Do Not Pass Go! Duty to Defend in a Professional Services Agreement (law note)

sword to defendRecently a client asked me to review a contract for his Firm.  The Owner, who had prepared the draft, had inserted a rather stringent “duty to defend” clause.

As I told my client, a duty to defend clause is not a good idea for a couple of reasons.  First, if you agree to provide a defense, what that means is that you are footing the bill for the Owner if the Owner is sued by another party.  Think about that for a minute.  You are paying legal fees for someone else’s legal defense.  You may or may not be able to direct the litigation or have a say in who is hired.  Can you say open check book?

Secondly, and more importantly, the duty to defend is almost never insurable.  What that means is that your professional liability carrier will not be footing the bill—your Firm will be doing it.  This is not a case of adding the Owner as an additional insured, so do not confuse the two.  Agreeing to a duty to defend is an extremely burdensome, and potentially costly, mistake.

What do you do if your Owner is insisting on such a clause?  Try to get the clause written out of the contract, period.  Point out to your Owner that it is not covered by your professional errors  & omissions policy.  That alone is often enough to get Owners to agree.  You might also contact your insurance carrier/agent to add weight to your statement.  They can point to the provisions in the policy that will likely exclude coverage.

If the Owner will not strike the provision, then what?  Seriously think about whether this is a risk you can afford to take.   What type of project is it?   Do you know the contractor and other parties—are they reputable and qualified?  And most importantly, is the profit to your Firm such to justify the potential risk.  Usually, the answer to the last question is no.

Have you seen a “duty to defend” in an Owner contract?  Did you agree to it?  Share in the comments below, or drop me an email.

Photo: (c) MatthiasKabel via Creative Commons Attribution-Share Alike license.

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