Negotiating indemnity obligations

Gavel and law booksClient-drafted indemnity obligations are often broad and include defense obligations. Often, clients are unwilling to amend indemnity obligations. If a firm wants to protect itself against the possibility of having to defend its client and paying contractual obligations beyond its professional liability insurance coverage for providing professional services, it may be better off adding a separate contractual provision rather than trying to edit existing language that is meant to cover risks other than professional negligence.

Increasingly, we are seeing client-drafted contracts that recognize the limitations of  professional liability coverage and offer a bifurcated indemnity obligation. Here is an example of such a clause:

With respect to claims insured only under the professional liability policy, this indemnity shall apply only to the extent such claims arise out of or result from the negligent act(s), error(s), or omission(s) of Consultant, or anyone directly or indirectly employed by Consultant or anyone for whose acts Consultant may be liable, and the Consultant’s defense obligation shall be the reimbursement of Client’s reasonable legal expenses in defending against an allegation of harm caused by the Consultant’s failure to meet the standard of care for professional services once that failure is determined.

This language effectively differentiates the typical responsibility of the firm for its negligent performance of professional services from contractual obligations that are intended to be covered by other insurance policies.

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