintentional defamation as an automatic extension.
Five different reasons an insurer may not pay a claim
These are not interchangeable, and it helps to know which one applies:
| Situation | What it means |
|---|---|
| Excluded claim | The claim falls within the insuring clause, but a specific exclusion removes it |
| Outside the insuring clause | The policy never covered the claim – for example, it concerns a service not described in the schedule |
| Exceeds the limit | The claim is covered, but the insurer pays only up to the limit of indemnity |
| Affected by a deductible | The claim is covered, but the insured bears the deductible amount |
| Declined for a condition or notification issue | The claim may be covered in principle, but a policy condition, such as late notice or non-disclosure, affects the insurer’s liability |
Common Professional Indemnity Insurance Exclusions
The categories below appear in at least one of the three wordings reviewed. Where wordings differ, the article says so.
Fraud, Dishonesty, or Deliberate Wrongdoing
PI insurance exists to cover honest mistakes. All three wordings reviewed exclude dishonest or criminal conduct, but each uses different words:
- Universal Sompo (Exclusion 6) excludes claims arising from an insured “committing or condoning; or allegedly committing or condoning any dishonest or fraudulent act”. It also excludes wilful breaches of statute, contract or duty, and malicious, criminal or intentional breaches of the law.
- The ICAI scheme wording (9(c)) excludes “any dishonest, fraudulent, criminal or malicious act or omission”.
- Royal Sundaram’s medical wording (7.1(i)) excludes “any criminal act or any act committed in violation of any law or ordinance”.
An allegation is not a finding. An allegation of fraud does not prove that fraud occurred. But wordings treat allegations differently. Universal Sompo’s exclusion expressly includes alleged dishonesty. If the insurer advances defence costs and the insured turns out not to be entitled to cover, they “must be repaid”. None of the three wordings reviewed uses “final adjudication” language.
Innocent colleagues. Universal Sompo’s severability condition says the exclusions do not impute one insured’s conduct or knowledge to another insured, other than the prior-and-pending exclusion. The same wording offers a Fraud and Dishonesty add-on for claims involving an employee’s or agent’s conduct. It gives no indemnity to the dishonest person or anyone who knowingly condoned the conduct. The other two wordings contain no comparable provision in the text reviewed, so check yours.
Hypothetical. A valuer deliberately inflates a property’s value in a report to help a client secure a larger loan. The lender suffers a loss and sues. If a claimant alleges and proves deliberate falsification, a fraud or dishonesty exclusion is likely to be relevant. If an employee did it without the firm’s knowledge, the answer may depend on severability wording or an employee-dishonesty extension.
Known Claims and Known Circumstances
Insurance covers uncertain future events. A policy will not usually pay for a problem the insured already knew about when it bought or renewed the cover. Keep these four situations apart:
| Situation | How it may be treated |
|---|---|
| A claim already made before inception | Usually excluded as a prior claim. It belongs to the policy in force when the claimant made it, if any |
| A circumstance known before inception that may lead to a claim | May be excluded, and may need to be disclosed in the proposal |
| A matter already notified to a previous insurer | Usually handled by the previous policy, not the new one |
| A claim made during the policy period about earlier work | Often covered on a claims-made basis, if the work was done after the retroactive date and no exclusion applies |
How the Reviewed Wordings Treat Known Circumstances
Only one of the three wordings has a dedicated exclusion. Universal Sompo’s Exclusion 13 (Prior and Pending) excludes:
- claims made or “intimated” to the insured before the policy period;
- facts or circumstances the insured was aware of, or of which “a reasonable person in the circumstances would have been aware”, that may give rise to a claim;
- circumstances reported under an earlier policy; and
- facts disclosed in an earlier proposal.
Its General Condition 5 also makes the insured’s lack of knowledge of such circumstances a condition precedent. The same wording’s Continuous Cover extension addresses some claims that the insured could have notified under an earlier PI policy with the same insurer, subject to its conditions. The Royal Sundaram and ICAI wordings rely instead on the retroactive date, the duty to disclose, and their notification clauses.
Hypothetical. In February, an IT consultant receives an angry email from a client about a failed data migration. The client does not threaten legal action. In April, the consultant buys a new PI policy without mentioning the email. In July, the client sues. Under wording like Universal Sompo’s, the insurer may argue that a reasonable person would have recognised the email as a circumstance that could lead to a claim. The outcome would depend on the exact wording, what the insured disclosed, and any continuity provisions.
Contractual Liability Beyond Liability at Law
A professional’s legal liability for negligence exists whether or not there is a contract. But contracts can add more – a guarantee of results, a promise to pay a penalty for delay, or an indemnity covering losses the professional did not cause. PI policies may exclude this extra layer.
All three wordings reviewed take the same basic approach:
- ICAI scheme (9(d)) and Royal Sundaram (7.2(i)) exclude liability “assumed by the Insured by agreement and which would not have attached in the absence of such agreement”.
- Universal Sompo (Exclusion 4) excludes contractual or assumed liability, and liability under guarantees or warranties, “unless the Insured would in any event be legally liable in the absence of” that contract, guarantee or warranty. Its Contractual Liability add-on (Add-on 12) can widen cover for breach of contractual obligations in providing professional services.
So the policy does not exclude all contractual obligations. Liability that would exist anyway under law may remain covered; liability that exists only because of the contract may not.
Hypothetical. A digital marketing agency signs a contract guaranteeing a 30% increase in a client’s online sales. It also agrees to refund all fees if it misses the target. Sales rise by 10%. The client demands a full refund. The refund obligation arises from the guarantee, not from negligence, so a contractual liability exclusion may apply. A separate allegation that the agency’s work was negligent would need its own assessment.
Bodily Injury and Property Damage
Many PI policies focus on financial loss. Other covers usually handle physical injury and property damage, such as public liability or general liability insurance. But the wordings reviewed show that this is not a fixed rule:
- Universal Sompo (Exclusion 12) excludes personal injury and property damage “other than as the direct result of professional services having been or being performed”.
- The ICAI scheme (9(f)) excludes bodily injury, property damage and financial loss “unless arising out of wrongful, faulty or inadequate design or advice”. It separately excludes the ownership, use or custody of property (9(h)).
- Royal Sundaram’s medical PI takes the opposite starting point. It covers bodily injury to patients caused by professional negligence, but excludes third-party public liability (7.1(vi)) and pure financial loss (7.2(iii)).
All three exclude injury to the insured’s own employees (Universal Sompo Exclusion 5; Royal Sundaram 7.2(xi); ICAI 9(g)).
Hypothetical. An engineer’s structural calculation contains an error, and a balcony later collapses, injuring a resident. Under a carve-back like Universal Sompo’s or the ICAI wording, the injury may remain within PI cover. The claimant alleges it results directly from faulty professional design. By contrast, if a visitor trips over the engineer’s laptop cable during a site meeting, the injury has nothing to do with professional services. That kind of claim may fall under public liability insurance instead. Neither policy is an automatic substitute for the other.
Other Exclusion Categories Found in the Wordings Reviewed
The following categories appear in at least one of the three wordings. They are not universal.
- Fines, penalties and punitive damages. Excluded in all three (Universal Sompo 3; Royal Sundaram 7.2(v); ICAI 9(j)). Universal Sompo offers a Fines and Penalties add-on with a sub-limit and its own exclusions.
- Work before the retroactive date. Excluded in all three (Universal Sompo 15; Royal Sundaram 7.2(ix); ICAI 9(n)). See the guide to the retroactive date and claims-made cover.
- War, terrorism and nuclear risks. War and nuclear exclusions appear in all three; Universal Sompo also has a separate terrorism exclusion (19).
- Deliberate non-compliance. Royal Sundaram (7.2(ii)) and the ICAI scheme (9(i)) exclude deliberate, wilful or intentional non-compliance with statutory provisions. The ICAI scheme also excludes deliberate non-compliance with technical standards (9(o)).
- Excluded by Universal Sompo (11) and the ICAI scheme (9(v)).
- Excluded by Royal Sundaram (7.2(iv)) and the ICAI scheme (9(a)(i)). Universal Sompo instead covers unintentional libel, slander and defamation as an automatic extension.
- Intellectual property. Excluded by Universal Sompo (8), with unintentional infringement brought back by an automatic extension, and by the ICAI scheme (9(a)(ii), 9(b)).
- Asbestos and insolvency. Found only in Universal Sompo (Exclusions 2 and 7).
- Other business activities. The ICAI scheme excludes other businesses owned or managed by the insured (9(q)), unlisted joint ventures (9(t)), and acting as a construction contractor (9(u)).
- Acting as a director or officer. Universal Sompo (10) excludes claims against an insured acting as a director or officer. That exposure belongs to D&O cover.
Check separately: employment-practices claims, such as wrongful dismissal or harassment. No dedicated exclusion appeared in the wordings reviewed. We found only exclusions for injury to employees. PI does not target these claims, so ask your insurer how it treats them.
Professional Indemnity Insurance Exclusions – Comparison Table
| Exclusion category | What it may mean | Hypothetical example | What to verify in the policy |
|---|---|---|---|
| Fraud or dishonesty | No cover for dishonest, fraudulent, criminal or malicious acts | A valuer deliberately inflates a report | Whether alleged acts are excluded; severability for innocent insureds; employee-dishonesty extension; repayment of defence costs |
| Known claims or circumstances | No cover for claims or problems known before inception | A consultant ignores a client complaint when renewing | Definition of known circumstances; “reasonable person” test; proposal disclosures; continuity provisions |
| Contractual liability beyond liability at law | No cover for liability that exists only because of a contract | An agency guarantees a sales result | Carve-back for liability that exists anyway; guarantees and warranties; contractual liability add-on |
| Bodily injury | Injury may be excluded unless it results from professional services | A design error causes a balcony to collapse | Carve-back wording; whether it is medical PI; exclusion of employee injury |
| Physical property damage | Damage may be excluded unless it results from professional services | Faulty advice leads to damaged equipment | Carve-back wording; property in the insured’s ownership, use or custody |
| Other verified exclusion categories | Fines, retroactive date, war, nuclear, pollution, defamation, IP, insolvency, asbestos – varies by wording | A regulator fines a firm for late filings | Which categories apply; add-ons that restore cover; sub-limits |
Exclusions vs Limitations, Conditions, and Deductibles
An exclusion is only one reason an insurer may not pay a claim in full. Other provisions work differently.
| Policy provision | Meaning | Example of how it may affect a claim |
|---|---|---|
| Exclusion | Removes a defined type of claim from cover | A fines exclusion means the insurer does not pay a regulatory penalty |
| Limit of indemnity | The most the insurer will pay per claim and in total | A ₹60 lakh claim under a ₹50 lakh limit leaves ₹10 lakh uninsured |
| Sub-limit | A lower cap for a specific cover or extension | A loss-of-documents extension may pay only up to its own sub-limit |
| Deductible or excess | The part of each claim the insured bears | A covered claim is paid less the deductible – it is not rejected |
| Policy condition | A duty the insured must meet, such as obtaining consent before settling | Settling without consent may affect the insurer’s liability |
| Retroactive date or prior-acts restriction, where applicable | No cover for work done before a set date | A claim about work done before the retroactive date may be excluded, even if made today |
| Notification requirement | Rules on when and how claims and circumstances must be reported | Late notice may affect cover, depending on the wording and facts |
A deductible does not mean a claim is excluded. A limit does not decide whether an event is covered – it only caps the amount payable. And a claim can fail on a condition, such as late notice, even if no exclusion applies.
Practical Examples – How Exclusions May Affect a Claim
All four scenarios are hypothetical illustrations, not claim decisions or descriptions of real insurer practice.
1. A report allegedly falsified
- Situation: A chartered engineer’s inspection report certifies a building as safe. A later investigation alleges the engineer never visited the site and copied data from another report.
- Potential issue: A fraud, dishonesty or deliberate-act exclusion.
- What to check: Whether the wording excludes alleged or only established dishonesty; how defence costs are handled in the meantime; whether severability protects other partners in the firm.
- Important qualification: An allegation alone does not prove fraud. The outcome depends on the wording and the facts found.
2. A complaint known before inception
- Situation: A tax adviser learns in March that a client has received a large tax demand because of a filing error. The adviser buys PI cover in April without mentioning it. The client claims in June.
- Potential issue: A known-circumstances or prior-and-pending exclusion, and the duty to disclose.
- What to check: What the proposal form asked; the policy’s test for prior knowledge; any continuity or retroactive-date provisions.
- Important qualification: This is illustrative. Outcomes depend on the wording, disclosures, and facts.
3. A contractual guarantee
- Situation: An architect agrees in a contract to pay ₹5 lakh for each week the project is late, whatever the cause. A contractor’s delay pushes completion back by four weeks.
- Potential issue: A contractual liability exclusion. The delay payments arise from the contract, not from negligence.
- What to check: The exclusion’s carve-back for liability that would exist anyway; any contractual liability add-on; whether any negligence is also alleged.
- Important qualification: This is illustrative, not a claim decision.
4. Physical damage under a financial-loss wording
- Situation: A software consultant’s laptop bag falls from a desk at a client’s office and breaks an expensive measuring instrument.
- Potential issue: A bodily injury and property damage exclusion. The damage is not the direct result of professional services.
- What to check: The carve-back wording; whether a public or general liability policy applies instead.
- Important qualification: This is illustrative. A different policy may respond, or none may.
How to Check Exclusions Before Buying a Professional Indemnity Insurance Policy
| # | What to check | Why it matters |
|---|---|---|
| 1 | The insuring clause and definition of professional services | A claim about a service not listed may fall outside cover altogether |
| 2 | Every exclusion and its carve-backs | Carve-backs can restore important cover |
| 3 | Fraud, dishonesty and deliberate-act wording | Whether allegations are excluded; protection for innocent insureds |
| 4 | Known circumstances and prior claims | What you must disclose, and what will be excluded |
| 5 | Contractual liability provisions | Whether contract terms you routinely sign would be covered |
| 6 | Bodily injury and property damage | Whether consequences of your professional work are carved back |
| 7 | Limit of indemnity, aggregate limit and sub-limits | How much is available per claim and per year |
| 8 | Treatment of defence costs | Whether they reduce the limit |
| 9 | Retroactive date and prior-acts provisions | Whether past work is covered |
| 10 | Notification requirements for claims and circumstances | Late notice may affect cover |
| 11 | Optional endorsements and extensions | Some can restore excluded cover, such as fines or employee dishonesty |
| 12 | Written clarification from the insurer or adviser | Helps you understand ambiguous wording |
A written explanation helps you understand the wording, but it does not change the policy. Only a formal endorsement or amendment does that.
What to Do If a Claim May Fall Under an Exclusion
If you think an exclusion might apply, act carefully and early:
- Read the policy wording and schedule. Identify the exact exclusion, any carve-back, and any endorsement.
- Notify the insurer as the policy requires. Report the claim or circumstance in the manner and time the policy sets. Requirements vary, so check your wording.
- Preserve documents. Keep contracts, reports, emails, working papers and records.
- Do not admit liability or settle without consent. All three wordings reviewed restrict admissions or settlements without the insurer’s consent.
- Ask for an explanation. Ask the insurer or a qualified insurance adviser to explain how they read the clause.
- If the insurer declines the claim, review the written reasons. Compare them with the exact policy provision. You can use the insurer’s grievance process and IRDAI’s Bima Bharosa portal for unresolved complaints. Whether the Insurance Ombudsman can hear the complaint depends on its jurisdiction rules, so check this for your policy type. For the overall process, see how a PI claim is handled.
Conclusion
Exclusions set the boundaries of a Professional Indemnity Insurance Policy. In the Indian wordings reviewed, fraud, contractual liability beyond legal liability, fines, war, nuclear risks, and pre-retroactive-date work appeared as exclusions in all three. The wordings treated known circumstances, bodily injury, defamation and pollution differently. Read the exclusions alongside the insuring clause, limits, deductibles, conditions and endorsements, and ask the insurer to explain unclear points before you buy. To see how cover is structured overall, read about the benefits of professional indemnity insurance, or compare Professional Indemnity Insurance options.
This article is for general information only and is not legal advice. Clauses quoted come from the named policy wordings and apply only to those products. Insurance is the subject matter of solicitation.
Frequently Asked Questions
Q) What is not covered under Professional Indemnity Insurance?
A) It depends on the policy. The Indian wordings reviewed exclude fraud or criminal acts, contractual liability beyond legal liability, fines and penalties, war, nuclear risks and work before the retroactive date. Some also exclude known circumstances, bodily injury, pollution or defamation.
Q) Does Professional Indemnity Insurance exclude fraud and dishonesty?
A) All three Indian wordings reviewed exclude dishonest, fraudulent or criminal acts. However, they differ on whether they exclude alleged acts and whether innocent co-insureds keep cover. One also offers an employee-dishonesty add-on.
Q) Are known circumstances excluded under every Professional Indemnity policy?
A) No single rule applies. One wording reviewed has a dedicated prior-and-pending exclusion with a reasonable-person test. The others rely on the retroactive date, disclosure duties and notification clauses, so check your wording.
Q) Does Professional Indemnity Insurance cover contractual liability?
A) Usually only partly. The wordings reviewed exclude liability that exists solely because of a contract, guarantee or warranty. They may still cover liability you would have had anyway under law, and one insurer offers a contractual liability add-on.
Q) Are bodily injury and property damage covered under Professional Indemnity Insurance?
A) It depends on the wording. Some PI policies exclude them unless they result directly from professional services or faulty design or advice. Medical PI policies aim to cover patient injury.
Q) Are fines and penalties covered under a Professional Indemnity Insurance Policy?
A) All three wordings reviewed exclude fines, penalties and punitive damages, though one insurer offers a Fines and Penalties add-on with a sub-limit and conditions.
Q) Can a claim be rejected because of a policy exclusion?
A) Yes. If a claim falls within an exclusion and no carve-back or extension restores cover, the insurer is not obliged to pay. This is different from a claim reduced by a limit or deductible, or affected by a condition.
Q) How can I check the exclusions in my Professional Indemnity Insurance Policy?
A) Read the insuring clause, definitions, exclusions, carve-backs, schedule and endorsements together. Then ask the insurer or your adviser to explain any unclear clause in writing before you buy.
Q) Do Professional Indemnity Insurance exclusions vary by insurer?
A) Yes. The three Indian wordings reviewed differed on known circumstances, bodily injury, defamation, pollution, insolvency and asbestos. No single insurer’s wording represents the market.
Q) What should I do if an insurer says my claim falls under an exclusion?
A) Ask for the decision and the clause relied on in writing, and compare it with your wording and schedule. Keep all records, and use the insurer’s grievance process or IRDAI’s Bima Bharosa portal if you disagree.
