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Professional Liability Clauses to Include in Contracts

Professional Liability Clauses to Include in Contracts

Friday, February 12, 2016/Categories: errors-and-omissions

Contracts are your best friend. A well-written contract can act as a wall that protects you from the actions of your subcontractors, and, with the right clauses, you can even limit your own liability if something goes wrong with a project.

But strong contracts – and the walls they provide – are only as good as the language that makes them. See what this language should include, below.

Clauses to Cover the “What-Ifs”

One of the main purposes of a contract is to spell out exactly what will happen in various circumstances during a job. Attorney and legal education expert Karen Taggart @KareneTaggart) says that each contract should lay out the details of what is being agreed upon.

This should include language specifying what happens if…

  • One or both parties want to stop working together.
  • A problem arises (i.e., how responsibility will be allocated).
  • A disagreement arises (i.e., in what venue it will be handled).

By including these “what-if” provisions, a contract should help you avoid going to court whenever possible.

“If it’s not written in the contract, it’s not part of the agreement,” she adds. “So covering issues such as liability, choice of law, jurisdiction, whether you’re requiring arbitration or mediation before going to court, and who owns the work product that is being produced is crucial.”

Clauses to Define the Scope of Work

You don’t want to be held accountable for something you never agreed to do. That’s why every contract you sign should include language that defines…

  • Exactly what your work includes / what you’re responsible for.
  • What the other parties are responsible for.

Clauses that explain your scope of work are the written record that will determine whether you did your job or not. They’re also great for when a client or subcontractor disagrees about what they’re supposed to do. All you have to do is point to the appropriate clause as evidence.

Clauses to Limit Liability

When working with subcontractors, you don’t want to be liable for their professional work. Your Professional Liability Insurance may not cover them, or you may not be fully confident in their abilities. You could be found liable, however, if your contract with them doesn’t include limit of liability clauses. These clauses are written so as to…

  • Limit the amount or type of compensation that your business will owe if found liable for a claim.

For instance, you might include a clause in your contract with a subcontractor stating you’re not liable for claims stemming from their errors or negligence. This is a typical indemnification clause, says Taggart, “meaning that one party will indemnify (hold harmless) the other party if a third party has a problem occur.”

Other common limited liability clauses include language that clarifies that someone is offering “no professional advice,” or making “no promise of outcomes,” Taggart says. Additionally, most contracts also contain statutory liability clauses that are a matter of law.

“Basically,” Taggart says, “you can have your contract say whatever you want, but whether it will be held up in court or not is a different issue!”

To help shoot for a fair and enforceable agreement, it’s always good advice to work with an attorney, at least when first using a contract.

“Once you have one strong contract written for a particular type of use for your business, you can then just edit for each contractor after that,” Taggart says. “You shouldn’t have to ‘reinvent the wheel’ each time and pay for a new contract for each subcontractor you hire.”

For more information on using subcontractors and risk management, see “5 Things to Check When Hiring a Subcontractor.”

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