This article is part of a series of 50 Professional Indemnity Insurance (PI) policy is specifically designed to help professionals understand the policy’s contents in depth. In this article, we’ll discuss the Assignment Clause, a crucial clause that’s often overlooked but has a significant impact when a company changes ownership, merges, or acquires.
This article was written by Mhd. Taufik Arifin ANZIIF (snr.assoc) CIIB, an insurance broker with over 40 years of experience. With the guidance of an L&G Insurance Broker, you will more easily understand how Assignment Clauses work, ensuring your PI policy truly protects your business without any detrimental legal loopholes.
Contact L&G Insurance Broker now at 08118507773 for a free consultation before the risks haunt your business.
Definition of Assignment Clause in PI Policy
In the world of insurance, including Professional Indemnity (PI), there is a clause known as the Assignment Clause. Simply put, this clause stipulates that the rights and obligations under an insurance policy cannot be transferred (assigned) to another party without the written consent of the insurance company.
Why is this clause important? Because PI policies are highly personalized and specific to the insured’s risk profile. For example, a law firm, an IT consultancy, or an architectural firm have different risk characteristics. If business ownership or contracts change hands, the risks covered could completely change. Therefore, insurance companies must ensure the new risks remain within their underwriting criteria before approving the transfer.
Example: A consulting firm is acquired by a foreign company. The old PI policy cannot automatically be used by the new company unless the insurer agrees. If this assignment clause is ignored, the insurance company has the right to reject a claim, claiming the policy does not apply to the new party.
This is where an experienced insurance broker like L&G Insurance Broker becomes crucial. Brokers help clients understand the limitations of assignment clauses, negotiate the flexibility of these clauses, and ensure the transfer process complies with international law and practice. With the right guidance, you’ll not only be protected from the risk of lawsuits but also avoid administrative disputes that could result in claims being rejected.
Case Example of Assignment Clause in PI Policy
To understand more clearly the importance of the Assignment Clause in a Professional Indemnity (PI) policy, let’s look at some real-life case illustrations that frequently occur in the professional world.
- Acquisition of an Architectural Consulting Firm
A local architecture firm in Jakarta was acquired by a foreign company. The previous owner assumed that an active PI policy automatically covered the new company. However, when a claim arose from the old project, the insurance company refused to pay because the policy could not be transferred without written consent. If an experienced broker had been involved from the start, the transfer process could have been negotiated and the claim would have remained valid.
- IT Company Merger
Two IT companies merged to strengthen their technological capabilities. One company had an active IP policy. During the merger, they immediately adopted a new name without revisiting the assignment clause. When a data breach claim arose, the old policy became invalid because the insured had legally changed. Brokers played a crucial role in drafting a valid addendum or transfer to ensure the policy continued to cover the merged company.
- Project Contract Transfer
A financial consultant won a major project, but the subcontract was then awarded to another company. The primary client assumed the consultant’s PI policy automatically covered the subcontractor. In fact, the Assignment Clause prohibited assignment without insurance approval. As a result, when a lawsuit arose, the claim was denied. With the help of a broker like L&G Insurance Broker, contract and policy arrangements can be adjusted from the outset to ensure all parties are protected.
Lessons from the Cases Above
While assignment clauses are often considered “minor details,” they can have a significant impact on claim validity. Therefore, whenever there is a change of ownership, merger, acquisition, or contract transfer, be sure to review this clause with your insurance broker.
L&G Insurance Broker, with over 40 years of experience, has expertise in negotiating clauses such as Assignments to ensure the best interests of the policyholder.clientalways safe, even in complex business situations.
Risks If Assignment Clause Is Ignored
Many professionals and companies often consider the Assignment Clause merely an administrative formality in a Professional Indemnity (PI) policy. However, ignoring this clause can pose significant risks, especially during changes in ownership, mergers, acquisitions, or business contract transfers.
First, claims can be denied entirely. A PI policy is designed to protect the specific risks of a single entity or individual. If ownership is transferred without the insurer’s written consent, the new entity has no legal rights to any resulting claims. Imagine a recently merged consulting firm being sued for billions of rupiah, but its claim is denied due to a violation of the Assignment clause.
Second, the loss of legal protection. Many large projects, particularly in the construction, financial, and technology sectors, require service providers to have an active IP policy. If the Assignment Clause is violated, the policy can be deemed null and void, risking termination of the contract with the client.
Third, reputational and financial loss. Lawsuits not covered by a policy can devastate a company’s finances and damage client trust. A reputation built over years can be destroyed simply by failing to understand this clause.
To prevent this, experienced insurance brokers like L&G Insurance Broker offer solutions. Brokers not only help you understand the details of the clauses but also negotiate flexible options with insurers, ensuring clients don’t lose coverage during business changes. This way, every business decision—including mergers or acquisitions—remains safe without compromising the legal protection of your IP policy.
Conclusion & Recommendations
From the discussion above, it is clear that the Assignment Clause in the policy Professional Indemnity (PI) Insurance is not simply a supplementary clause, but rather a crucial aspect determining the validity of insurance coverage. This clause ensures that the rights and obligations under the policy cannot be unilaterally transferred without the written consent of the insurance company.
The risks of ignoring this clause are significant: claims can be rejected, project contracts can be canceled, and companies can even face serious reputational and financial losses. Case studies involving mergers, acquisitions, and contract assignments demonstrate that many companies fall into legal traps simply because they don’t properly understand the Assignment Clause.
Key recommendation: whenever your company faces structural, ownership, or contractual changes, ensure you thoroughly review these clauses. Don’t rely solely on internal understanding, as the legal and technical language of IP policies is often complex.
This is where the role of an L&G Insurance Broker becomes vital. With over 40 years of experience, L&G can provide guidance, negotiation, and practical solutions to ensure your claim isn’t hindered by administrative issues like Assignment Clauses. With an experienced broker, you’re not just purchasing a PI policy; you’re ensuring the coverage truly applies to every business situation.
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