Insurance Curator Indemnity clauses are one of the most common reasons Errors & Omissions (E&O) policies become voided or limited. When a client or vendor demands broad, unqualified indemnification, many E&O carriers will either deny coverage or exclude the contractual obligation entirely. This guide explains how to negotiate indemnity language so you can accept commercial contracts in the USA—especially in high-exposure markets like New York City, Los Angeles, San Francisco, Houston and Dallas—without losing or dramatically increasing E&O costs.
Why indemnity clauses matter to your E&O insurer
- Insurance follows the contract. Carriers evaluate the contractual obligations you accept because those obligations can expand your liability beyond professional services.
- Uninsurable obligations (e.g., indemnifying for a client’s own negligence or contractual penalties) can be expressly excluded by carriers or trigger higher premiums.
- Claims-made nature of E&O policies means a single contract that creates uninsurable exposure can cause a denied claim even if the policy is otherwise active.
Industry cost context (USA):
- Small professional firms often pay $500–$5,000 per year for a $1M/$1M E&O policy; IT and software vendors commonly pay $2,500–$25,000+ annually depending on risk and limits. Typical deductibles range $1,000–$10,000. (Sources: Insureon, Hiscox, The Hartford)
Key indemnity concepts you must understand
- Broad (absolute) indemnity: You indemnify for all claims, including client negligence — often uninsurable.
- Negligence-only indemnity: You indemnify for claims arising from your negligence or breach — typically acceptable to carriers.
- Third-party vs first-party losses: E&O covers third-party liability for professional services (claims by others). It usually does not cover contractual penalties or first-party liabilities unless specified.
- Defense costs vs indemnity: Some contracts require the contractor to pay defense costs immediately; carriers may contest payment obligations if the contract shifts defense control.
Table: How common indemnity positions affect E&O coverage
| Indemnity Type | Typical Contract Language | Likely E&O Impact | Negotiation Goal |
|---|---|---|---|
| Broad / Absolute | “Contractor indemnifies client for all claims, losses, damages, liabilities, including client’s negligence.” | High risk: often uninsurable or excluded; carriers may decline to defend/indemnify. | Narrow to negligence/breach carve-outs. |
| Negligence-only | “Contractor will indemnify for claims arising from Contractor’s negligence, breach, or willful misconduct.” | Acceptable to most carriers if limited to professional services. | Keep clear scope to professional services. |
| Mutual indemnity | “Each party indemnifies the other for its own negligence.” | Generally acceptable; preserves E&O coverage. | Ensure mutuality and limitation to negligence. |
| Indemnity + defense control | “Contractor must defend at its own expense and select counsel.” | Problematic if carrier loses control of defense; may conflict with policy. | Add clause allowing insurer control of defense or insurer-approved counsel. |
| Subcontractor flow-down | “Contractor must indemnify client and any subcontractors.” | Risk increases if subcontractors expand scope; carrier may require subcontractor evidence of coverage. | Limit to subcontractors only for Contractor’s negligence; require subcontractor E&O. |
Practical negotiation strategies (by priority)
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Limit to negligence or willful misconduct
- Proposed language: “Contractor shall indemnify Client only to the extent that such claims arise from Contractor’s negligent acts, errors, omissions, or willful misconduct in performing the Services.”
- Why: Aligns with typical E&O coverage triggers.
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Carve out client/third-party negligence
- Add: “This indemnity does not apply to claims arising out of Client’s (or third-party) negligence, contributory acts, or breach of contract.”
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Preserve insurer rights and defense control
- Add: “Nothing in this Agreement alters the rights of Contractor’s insurers or the application of Contractor’s insurance policies. Contractor’s insurer shall have the right to defend and/or settle claims subject to the policy terms.”
- Why: Prevents contractual obligations from forcing contractor to use non-insurer-approved counsel or to pay defense costs outside policy limits.
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Include monetary caps tied to contract value or policy limits
- Example: “Contractor’s total liability shall be limited to direct damages up to the lesser of $250,000 or the limits of Contractor’s applicable insurance coverage.”
- Note: Some clients demand high caps; negotiate a reasonable cap or seek mutual limitations.
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Mutualize risk for shared responsibility
- Where feasible, propose a mutual indemnity for negligence and a reciprocal cap to make the clause marketable.
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Require client to mitigate and provide notice
- Add: “Client must provide prompt written notice of claims and cooperate in defense; Client shall mitigate damages where possible.”
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Flow-downs: require subcontractor coverage
- If you must flow down obligations to subcontractors, require subcontractors to maintain E&O and provide certificates.
Sample contract language (negotiable)
- Negligence-only indemnity
- “Contractor shall indemnify, defend, and hold harmless Client from and against claims only to the extent arising directly from Contractor’s negligent acts, errors, omissions or willful misconduct in the performance of the Services, subject to Contractor’s policy terms.”
- Defense / insurer control
- “Notwithstanding anything to the contrary, Contractor’s insurer shall have the right to appoint counsel and direct the defense of any claim covered by Contractor’s insurance.”
Use these clauses rather than absolute indemnity language.
When to involve your broker and counsel
- High-value contracts: If the contract value or potential exposure exceeds typical policy limits (e.g., projects in New York > $1M), involve coverage counsel.
- Insurer relation: Notify your broker if a client demands unusual indemnities; carriers like Chubb, CNA, Travelers, and The Hartford have varying appetites for contractual liability. Larger carriers may offer endorsements for contractual liability but often at higher premiums.
- Certificate & endorsements: If a client requires additional insured status or waiver of subrogation, confirm whether your E&O and general liability policies will provide such endorsements and the cost.
Pricing context and carriers
- National carriers (Chubb, CNA, Travelers, The Hartford) often underwrite enterprise-level E&O with tailored premiums. For small firms in Los Angeles or NYC, market quotes typically range:
- Low-risk professional services: $500–$3,000/year for $1M/$1M limits.
- Mid-risk IT/software consultants: $2,500–$10,000/year.
- Higher-risk software vendors or firms requiring $2M+ limits: $10,000–$50,000+/year.
- (Sources: Insureon, Hiscox, The Hartford)
Checklist for negotiating indemnities (quick)
- Limit indemnity to Contractor’s negligence/willful misconduct
- Exclude client/third-party negligence
- Preserve insurer defense/control rights
- Cap liability or tie to insurance limits
- Require subcontractor E&O flow-downs and certificates
- Confirm endorsements with broker for Additional Insured/Waiver of Subrogation
- Get contract reviewed by coverage counsel for high-risk deals
Next steps and further reading
- Review how indemnity language directly affects coverage: How Indemnity Clauses Affect Professional Liability Insurance (Errors & Omissions) Coverage
- Learn contract drafting tactics to protect coverage: Drafting Contracts to Protect E&O Coverage: Clauses Every Firm Needs
- If you work with vendors/subcontractors, see: Vendor and Subcontractor Contracts: Transferring E&O Exposure Without Losing Coverage
Sources
- Insureon — Errors & Omissions Insurance Cost: https://www.insureon.com/insurance/errors-and-omissions-insurance/cost
- Hiscox — E&O Insurance Cost Guide: https://www.hiscox.com/small-business-insurance/errors-and-omissions-insurance-cost
- The Hartford — Errors & Omissions Insurance Cost Overview: https://www.thehartford.com/errors-and-omissions-insurance/cost
By negotiating targeted indemnity language and involving your broker early, you can accept business in critical U.S. markets like New York City, Los Angeles, San Francisco, Houston and Dallas without inadvertently voiding or pricing yourself out of essential E&O protection.