Your PI Cover Has a Hole. Here’s Where It Is.
It’s a Wednesday afternoon. A client you’ve worked with for three years sends an email that starts with: “I’ve been advised to hold you responsible.” You forward it to your insurer. And then you wait. And then you get a letter back that says cover is declined.
Not because you did bad work. Because of how the claim was structured, when it was reported, and what your engagement letter did (or didn’t) say.
Most accountants in practice know they have PI cover. Very few understand the legal machinery that determines whether it actually pays out when they need it most.
Here is the part that trips people up: professional indemnity insurance is not a general safety net. It is a contract, governed by South African law, interpreted strictly against its terms, and conditional on a precise set of obligations being met before a single rand of indemnity is owed. As covered in the recent Accounting Weekly article The Claim Your PI Insurance Won’t Cover, the engagement letter is not just good practice, it defines the scope of your professional duty, and that definition is what the insurer looks at first when a claim lands on their desk.
A clear, well-drafted letter limits what you can be held liable for. A vague one (or none at all) leaves the boundary undefined. Once that happens, the dispute stops being about whether you made a mistake. It becomes about what you were supposed to be doing in the first place. That is harder to defend, and significantly more expensive.
Four places cover can fail, without any bad work on your part
The first is scope creep with no paper trail. A client calls with a quick question outside your engagement. You answer helpfully. There’s no record, no disclaimer, no amended letter. Six months later, the advice is wrong, at least according to the client. Your insurer asks what duty you owed. You can’t answer clearly. The insurer can.
The second is late notification. The CIBA member PI policy operates on a claims made basis which means that the claim must be made against you and notified to the insurer during the policy period. The moment you become aware of a complaint, a dispute, or any circumstance that could lead to a claim, you must report it immediately. Not after the formal letter of demand. Not once you see whether the client follows through. Immediately. Late notification is not an administrative oversight. It is a failure to meet a condition precedent and the result is no indemnity, regardless of the merits of the underlying claim.
The third is services outside policy scope. Financial planning, legal advice, and investment guidance are common examples, services practitioners sometimes drift into without realising their policy never covered them. If you have been providing any of these without checking your policy scope, you may be carrying risk you believe is covered but isn’t.
The fourth is conduct outside ordinary negligence. Fraud, dishonesty, recklessness, and deliberate misconduct are excluded under every PI policy. The Consumer Protection Act further provides that blanket contractual exclusions for gross negligence are void, so this is not simply a matter of what your policy says. It is a matter of what your conduct was.
There is also a second layer most practitioners don’t use
The Financial Advisory and Intermediary Services Act 37 of 2002 (the FAIS Act) governs every person who gives financial advice or places insurance. This layer operates independently of the insurance policy itself. Even if your insurer validly declines a claim, your broker may carry separate liability under FAIS for how they advised you.
Specifically, before recommending any product, your broker was required to conduct a proper needs analysis, disclose material product terms including exclusions and excess amounts, and provide a written record of advice. If none of those questions were asked before your policy was placed (if the broker went straight to a quote without first gathering information about your practice, your services, and your risk profile) that is a FAIS compliance failure. The complaint does not go to the insurer. It goes to the FAIS Ombud, which can award up to R3 500 000.00 within its jurisdiction, with larger amounts available on court referral.
When a claim is rejected, the instinct is to accept the outcome and move on. The right move is to ask two questions simultaneously: is the rejection legally valid on the policy terms, and did your broker comply with their FAIS obligations? Both may have independent answers. Most practitioners only look at the first.
This is exactly what CIBA’s upcoming CPD webinar — Insurance Law: You’re Covered... Until You’re Not — covers in full. The webinar walks through how insurance contracts actually work, what the duty of disclosure requires and when it ends, how exclusions are read, what the claims made basis means in practice, what you cannot do once a claim is notified, how the FAIS Act creates a second layer of protection and liability, and what your action checklist looks like from today.
If you have PI cover, you owe it to your practice to understand what activates it, what voids it, and where your broker’s obligations begin and end.
Register for Insurance Law: You’re Covered... Until You’re Not on cpd.myciba.org
👉 Join CIBA and we’ll show you how to protect the practice you’ve built — with cover you actually understand.
Further Reading
The Claim Your PI Insurance Won’t Cover — How your engagement letter defines your professional duty and determines whether your insurer responds
When Should an Accounting Practitioner Walk Away from a Client? — Risk indicators that, when ignored, can create exactly the liability PI cover is designed to address
Beyond Compliance: Helping Clients Choose the Right Level of Assurance — Understanding where your professional responsibility begins and ends on each engagement