Professional liability claims rarely begin with a dramatic design failure. More often, they are the result of routine projects where expectations, communication, or circumstances drift off course. When that happens, the outcome of a dispute is shaped not only by the facts of the project, but by the language buried in the agreement signed months or even years earlier.
Increasingly, we are seeing situations where design firms accept contractual obligations that extend beyond what their professional liability insurance is designed to cover. These provisions usually are not presented as major risk transfers. They appear as subtle wording changes, client “standard language,” or well-intended efforts to be cooperative during negotiations. However, the impact may not surface until a claim arises, and by then, the contract determines the outcome.
One of the most common areas of concern involves indemnification language that is not tied directly to negligence. Professional liability coverage is fundamentally built around negligent acts, errors, or omissions in the delivery of professional services. When an agreement requires a design firm to indemnify an owner for “any and all claims arising out of the project,” that obligation may extend to issues the firm did not cause. Delays, contractor performance problems, or owner-driven changes can all become part of the exposure. In a dispute, this can lead to defense and settlement costs that fall outside the intent of professional liability coverage because the responsibility stems from a contractual promise rather than professional negligence.
Another frequent issue arises when contracts elevate the standard of care beyond the established legal benchmark. Insurance policies and the courts generally measure professional performance against what a reasonably prudent design professional would have done under similar circumstances. Phrases such as “highest professional standards” or “best possible services” may seem harmless, or even reasonable, but they create an expectation of perfection that no professional service can realistically achieve. In litigation, opposing counsel may use that language to argue that the firm failed to meet the heightened obligation it agreed to in writing, even when its work was consistent with industry norms. This disconnect between contractual expectations and insurable standards can significantly complicate claim defense.
Defense obligations present another area where contract language can significantly expand risk. A requirement to “defend” a client, especially when triggered by an allegation rather than a finding of negligence, may obligate a design firm to fund legal costs at the outset of a dispute. Professional liability policies do provide defense for covered claims, but they are not designed to assume broad, stand-alone contractual defense commitments that apply regardless of fault. In multi-party disputes, this can create a scenario where legal costs accumulate quickly while coverage positions are still being evaluated, increasing financial strain and uncertainty.
The removal of mutual waivers of consequential damages is another trend that can significantly change a firm’s risk profile. Consequential damages often include losses such as lost revenue, financing costs, business interruption, or loss of use. These damages can be highly disproportionate to the design fee and are frequently driven by factors outside the design professional’s direct control. Without a mutual waiver, a relatively small design issue on a time-sensitive or revenue-generating project can escalate into a claim involving substantial secondary losses. While professional liability insurance may respond to certain elements of these claims, the unpredictability and scale of consequential damages can increase both financial exposure and the complexity of resolution.
Finally, contracts sometimes blur the line between professional services and construction (Contractor) responsibilities. Language that assigns the design firm responsibility for means and methods, jobsite safety, construction sequencing, or contractor performance effectively shifts contractor-type risks onto a professional consultant. These exposures are fundamentally different from design risk and are typically not contemplated within the scope of a design firm's insurance program. Even when the design firm has no practical control over these aspects of the project, the mere presence of this language can put them in the line of fire for disputes and defense situations that are difficult and costly to sidestep. This issue is further complicated when the design firm is a consultant to a contractor or developer where the terms of their agreement with the project owner are incorporated by reference. It is likely the incorporated terms and conditions of the prime agreement include uninsurable provisions that flow-down to the design firm by incorporation.
Taken individually, none of these provisions may appear problematic during contract negotiations. They are often presented as standard language or minor adjustments, and the project team’s focus is understandably on scope, schedule, and client relationships. However, when reviewed as a whole, these clauses can create a significant gap between the risks a firm believes it is taking on and the risks its insurance program is designed to address.
The purpose of identifying these issues is not to make contracts adversarial or to avoid reasonable professional responsibility. Rather, it is to ensure alignment. When contract language, operational practices, and insurance structure work together, disputes tend to remain within a predictable and manageable framework. When they diverge, firms may find themselves effectively self-insuring exposures they never intended to assume.
For firm leadership, finance teams, and legal counsel, the key question is not simply whether a clause is negotiable, but whether the risk it creates is one the firm is prepared (financially and operationally) to absorb if things go wrong. Bringing contract review into closer coordination with risk management and insurance strategy can help ensure that decisions made at the negotiating table do not lead to unexpected outcomes years later in a claim setting.