Short answer
Duty to defend professional liability questions usually come down to fault. Your policy generally responds to claims arising from your negligent professional services. A contract clause that requires you to defend the owner upfront, whatever the cause, is a promise your policy may not fund. Some of that cost could fall on your firm directly, so have the carrier and your attorney review the language before you sign.
What is the problem with a duty to defend clause?
Two clients asked us versions of the same question this fall. A Texas architecture firm negotiating a data-center owner contract asked whether defense and attorneys’ fees were “included within our PL limit or could constitute an additional uninsured obligation.” A solo water-resources engineer had a lawyer who wanted to delete the indemnity and defense clauses and asked us to take a look.
Both questions point to the same issue. Professional liability insurance generally covers your legal liability for negligent acts, errors or omissions in your services. A duty to defend upfront, before anyone decides who was at fault, is a contractual promise. Policies often treat that differently.
Why can a contractual duty to defend fall outside coverage?
Many professional liability policies contain a contractual liability exclusion. It generally removes coverage for liability you assume only through a contract. Many forms keep an exception for liability you would have had anyway without the contract, such as liability based on your own negligence.
An owner’s duty to defend clause often asks for more than that. It may require you to pay the owner’s defense costs even when you did nothing wrong. Those obligations may sit outside the exception. Exact wording varies by policy, so the form controls.
Do defense costs reduce your professional liability limit?
On many professional liability policies, defense costs are inside the limit. That means money spent on attorneys reduces what remains for settlements or judgments. Some policies pay defense outside the limit, and others split the structure between first-dollar defense and a deductible that includes defense costs.
The Texas firm asked whether defending the owner “would consume part of the applicable PL limit.” That depends on whether the policy covers the obligation at all and how the policy treats defense costs.
What do firms commonly negotiate instead?
Owners and their attorneys often settle on one of a few approaches. Examples include:
- Limiting indemnity to the extent a claim is caused by your negligence
- Reimbursing defense costs only after fault is determined
- Making the clause mutual, so each party indemnifies the other for its own fault
These are common approaches, not recommended wording. Whether any of them fits your contract depends on the project, the state and the parties. Some states also limit how far a design professional can be required to defend upfront, so ask your attorney how your state treats it.
Why do we send contracts to the carrier?
We sent both clients’ questions to the carrier for review. A broker can spot indemnity language that looks unusual, but the carrier decides what its policy will respond to. Asking the carrier early tells you what is insurable before you negotiate.
Your attorney should handle the wording itself. Hardcover can point out where a clause may conflict with your coverage, and we don’t draft or approve contract language.
Example: an owner contract that asks for a defense upfront
Consider a hypothetical architecture firm with a contract requiring it to defend the owner against any claim connected to the project, regardless of fault. The firm’s professional liability policy covers its negligent acts and has a contractual liability exclusion.
The firm sends the contract to its broker before signing. The broker sends it to the carrier, which comments on the clause. The firm’s attorney then proposes changes tied to the firm’s own negligence. The firm negotiates with a clear view of what its policy would and wouldn’t fund.
What to check in your contract
- Whether the indemnity clause is tied to your negligence or applies regardless of fault
- Whether the contract requires a duty to defend before fault is decided
- Whether your policy has a contractual liability exclusion, and what exception applies
- Whether defense costs sit inside or outside your limit
- Whether the clause is mutual
- What your attorney recommends about your state’s rules
Our page on professional liability claims explains how claims are handled, and you can send us the contract for a check before you negotiate.
Related questions
Does professional liability cover a contractual duty to defend?
Often not for liability you assume only through a contract. Many policies cover liability you would have had without the contract. Check your form and ask the carrier.
Do defense costs reduce my professional liability limit?
On many policies they do. Others pay defense outside the limit. Your declarations page and policy form show which applies.
Should I delete the indemnity clause from an owner contract?
That is a decision for you and your attorney. Many firms ask to limit the clause to their own negligence instead of removing it. Hardcover can flag how the language may interact with your coverage.
Why would a broker send my contract to the carrier?
The carrier decides what its policy will respond to. Early review shows what is insurable before you sign.
Do states limit a duty to defend for design professionals?
Some do. The rules vary by state, so ask your attorney how your state treats upfront defense obligations.