If you’re part of the design community, you’ve likely seen a growing trend: clients increasingly request higher professional liability limits than what firms typically carry, often without a clear reason. For instance, firms carrying a $2M per claim limit are now being asked to provide $5M, even when the project size or risk profile doesn’t justify it. These requests often feel excessive and misaligned with the actual exposure.
What’s Driving This?
In many cases, it’s not about actual project risk. These demands often come from:
- Misunderstandings about professional liability insurance
- Blanket risk management policies that overlook project specifics
- Legal or procurement teams trying to simplify their templates
- Concerns over the rise in nuclear verdicts (lawsuits exceeding $10M)
Professional Liability Limit Selection
Professional liability limit selection is a nuanced decision influenced by several factors, including firm size, discipline, geographic location, risk tolerance, and contractual obligations. Most firms choose limits that align with their overall risk profile and business strategy, and in many cases, those limits are entirely appropriate.
However, when a specific contract demands higher limits than what a firm typically carries, it may be time to consider negotiating, especially if the request feels out of step with the project’s actual risk. That said, there are instances where a firm’s limits may genuinely be too low for the size or complexity of the work, and in those cases, a reassessment is both reasonable and responsible.
Don’t Just Accept. Negotiate.
Before increasing your professional liability limits to meet a client’s request, it’s worth having a conversation first. Many clients are open to adjusting their requirements once they understand your current limits are in alignment with industry standards and that higher limits may not be feasible or affordable. This is also a great opportunity to educate them and ensure coverage matches the actual risk.
Coverage Duration Requirements
One detail that often gets overlooked is how long you’re expected to maintain those higher limits. Some contracts require coverage to extend years beyond project completion, sometimes up to the statute of repose. This matters because insurance premiums are paid annually, and if you’re on the hook for five or even ten years after substantial completion, those costs can add up quickly. Always review the contract language and clarify the duration with your client.
Options to Increase Limits
If negotiation still results in an expectation to increase professional liability limits, there are several ways to meet higher limit requirements.
- Specific Job Excess (SJX): Adds coverage for a single project. It’s often the most cost-effective and tailored approach. However, if you need multiple SJX endorsements, it may be more economical to increase your overall policy limits. The premium is often fully earned at binding with no pro rata return for early cancellation.
- Specific Client Excess (SCX): Applies to all projects with a single client. This is a great option for master agreements that require higher limits across the board. Like SJX, multiple SCX endorsements can become more expensive than a policy wide increase and the premium is typically fully earned with no pro rata return if cancelled early.
- Policy Wide Limit Increase: Raises limits for all projects and clients. We’ve seen a significant shift in this direction. Among our medium-sized firms ($15M to $25M in annual revenue), the percentage carrying $5M/$5M limits jumped from 38% to 65% in just the past year.
Each option has its pros and cons, so it’s a smart move to connect with your Holmes Murphy Architects & Engineers agent for personalized advice on which approach best fits your firm’s needs.
Balance Client Needs and Risk Protection
These high-limit demands can be frustrating, but they’re manageable. With the right strategy including negotiation, contract review, and smart coverage choices, you can protect your firm and keep clients satisfied.
Need help navigating this? Connect with our Holmes Murphy team for supporting data and specialized expertise. We focus on helping architecture and engineering firms tackle insurance challenges with clarity and confidence—reach out today to learn more.
