Most professionals who buy professional indemnity insurance do so because a client requires it or because a regulator mandates it. Far fewer read the exclusions section before a claim arrives. When a claim does arrive, the insurer’s first step is to check whether the circumstances fall within or outside the policy coverage. If an exclusion applies, the insurer can decline the claim entirely, and at that point you bear the full legal liability and defence costs plus any damages awarded entirely from your own resources.
This guide explains the main exclusions in professional indemnity policies in Hong Kong and what you need to understand before a claim situation arises.
Review how professional indemnity insurance is structured and arranged through MGG Insurance before reading further.
Why PI Insurance Exclusions Matter More Than Most Professionals Realise
A professional indemnity policy is purchased for peace of mind. The assumption is that if a client makes a claim, the insurer will respond. That assumption is only correct when the specific claim falls within the policy’s covered circumstances and outside all of the policy exclusions.
Each exclusion reflects a deliberate underwriting decision about what the policy is designed to cover. Understanding why each exclusion exists helps you assess whether your working practices might leave you exposed.
The Major Exclusions in Professional Indemnity Insurance
Fraud, Dishonesty, and Intentional Wrongdoing
The most fundamental exclusion in every professional indemnity policy is the exclusion for deliberate, fraudulent, or dishonest conduct. If a claim arises because you intentionally misled a client, acted dishonestly, or deliberately provided false information, the policy will not respond to that claim.
Most professional indemnity policies in Hong Kong advance defence costs during the investigation and litigation phase of a claim, even where fraud is alleged. The exclusion typically only bites once fraud or dishonesty has been established by a court or regulatory determination. Until that point, the policy funds the defence. Once fraud is found, the insurer can seek recovery of any defence costs advanced. A professional who is genuinely innocent but faces a fraud allegation should notify their insurer immediately and allow the policy to fund the defence.
Criminal Acts and Illegal Professional Activity
Coverage is excluded when the claim arises from criminal acts or from professional services provided illegally. A common example is a professional who practises without a valid licence when one is required. Even if the underlying act would otherwise be a covered professional negligence matter, the illegality of the professional’s status at the time removes coverage. A registration lapse that coincides with a claim period can trigger this exclusion for solicitors, accountants, architects, engineers, and licensed insurance brokers.
Prior Known Circumstances and the Prior Knowledge Exclusion
The prior knowledge exclusion removes coverage for any claim or circumstance that the insured knew about before the policy’s inception date. It is one of the most commercially significant exclusions in professional indemnity insurance.
You cannot buy insurance against a risk you already know has materialised. If you know at the time of taking out a policy that a client is unhappy with your work, that a dispute is brewing, or that an error has occurred that could generate a claim, and you fail to disclose that to the insurer, the policy will not cover the subsequent claim. The disclosure obligation applies at every renewal. If you become aware of a potential claim between renewal dates, your policy wording may require immediate notification rather than waiting until renewal.
Bodily Injury and Property Damage
Professional indemnity insurance covers financial losses caused by professional service failures, not physical harm. A claim for bodily injury or for property damage falls outside the scope of a standard PI policy and is covered by public liability insurance instead. The two policies are complementary, and most professionals need both. Some extended PI policy wordings include a limited extension for bodily injury or property damage arising directly from professional services, but this is not standard. Confirm with your broker whether your policy includes or excludes this extension.
War, Terrorism, Sanctions, and Insolvency
Professional indemnity policies universally exclude claims arising from war, terrorism, and sanctions compliance issues. Most policies also exclude claims that arise from or relate to the insolvency or bankruptcy of the insured, on the basis that financial collapse is a business risk rather than a professional liability risk.
Contractual Liability Beyond Common Law
Many PI policies restrict coverage to claims arising from civil liability that would exist at common law or by statute. If you have signed a client contract with an unlimited indemnity clause, that contractual extension may not be covered under your PI policy. The policy may only respond to the portion of the claim that falls within the common law measure of liability.
Consequential Loss
This is a standard exclusion in PI policies. It means the insurer covers direct financial loss suffered by the client as a result of the professional error, but not the downstream commercial consequences of that loss. If a client loses a business opportunity because of reliance on your incorrect advice, the direct financial loss may be covered, but the lost opportunity costs may not be.
Claims Outside the Policy Territory
Professional indemnity policies include a defined territorial scope. For most Hong Kong PI policies, the standard territory is Hong Kong or worldwide excluding the USA and Canada. US and Canadian territorial coverage must be specifically requested and is underwritten differently because of the significantly higher litigation and settlement costs in those jurisdictions.
The Claims-Made Basis and Why Timing Matters
A professional indemnity policy operates on a claims-made basis. The policy in force when the claim is first made and reported is the one that responds, not the policy in force when the work was performed. Work done three years ago can generate a claim that falls under your current policy, provided the claim is made and reported during the current policy period, and there was no prior knowledge of the circumstances at the time the current policy was taken out.
The retroactive date is the earliest date from which past work is covered under the current policy. If the retroactive date is only the current year, work done before that date has no coverage even if the claim arrives today. Losing the retroactive date by allowing a coverage gap is one of the most expensive mistakes a professional can make. Once coverage lapses and restarts, the new policy typically sets its retroactive date at the restart date, removing coverage for all work done before that point.
Exclusions That Vary by Insurer and Policy Wording
Regulatory investigation costs. Some policies specifically include regulatory investigation costs as a covered expense before any civil claim is made. Others restrict coverage to defence costs in civil proceedings only. In Hong Kong, where the SFC and Insurance Authority regularly investigate professionals, this distinction matters significantly.
Intellectual property infringement. Some wordings include cover for unintentional IP infringement. Others restrict coverage to defamation and exclude IP entirely. For technology companies, creative agencies, and designers, this is a material gap to check.
Subsidiary and associated company claims. Most policies exclude claims made by associated companies or entities under common ownership.
Consent to settle. Many policies require the insurer’s consent before the insured agrees to any settlement. Settling without consent can give the insurer grounds to decline reimbursement of the settlement amount.
Why Reading the Exclusions Section Before a Claim Is Not Optional
The time to understand what your PI policy excludes is before a claim arises, not after. Once you are in the middle of a dispute with a client and legal costs are accumulating, it is too late to adjust the policy or address gaps in coverage.
For a broader understanding of how professional indemnity fits within a complete business insurance programme, the Hong Kong SME business insurance guide covers how PI interacts with other essential covers, including public liability and employers’ compensation.
If you work in technology or a professional services firm, the PI insurance guide for tech companies in Hong Kong addresses the specific exclusion risks that commonly affect software developers, consultants, and IT service providers.
For regulatory context on professional liability insurance, the Community Legal Information Centre (CLIC) publishes an accessible guide to professional liability insurance in Hong Kong that covers typical coverage and exclusion patterns.
Practical Steps to Reduce Exclusion Risk
Read the policy wording before purchase, not the brochure. Exclusions appear in the policy document. Request the full wording from any insurer you are comparing.
Disclose potential claims at inception and at every renewal. The prior knowledge exclusion will bite if you knew about a problem and failed to disclose it. Insurers can accept a matter with specific exclusion terms. What they cannot do is cover a matter that was concealed.
Match the territorial scope to where you actually work. If you provide services to clients outside Hong Kong, confirm whether those engagements are covered or whether an extension is needed.
Review the contractual indemnity terms in client agreements. If your contract requires unlimited indemnity, check whether your policy covers that contractual extension or limits coverage to common law liability only.
Notify your insurer the moment you become aware of a potential claim. Late notification can give an insurer grounds to question coverage. Most policies require notification of circumstances likely to give rise to a claim, not just formal claims when they arrive.
Frequently Asked Questions
Can my PI insurer refuse to pay a claim if I did not notify them immediately?
Yes. Most professional indemnity policies require prompt notification of claims and potential claims. Failure to notify within the required timeframe can give the insurer grounds to decline coverage or reduce the amount payable, even where the underlying claim would otherwise be covered.
Does PI insurance cover me if a regulatory body investigates my professional conduct?
It depends on the policy wording. Some PI policies specifically include regulatory investigation costs as a covered expense. Others cover only defence costs in civil proceedings. Having explicit regulatory investigation cover in your PI wording is an important distinction to check in Hong Kong, where the SFC and Insurance Authority regularly investigate professionals.
What happens if fraud is alleged but not proven?
Most PI policies advance defence costs during the investigation of a fraud allegation. The exclusion typically applies only once fraud is established by a final judgment or regulatory finding. Notify your insurer immediately if a fraud allegation arises and allow them to fund the defence under the policy.
Does the exclusion for prior known circumstances apply if I disclosed the matter to my previous insurer?
Not automatically. The prior knowledge exclusion in your current policy relates to what you knew at the time the current policy was placed or renewed. If you have a matter that was disclosed and handled under a previous policy, confirm with your current insurer how the retroactive date and prior knowledge provisions interact with that historical matter.
Can I negotiate exclusions out of a PI policy?
Some exclusions are non-negotiable because they reflect limits on what is insurable. Others, such as the US and Canada territorial exclusion, the IP infringement extension, and regulatory investigation coverage, can be added as endorsements through negotiation. Working with a specialist broker gives you the best chance of securing a policy with the fewest unnecessary coverage gaps.
Get Your PI Policy Reviewed Before the Next Renewal
MGG Insurance arranges specialist professional indemnity cover for professionals across Hong Kong, with access to the Lloyd’s market and leading specialist PI underwriters.
