Insurance Curator When negotiating indemnity clauses for professional services in the United States—especially in major markets such as New York City, San Francisco, Chicago, and Dallas—the primary goal should be to align contractual obligations with your Professional Liability (Errors & Omissions, “E&O”) insurance. Misaligned indemnities can render coverage illusory, result in uncovered claim costs, or increase premiums. Below are practical contract clauses, drafting strategies, and market context to help firms and counsel draft indemnities that preserve E&O coverage.
Why alignment matters (short primer)
- E&O policies typically respond to claims alleging negligent acts, errors, or omissions in the performance of professional services.
- Broad contractual indemnities (e.g., indemnify for all claims, including client negligence, intentional acts, or strict liability) often exceed what typical E&O policies will cover.
- Insurance carriers and brokers (for example, Hiscox, The Hartford, and national brokers listed on Insureon) price and underwrite based on realistic contract exposure—excessive contractual transfers increase premiums and can lead to denied coverage.
Sources for market context and premium ranges:
- Insureon: professional liability cost ranges and risk factors — https://www.insureon.com/small-business-insurance/professional-liability-insurance-cost
- Hiscox: small-business Professional Liability insurance product details — https://www.hiscox.com/small-business-insurance/professional-liability
- The Hartford: overview of professional liability coverage — https://www.thehartford.com/business-insurance/professional-liability
Typical market pricing (examples for U.S. small businesses)
- Low-risk consultants: as low as ~$288/year (Hiscox online entry-level pricing, varies by state and profession).
- Most small professional practices: $500–$2,000/year depending on limits, claims history, and state (Insureon median ranges).
- Mid-sized firms in high-risk markets (NYC, San Francisco) often pay $2,000–$10,000+/year for higher limits, depending on exposure and discipline.
Drafting principles to preserve E&O coverage
- Limit indemnity to negligent acts, errors, or omissions in the performance of covered professional services.
- Cap liability at a practical amount and, where possible, tie the cap to policy limits (or specify a multiple).
- Exclude intentional wrongdoing, fraud, criminal acts, punitive damages, and willful misconduct from indemnity. Those risks are typically uninsurable.
- Preserve insurer defense/control and notice requirements: require prompt notice of claims and allow the insurer to defend subject to policy terms.
- Flow-down vs. flow-up: require subcontractors to carry similar E&O but avoid assuming the subcontractor’s indemnities beyond what your insurer covers.
- No waiver of coverage: avoid contractual language that effectively requires coverage for obligations insurers typically exclude (e.g., broad contractual liability).
Sample contract language — primary clauses
1) E&O-aligned indemnity (recommended baseline)
Consultant shall indemnify, defend and hold harmless Client from and against any and all claims, losses, damages, liabilities and expenses (including reasonable attorneys’ fees and costs) to the extent resulting from Consultant’s negligent acts, errors or omissions in the performance of the professional services expressly set forth in this Agreement. Consultant’s indemnity obligation shall not apply to the extent such claims arise from Client’s sole negligence, willful misconduct, or fraud.
- Why: Ties indemnity to negligence and excludes client fault/willful misconduct.
2) Insurance-aware indemnity with policy limits cap
Consultant’s aggregate liability for claims arising under this Agreement shall not exceed the limits of Consultant’s Professional Liability (Errors & Omissions) insurance maintained during the term of this Agreement, or $1,000,000 per claim and $2,000,000 in the aggregate, whichever is greater. The parties agree that this monetary cap is reasonable and reflects an allocation of risk.
- Why: Limits exposure and aligns contract cap to typical E&O limits (common market limits: $1M/$2M).
3) Defense and notice clause (protects coverage)
Client shall provide Consultant with prompt written notice of any claim for which Client seeks indemnity. Consultant’s insurer shall have the right to participate in or assume the defense in accordance with the policy. Client shall not settle any claim that would impose liability on Consultant without Consultant’s prior written consent, which shall not be unreasonably withheld.
- Why: Ensures insurer can defend and settlement control is preserved.
4) Carve-out for uninsurable obligations
Notwithstanding any other provision, Consultant shall not be required to indemnify, hold harmless, or insure Client for claims arising from (a) Consultant’s intentional wrongful acts, (b) punitive or exemplary damages to the extent prohibited by law or insurable only at extra cost, or (c) liabilities arising solely from Client’s negligence.
- Why: Clarifies uninsurable items are excluded.
5) Subcontractor flow-down
Consultant will require any subcontractors performing professional services to maintain Professional Liability insurance with limits of not less than $1,000,000 per claim / $2,000,000 aggregate and to include Consultant as an additional insured to the extent permitted by the subcontractor’s policy.
- Why: Transfers risk to subcontractor while ensuring minimum insurance.
Quick-reference clause comparison
| Clause Type | Sample Language Intent | Pros | Cons |
|---|---|---|---|
| Negligence-limited indemnity | Indemnify for negligence in performance | Aligns with E&O triggers; insurable | Client may push for broader indemnity |
| Policy-limit cap | Liability limited to insurer limits or $1M/$2M | Prevents exposure beyond coverage | Client may resist cap tied to insurer limits |
| Defense & notice | Prompt notice; insurer allowed to defend | Preserves insurer obligations | Requires careful coordination on settlements |
| Uninsurable carve-out | Excludes willful misconduct, punitive damages | Avoids impossible obligations | Negotiation point with risk-averse clients |
| Subcontractor flow-down | Mandate subcontractor E&O $1M/$2M | Controls downstream risk | Subcontractor pushback, cost increases |
Negotiation tips by jurisdiction (U.S. city considerations)
- New York City: clients often demand broad indemnities—counter with insurance-based caps and carve-outs tied to New York law’s public policy on punitive damages.
- San Francisco / Silicon Valley: tech contracts frequently include IP indemnities—limit E&O indemnity to professional negligence and handle IP indemnities separately with insurer consent.
- Chicago and Dallas: mid-market firms can often secure $1M/$2M E&O easily; use that as a negotiating anchor.
Practical checklist before signing
- Confirm your E&O policy includes contractual liability for professional services or obtain endorsement.
- Verify current policy limits (common small/medium market limits: $1M/$2M) and obtain written carrier confirmation if client demands higher transfer.
- Assess premium impact if contract requires higher insurance limits—obtain quotes from carriers (Hiscox, The Hartford, Travelers, CNA, etc.).
- Ensure the contract permits insurer involvement in the defense and settlement process.
- Add explicit carve-outs for uninsurable liabilities.
Example enforcement & premium impact
- Requesting an insurer to assume a third-party contractually-imposed liability outside standard professional negligence increases underwriting exposure—and sometimes premiums. For example, small-business E&O quotes from carriers like Hiscox can start around $288/year for low-risk profiles, while mid-sized practices in NYC may see $2,000+ per year for standard $1M/$2M limits (price varies widely by discipline and claims history). See carrier and broker resources: Hiscox, The Hartford, Insureon (linked above) for market quotes and estimators.
Useful internal resources
- How Indemnity Clauses Affect Professional Liability Insurance (Errors & Omissions) Coverage
- Drafting Contracts to Protect E&O Coverage: Clauses Every Firm Needs
- How to Negotiate Indemnity Clauses to Preserve Professional Liability Insurance (Errors & Omissions) Coverage
Aligning indemnities with E&O coverage requires intentional drafting: limit indemnities to negligent professional acts, cap liability consistent with policy limits, preserve insurer defense rights, and explicitly exclude uninsurable exposures. Use the sample clauses above as starting points, then confirm coverage with your broker or carrier before you sign.