Short answer
Yes, the agreements you sign can create liability that your insurance does not cover. Many professional liability policies exclude liability a firm takes on only through a contract. Your policy stays in force, but the extra obligation may not be covered. Knowing which contract clauses your policy excludes helps architects and engineers push back before signing.
What is the contractual liability exclusion?
Many professional liability policies for architects and engineers contain a contractual liability exclusion. In plain English, it means the policy does not cover liability you accept in a contract that you would not otherwise have.
If you owe someone damages because of your negligence, the policy may respond to that claim. If you owe them because a contract promised something beyond negligence, that extra promise may be excluded.
The exact wording varies by carrier and policy form. Some policies carve out exceptions, so read your own form and ask your broker how it applies.
Contract clauses your policy excludes or limits
Five types of clauses cause problems most often. Any of them can show up in a client agreement, a prime contract or a subconsultant agreement.
Broad indemnity clauses
An indemnity clause makes you responsible for another party’s losses. A broad version may require you to cover losses even when you were not at fault.
Your policy generally responds to your negligence. If a clause makes you pay for someone else’s mistake, that portion may be not covered.
Some states limit broad indemnity in design contracts, and the rules vary. A contract review can show whether your state restricts it.
Heightened standard of care
Professional liability coverage is built around the ordinary standard of care, which means the level of skill a reasonably careful professional would use. Some contracts raise that bar with phrases like “highest standard” or “best practices.”
If you agree to a higher standard, a claim can arise from conduct that policy wording does not match. That gap may leave part of the claim excluded.
Warranties and guarantees
A warranty or guarantee promises a result, such as “the design will meet the owner’s budget” or “the work will be free of defects.”
Professional liability is built around negligence, not guaranteed results. A promise to deliver an outcome can create a duty your policy does not follow, so coverage may fall short.
Certifications
Some contracts ask you to certify that your design complies with all laws, codes or regulations. A broad certification can turn a normal professional opinion into a legal promise.
If a claim arises from that promise rather than from negligence, the carrier may treat the certification as liability assumed by contract. Narrower wording tied to your professional judgment is usually easier to insure.
Duty to defend
Some contracts require you to defend the client against any claim, whether or not you caused it. A duty to defend can start as soon as a claim is made.
Your policy has its own rules for defense, including when the carrier controls it and who picks counsel. A contract that demands more than the policy provides may leave the extra defense costs with your firm.
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Get a Quote →Before and after wording examples
These samples are general illustrations. Your contract, your state and your policy decide what applies.
Broad indemnity
Before: “Consultant shall indemnify Client against all losses arising from the project.”
After: “Consultant shall indemnify Client against losses to the extent caused by Consultant’s negligent acts or omissions.”
Standard of care
Before: “Consultant shall perform services to the highest standard in the industry.”
After: “Consultant shall perform services consistent with the standard of care ordinarily exercised by design professionals in the same region.”
Warranty
Before: “Consultant guarantees the design will meet all project requirements.”
After: “Consultant will perform services using reasonable professional care and judgment.”
Certification
Before: “Consultant certifies the design complies with all applicable laws.”
After: “Consultant will use professional judgment to prepare documents that reflect applicable codes known at the time of design.”
Duty to defend
Before: “Consultant shall defend Client against all claims related to the services.”
After: “Consultant shall reimburse reasonable defense costs to the extent a claim is caused by Consultant’s negligence.”
A real-world example
A civil engineering firm signs a subconsultant agreement. The contract requires the firm to “indemnify and hold harmless the prime consultant from all claims, regardless of fault.”
Later, a claim arises from a coordination issue involving several parties. The prime consultant asks the engineering firm to cover all costs under the indemnity clause.
The firm’s professional liability policy may respond to the part of the claim tied to the firm’s own negligence. The part the firm owes only because of the “regardless of fault” language may be excluded. The firm could end up paying that portion out of pocket.
The firm’s broker or attorney could have flagged the clause before signing. Asking for a negligence-based version often costs far less than absorbing the loss later.
Who can review your contracts
An attorney who works with design professionals is the best option for legal advice on contract wording. Your broker can help you compare the insurance requirements to your policy and point out clauses that may raise coverage questions.
Brokers do not give legal advice. A good review combines both views: the lawyer addresses what the language means legally, and the broker addresses how the policy may respond.
Some carriers also offer contract review as part of risk management support. Ask whether yours does and what it covers.
Questions to ask before you sign
- Does the contract include an indemnity clause, and does it limit your duty to losses you caused?
- Does it require a standard of care higher than the ordinary professional standard?
- Does it include a warranty, guarantee or broad certification?
- Does it require you to defend the client, and when does that duty start?
- How does your policy treat liability assumed under a contract?
- Has your attorney or broker reviewed the clauses that raise coverage questions?
- Can you ask the client to change the wording?
Does the contractual liability exclusion cancel my policy?
No. Your policy stays in force. Only the liability taken on through the contract may be excluded or not covered.
Can I ask a client to change a clause?
Yes. Many clients are open to negotiating wording, especially when you propose a reasonable alternative such as limiting indemnity to your own negligence.
Does professional liability insurance cover my duty to defend a client?
It depends on the policy. Some policies address defense obligations to others only in limited ways. Review the wording with your broker before agreeing to a defense clause.
Are warranties and guarantees always excluded?
Not always, but they are a common source of coverage gaps. Policy language varies, so check how your form treats promises of a specific result.
Should I buy more insurance to cover these risks?
More limits do not always solve the problem. If a clause creates an exclusion, higher limits may not change how it applies. Negotiating the clause is often the better fix.
This article is general information, not legal advice. Contract language and insurance policies vary, so consult a qualified attorney and review your actual policy before signing.
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