Short Answer
It may. Some professional liability carriers consider a design firm's contractual risk-management practices when underwriting coverage. Depending on the carrier and its guidelines, using qualifying limitation-of-liability provisions may be one factor considered for available premium credits. A limitation-of-liability provision shouldn't be added to a contract solely to get an insurance discount, and contract language and enforceability are legal matters that should be reviewed with qualified legal counsel.
What is a Limitation of Liability Clause?
A limitation of liability clause may affect professional liability insurance pricing. Some professional liability carriers consider a design firm's contractual risk-management practices when underwriting coverage.
The amount or method used to set the limitation can vary significantly from one agreement to another. Firms should consult their attorney regarding appropriate language and whether a particular provision may be enforceable in the applicable jurisdiction.
Why does a Limitation of Liability Clause matter to a professional liability insurer?
Professional liability underwriters may consider how a firm manages contractual risk, including whether the firm uses written agreements, whether it uses its own agreement or signs agreements provided by clients, the contractual obligations it accepts, and whether certain risk-management provisions are routinely incorporated into agreements.
These factors can form part of the carrier's overall underwriting evaluation. In one recent underwriting discussion, the carrier being considered had a potential credit associated with qualifying limitation-of-liability practices. That credit wasn't included in the initial quote, and its availability depended on satisfying the carrier's specific requirements.
Will a limitation of liability clause lower my premium?
Not necessarily. Premiums are based on numerous underwriting factors, which may include professional services, revenue, project types, claims history, limits, deductible, contractual practices, and other risk characteristics.
Some carriers may recognize certain contractual risk-management practices through underwriting credits. Others may treat them differently or may not offer a specific credit at all. A firm shouldn't assume that adding a provision will result in a specific premium reduction. The better question for your broker is whether your carrier recognizes your contractual risk-management practices and whether your firm qualifies for any available credit.
What if we use our own contracts for some projects but client contracts for others?
This is common. A firm may have more control over its agreement when contracting directly with certain clients, while larger commercial projects may require the firm to work from an agreement the client provides.
An underwriter may ask how consistently certain risk-management practices are used before determining whether a credit or other underwriting consideration applies.
Example
A design firm controls the terms of many of its own agreements, but some commercial clients require the firm to sign their contracts instead. When reviewing the firm's professional liability program, the broker raises the question of whether the carrier offers any credit tied to the firm's contractual risk-management practices.
The carrier confirms a potential credit exists, but it wasn't reflected in the initial quote and depends on the firm meeting specific underwriting requirements. The firm and broker then work through what's needed to determine eligibility.
What to check before assuming a Limitation of Liability Clause affects your pricing
Before assuming a limitation-of-liability clause affects your pricing, review:
- Whether your current carrier offers any underwriting credit tied to contractual risk-management practices
- Whether that credit is already reflected in your quote or would need to be requested
- How consistently your firm uses its own agreements versus client-provided contracts
- Whether your attorney has confirmed the enforceability of any limitation-of-liability language in your jurisdiction
- Whether Hardcover can review your contracts from an insurance and underwriting perspective alongside your legal counsel’s review
Related Questions
Does Professional Liability Insurance replace the need for a Limitation of Liability Clause?
No. Insurance and contract language address different aspects of risk. Professional liability insurance may provide defense and indemnity for covered claims, subject to the policy's terms, conditions, exclusions, deductible and limits. Your client agreement establishes the obligations your firm accepts in the first place, which is a separate layer of risk management.
Can Hardcover review our contracts?
Hardcover can review contracts from an insurance and risk-management perspective, including identifying provisions that may affect insurance requirements or professional liability underwriting. This doesn't include legal advice or a determination of enforceability, which should go through qualified legal counsel.
Should we add a limitation of liability clause just to get a discount?
No. A provision like this affects your firm's actual contractual risk and should be evaluated on that basis first. Any potential underwriting credit is a secondary consideration, not the reason to add one.
Professional Liability
Helps respond when a client alleges your professional services caused a financial loss, project issue, or other damages.
Learn moreArchitects
Design liability, specification disputes, and ADA compliance allegations are among the most common exposures.
Learn moreStructural Engineers
For covered employee injuries tied to work. This can include office injuries, travel-related work injuries, or incidents during job site visits.
Learn moreCoverage and underwriting disclaimer:
Insurance coverage is subject to the actual terms, conditions, exclusions and limitations of the applicable policy. Premiums, credits and eligibility are determined by the insurance carrier and may vary based on underwriting criteria. Nothing on this page constitutes legal advice or a guarantee of coverage, pricing or eligibility.