How to Judge Whether a Contract's Malpractice Insurance Clause Is Adequate

Attorney Answer

Nobody can tell you whether that clause is adequate without reading the clause and knowing what you do for a living — "adequate" is not a legal standard, and for most private contracts no Connecticut statute sets a minimum. The real question is whether the coverage the clause requires actually lines up with the claims you could realistically face.

That is not a brush-off. It is a question you can largely answer yourself with the contract in front of you, and there are six things to look at, in this order.

Who has to carry it. Read the clause once asking only that. A clause requiring you to insure and a clause requiring the other side to insure create opposite risks, and people frequently misread which one they signed.

Occurrence or claims-made. This is the point that catches professionals out. An occurrence policy covers an incident that happened while the policy was in force, whenever the claim arrives. A claims-made policy covers only claims made and reported while the policy is in force. If your contract requires claims-made coverage and says nothing about tail coverage — an extended reporting period after the policy ends — then a claim arriving after the engagement ends may be covered by nothing at all. If you take one thing from this page, take that.

The limits, and what erodes them. Look for two numbers: per claim and annual aggregate. Then ask the question the number does not answer — do defense costs come out of the limit, or sit outside it? A limit that pays the lawyers first is a smaller limit than it looks. Compare the numbers to the worst realistic claim in your field, not the average one.

How long the obligation lasts. Does the duty to maintain coverage survive the end of the contract, and for how many years? Professional claims surface late. A clause that ends when the engagement ends leaves the tail exposed.

Proof and notice. Does the clause require a certificate of insurance before work starts, annual renewal certificates, and written notice before the policy is cancelled or materially changed? Without a notice requirement, coverage can lapse and you will not learn of it until you need it.

How it interacts with the rest of the contract. Read the insurance clause against the indemnification clause and any limitation of liability. If you have promised to indemnify for more than the insurance is required to cover, the difference is on you personally, and that gap is the most common serious defect in these provisions. Also check for deductible or self-insured retention language: someone has to fund that, and the contract should say who.

What you can do

1. Highlight the insurance clause, the indemnification clause and any limitation-of-liability clause, and read all three together as one provision. 2. Answer the six questions above in writing. Note which ones the clause does not address at all — silence is usually the defect. 3. Send the clause to your own insurance broker and ask a single question: can my current policy actually satisfy this, and at what cost? A broker will spot mismatches in minutes and will not charge you. 4. Check whether your licensing board, a hospital or facility agreement, a payer contract, or a professional association sets a minimum that overrides your own judgment about the number. 5. If you are the one relying on the other side's coverage, ask for a current certificate of insurance now, before there is a dispute, and read the named insured and the policy dates. 6. If the exposure is meaningful, have a lawyer redline the clause before signing. Changes are cheap before signature and impossible after.