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Checklist for Reviewing Contracts That Could Impact Professional Liability Insurance (Errors & Omissions) Claims

Professional liability (Errors & Omissions, or E&O) insurance protects professionals from claims alleging negligent acts, errors, or omissions in the performance of professional services. Contracts play a pivotal role in shifting risk—and if drafted improperly they can create exposures that insurers will not cover. This checklist is tailored for U.S.-based firms (examples and pricing reference New York City, San Francisco Bay Area, Chicago, Los Angeles, and Texas markets) and focuses on contract clauses that commonly affect E&O coverage, risk transfer viability, and claims outcomes.

Key principles (what underwriters look for)

  • Insurable interest: Is the obligation an insurable professional services exposure or an uninsurable contractual liability?
  • Scope of indemnity: Does the indemnity demand defense for client negligence or waive your insurer’s rights?
  • Policy compatibility: Do contract duties conflict with your claims-made policy features (notice, consent-to-settle, retroactive date)?
  • Transfer limitations: Is the contract asking for coverage or obligations that market carriers routinely exclude or price up?

For context on how indemnities affect coverage, see: How Indemnity Clauses Affect Professional Liability Insurance (Errors & Omissions) Coverage.

Quick facts: U.S. E&O premium landscape (examples)

  • Insureon reports an average annual E&O premium for small firms around $1,206/year for standard $1M/$1M limits (varies by profession and state). Source: Insureon.
  • Hiscox advertises small-business professional liability starting approximately $500/year for lower-risk consultants and solo practitioners (online starting quotes depend on occupation and location). Source: Hiscox.
  • The Hartford and other incumbent carriers (Chubb, Travelers) commonly produce small-firm quotes from $800–$3,000+/year depending on location and exposure; larger firms or higher-risk professions often pay much more. Source: The Hartford.

These numbers can be significantly higher in high-litigation states / urban centers such as California (San Francisco/Los Angeles) and New York City, where underwriting scrutiny and premiums frequently run higher.

External references:

Pre-signature contract review checklist

1) Indemnity / Hold-harmless clauses

  • Flag any indemnity that:
    • Requires you to indemnify for the client’s own negligence, gross negligence, or willful misconduct.
    • Requires indemnity “to the fullest extent permitted by law” or uses absolute language without fault limitation.
  • Prefer: Indemnities restricted to your negligence or breach of contract, and excluding client’s sole negligence or willful misconduct.
  • See drafting guidance: Drafting Contracts to Protect E&O Coverage: Clauses Every Firm Needs.

2) Duty to defend vs. duty to indemnify

  • Contracts that require you to “defend and indemnify” a client for claims—even when the client is at fault—are often uninsurable or will trigger insurer exclusions.
  • Aim for indemnity only (with client’s negligence carved out) or conditional defense obligations tied to your proven negligence.

3) Limitation of liability (caps)

  • Ensure caps are:
    • Expressly stated and reasonable relative to the contract value (e.g., cap equal to fees paid under the agreement or a multiple of fees).
    • Not superseded by unconstrained indemnity obligations.
  • Note: If the contract cap is less than your E&O policy limit, you may still face uncovered contractual obligations above the cap.

See: When Contractual Caps Conflict with Professional Liability Insurance (Errors & Omissions) Policies.

4) Consequential damages waiver

  • Broad waivers of consequential damages are generally insurer-friendly. Insurers prefer explicit waiver language that excludes indirect, incidental or consequential losses.

5) Allocation / Proportionate liability language

  • Insert language requiring indemnity only for your proportionate share of liability (i.e., “to the extent caused by [company]’s negligent acts or omissions”).
  • This helps preserve E&O cover when multiple parties are involved.

6) Duty to procure insurance / Additional insureds

  • Be cautious about naming clients as “additional insured” under your E&O—E&O policies rarely extend to additional insureds in the same way CGL does.
  • More common: confirm you carry E&O with at least $1M/$1M limits and provide a certificate; avoid promising to add the client as an additional insured without insurer confirmation.

7) Right to settle / insurer consent

  • Maintain your insurer’s consent-to-settle and control provisions. If a contract requires your insurer to pay or settle without your involvement, that can invalidate coverage.
  • Insert a clause requiring reasonable notice and insurer consent before settlement if possible.

8) Choice of law, venue, and dispute resolution

  • Choice of law clauses that select a state with plaintiff-friendly laws (e.g., some courts in California or New York) can increase defense costs.
  • Where practical, negotiate for arbitration/mediation or a neutral state to reduce exposure.

9) Subcontractor flow-downs

10) Claims-made policy considerations

  • E&O is typically claims-made. Ensure contract survival clauses do not require reporting after your policy retroactive or tail coverage requirements unless you obtain extended reporting (tail) coverage.
  • If a contract survives termination and expands liability for prior work, secure appropriate tail coverage or negotiate time-limited claim notices.

Table: Common clause language and E&O implications

Clause type Typical problematic language E&O implication Recommended counter-language
Indemnity “Indemnify for all claims, including client’s negligence” Likely uninsurable; insurer may deny “Indemnify only to the extent caused by [party]’s negligent acts or omissions.”
Defense “Defend and pay any claim” Forces defense costs for client’s negligence “Defend only for claims arising from [party]’s negligence; consent required for settlement.”
Additional Insured “Add client as additional insured” E&O policies often don’t grant coverage; may be refused Provide certificate of insurance; add only if insurer confirms endorsement.
Limitation of Liability No cap or infinite liability Unlimited risk, pricing/coverage issues Cap liability to fees paid or a fixed multiple (e.g., 1x–3x fees).
Consequential Damages No waiver of consequential losses Exposes to large indirect loss claims Explicit waiver of consequential damages except for liability to third parties for bodily harm.

Red flags that often mean “uninsurable” or very expensive

  • Contract requires indemnity for client’s sole negligence or willful acts.
  • Blanket “defend and indemnify” for third-party claims without fault allocation.
  • Agreement to pay attorney fees for client irrespective of fault.
  • Promises to buy unlimited insurance or to maintain extremely high limits beyond market rates.
  • Provisions that require you to waive policy defenses, assign your policy, or require direct payment by insurers to third parties.

If you encounter these, review options in: Uninsurable Contractual Obligations: Identifying and Avoiding Risky Clauses.

Negotiation tactics & practical steps before signing

  • Send the proposed contract to both your legal counsel and your broker/insurance carrier for redline review. Brokers at firms like Hiscox, The Hartford, or regional brokers can often provide quick guidance on acceptance and endorsement costs.
  • Request specific insurer confirmation in writing before agreeing to additional insured endorsements or broad defense obligations.
  • Where clients insist on broad indemnities, negotiate:
    • Fee increases to reflect additional risk (market rate for added contractual indemnity endorsements can be several hundred to several thousand dollars annually depending on exposure).
    • Reasonable liability caps tied to contract value.
    • Time-limited survival of indemnities (e.g., 1–3 years post-completion).
  • For large enterprise clients in NYC, San Francisco, or Chicago, expect underwriters to require more restrictive indemnity language or higher limits—factor these into pricing and resource plans.

If a contract forces you into an uninsurable risk

  • Do not sign until you obtain written confirmation from your insurer that the clause is acceptable or an endorsement is available.
  • If insurer declines, escalate negotiation with the client: propose capped indemnities, carve-outs for client negligence, or higher fees to compensate.
  • If negotiation fails, either decline the contract or accept with a contractual indemnity insurance surcharge priced into your bid.

Further guidance: What to Do If a Contract Forces You Into an Uninsurable Risk With Professional Liability Insurance (Errors & Omissions).

Final checklist (printable quick version)

  • Forward contract to broker and counsel before signature
  • Review indemnity: carve out client negligence/limit to your negligence
  • Avoid unconditional “defend and indemnify” obligations
  • Cap liability tied to contract fees where possible
  • Secure waiver of consequential damages
  • Confirm additional insured requirements with insurer in writing
  • Check claims-made timing/retroactive dates and secure tail if needed
  • Require subcontractors to carry their own E&O and flow-down restrictions
  • Negotiate choice of law/venue favorably or use arbitration
  • If insurer declines, do not sign—renegotiate or price the risk

Sources and further reading

Related reading on contract drafting and E&O preservation:

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