Professional Concepts Insurance Agency

Bifurcated or “Split” Indemnity

by Mike Cosgrove, PCIA President on Feb 17, 2018

As we review owner-drafted contracts for our design professional clients, we occasionally will suggest a “bifurcated” or “split” indemnity. We suggest splitting the indemnity when clients insist on including the obligation for the design professional to “defend” the client.  Negotiating and achieving an insurable indemnity with a client is not for the faint of heart.  We find educating the client is the best advice for achieving the desired outcome for both the design professional and the client. A bifurcated indemnification recognizes the fact that the contractual coverage provided by a general liability policy is much broader than that provided by a professional liability policy.

Most general liability policies include coverage for the assumption of the tort liability of another including to agree contractually to defend a third party for similar allegations. (Most but not all general liability policies are a form of the Insurance Services Office [ISO] CG 00 01 policy.)

A professional liability policy provides limited contractual coverage to indemnify and hold harmless third-parties from your negligent acts, errors or omissions. In general, professional liability policies do not provide insurance coverage for the design professional to contractually agree to "defend" their clients from third-party claims. Therefore, we sometimes see a successful negotiation achieved by splitting the indemnity.

Ideally, the professional liability portion of the bifurcated indemnification agreement would read something like the following:

With respect to professional services, the Design Professional shall, to the fullest extent permitted by law, indemnify and hold harmless the Client, its officers, directors and employees (collectively, Client) against damages, liabilities or costs, including reasonable attorneys’ fees and defense costs, to the extent caused by the Design Professional’s negligent performance of professional services under this Agreement and that of its subconsultants or anyone for whom the Design Professional is legally liable. The Design Professional’s obligation to indemnify and hold harmless the Client and its officers, directors and employees does not include a duty to defend.

 The general liability portion of the bifurcated indemnity can take several different forms. Shown below is a preferred example:

With respect to liability other than that arising out of professional services, the Design Professional shall defend, indemnify and hold harmless the Client, its officers, directors and employees (collectively, Client) from and against any and all damages, liability, judgments, losses and expenses, including but not limited to attorneys fees, including damages arising from injuries or death of persons and damage to property which arise from, or are connected with, or caused by the negligent performance of professional services under this Agreement and that of its subconsultants or anyone for whom the Design Professional is legally liable.

We are not attorneys, and do not purport to give legal advice. Any contractual suggestions that we might recommend should be reviewed by legal counsel.

 

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