Insurance Curator Professional services firms in New York, San Francisco, Los Angeles, Chicago and Houston routinely use vendor and subcontractor contracts to shift risk. But poorly drafted indemnities, additional-insured requirements, or broad hold-harmless language can transfer Errors & Omissions (E&O) exposure in ways that either make that exposure uninsurable or void E&O coverage. This guide explains how to transfer E&O risk effectively while preserving professional liability coverage in the United States.
Why contractual risk transfer matters for E&O (professional liability)
- E&O insurance covers negligent acts, errors or omissions in the performance of professional services.
- Contracts often attempt to shift responsibility for performance, defense and damages to vendors or subcontractors — or require vendors to indemnify the hiring firm.
- Insurers scrutinize contracts that expand an insured’s liability beyond negligence, require indemnity for the insured’s own negligence, or impose uninsurable obligations (e.g., punitive damages, liquidated damages, consequential damages).
Average E&O pricing context (U.S. market):
- Small professional firms commonly pay between $800–$3,000 per year for a $1M/$2M E&O policy depending on industry, prior claims, and location. (Sources: Insureon, The Hartford)
- Insureon notes typical ranges and industry-specific examples: https://www.insureon.com/insurance/professional-liability/errors-omissions-insurance/cost
- The Hartford provides market guidance for E&O pricing and limits: https://www.thehartford.com/professional-liability-insurance/errors-and-omissions
Top carriers (examples) that underwrite E&O in major U.S. markets include Hiscox, The Hartford, Travelers and Chubb; sample quotes vary widely by profession and city—Hiscox and The Hartford offer online quoting and sample premiums to illustrate ranges: https://www.hiscox.com/small-business-insurance/errors-omissions-insurance and https://www.thehartford.com.
The problem: transferring exposure can create uninsurable obligations
Common contract clauses that trigger insurer concern:
- Broad indemnities that require a subcontractor to indemnify for the hiring firm’s own negligence.
- Warrantees of performance or fixed-damage/liquidated-damage clauses that create penalty-like exposure.
- Requirements to defend “regardless of fault.”
- Blanket additional-insured language without limitation to vicarious or contractual liability.
These clauses can result in:
- Denial of coverage or reservation of rights.
- Exclusions invoked by carriers for assumed contractual liability.
- Increased premiums or non-renewal in markets like New York City, San Francisco and Los Angeles where claims density is high.
Practical contract drafting strategies to transfer risk while keeping E&O intact
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Require vendor/subcontractor E&O coverage with appropriate limits and endorsements.
- Typical requirement: $1M per claim / $2M aggregate for small–mid professional engagements; higher for high-risk professions or government contracts.
- Insist on carriers with AM Best A- or better and include primary and non-contributory wording if you intend to rely on their policy for defense.
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Narrow indemnity language.
- Limit subcontractor indemnities to acts, errors or omissions caused by the subcontractor (not the hiring firm’s negligence).
- Avoid “losses arising out of” phrasing; prefer “arising from the subcontractor’s negligent acts, errors or omissions in performing the subcontract.”
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Allocate defense obligations carefully.
- Require indemnitor to defend only for claims attributable to its negligence.
- Prohibit unilateral control of the defense without the indemnified party’s consent.
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Exclude uninsurable obligations explicitly.
- Make liquidated damages, consequential damages, fines, penalties and punitive damages the responsibility of the party that caused them.
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Use certificates plus policy language.
- Certificates of insurance aren’t contracts. Require policy wording (endorsement) or insurer confirmation for additional insured status and specify the extent of coverage (e.g., “only for liability caused by the named insured’s acts”).
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Escalate limits for high-exposure jurisdictions.
- For projects in New York City or San Francisco, consider requiring $2M/$4M limits due to higher claim frequency and defense costs.
Checklist: steps before signing any vendor/subcontractor agreement
- Confirm the subcontractor’s E&O limits, retroactive date, and carrier rating.
- Verify deletion of contractual liability exclusions or secure an endorsement that protects the indemnitee.
- Limit indemnity to subcontractor negligence or willful misconduct.
- Insist on prompt notice language and cooperation in claims handling.
- Add a clause requiring the subcontractor to notify you of any policy changes or cancellations.
Use this quick contract review checklist as you negotiate: Checklist for Reviewing Contracts That Could Impact Professional Liability Insurance (Errors & Omissions) Claims.
Sample contracted risk-transfer language (starter examples)
- Indemnity narrow form: “Subcontractor shall indemnify, defend and hold harmless Contractor from claims to the extent caused by Subcontractor’s negligent acts, errors or omissions in performance of the Services.”
- Defense cap: “Subcontractor’s duty to defend shall be limited to claims arising solely from Subcontractor’s negligent acts and shall not apply to claims arising from Contractor’s negligence.”
For additional drafting templates and clauses, see: Drafting Contracts to Protect E&O Coverage: Clauses Every Firm Needs.
What to do if your contract demands more than your E&O can cover
- Negotiate: push back on any unilateral indemnity for your own negligence or a duty to defend regardless of fault.
- Buy endorsements: some insurers will offer contractual liability endorsements or waive certain exclusions for additional premium.
- Purchase higher limits: for large or high-risk contracts (e.g., NYC healthcare tech implementations), consider $2M+ limits.
- Seek primary coverage from subcontractors: require subcontractors to maintain primary insurance for claims arising from their work.
If a contract already forces you into uninsurable obligations, you should consult both your broker and legal counsel immediately — and review this resource: What to Do If a Contract Forces You Into an Uninsurable Risk With Professional Liability Insurance (Errors & Omissions).
Comparison: Common contract tools and insurer acceptance
| Contract Tool | How it Transfers E&O Exposure | Insurer Acceptance Risk | Practical Tip |
|---|---|---|---|
| Narrow indemnity (negligence only) | Limits responsibility to negligent acts | Low — aligned with E&O coverage | Use precise language tying indemnity to subcontractor’s negligence |
| Broad indemnity (“arising out of”) | Expands to many causal links, may include hiring firm’s fault | High — likely triggers exclusions | Negotiate to carve out indemnitee negligence |
| Additional insured status | Adds hiring firm as insured for vendor’s liability | Medium — depends on endorsement scope | Require endorsement limiting coverage to vicarious liability |
| Liquidated damages clause | Creates fixed financial exposure not tied to negligence | High — often uninsurable | Avoid or cap; allocate to party controlling performance |
| Defense without regard to fault | Shifts litigation costs regardless of liability | High — insurers resist | Limit defense to claims caused by indemnitor’s acts |
Final action plan (for U.S. firms in NY, CA, TX and beyond)
- Engage your broker early — get carrier feedback on proposed contract language before signing.
- Insist on subcontractor E&O with appropriate endorsements — verify carriers and retro dates.
- Narrow indemnity and defense clauses — avoid accepting responsibility for your own negligence.
- Document everything — collect policies, endorsements and COIs, and maintain a contract review checklist.
For guidance on how indemnity clauses interact with professional liability policies, see: How Indemnity Clauses Affect Professional Liability Insurance (Errors & Omissions) Coverage.
External references and further reading:
- Insureon — E&O insurance cost overview and examples: https://www.insureon.com/insurance/professional-liability/errors-omissions-insurance/cost
- The Hartford — Errors & Omissions (Professional Liability) insurance details: https://www.thehartford.com/professional-liability-insurance/errors-and-omissions
- Hiscox — Small business E&O insurance product information: https://www.hiscox.com/small-business-insurance/errors-omissions-insurance
By combining precise contract language, verified subcontractor insurance, and broker/insurer coordination, firms can transfer risk to vendors without accidentally voiding or expanding their own E&O exposure. For clause-level samples to align indemnities with policies, consult: Sample Contract Language to Align Indemnities with Professional Liability Insurance (Errors & Omissions).