How to Read MSA Insurance Requirements for Professional Liability (E&O)

For consultants, agencies and IT firms reviewing a client's master service agreement (MSA): the insurance section lists the coverage, limits and proof the client wants for Professional Liability (E&O).

What does the insurance section of an MSA look like?

An MSA sets the terms for all your work for a client. Its insurance section often reads like this:

• It names the coverage, limits, years to keep it and how you may build the limit.
• It sets what proof the client wants and when.
• It points to other terms, like indemnity (your promise to cover the client's losses).

Who asks for Professional Liability in an MSA?

Large companies, hospitals, banks and public agencies often send MSAs to consultants, marketing agencies and IT firms before the first project. One MSA may cover many projects, so its insurance clause applies to each one. A pre-printed section may not match your services, so read it before you sign. Government work often has its own rules (see Professional Liability for government contracts).

How do you read MSA insurance requirements clause by clause?

What coverage and limits does an MSA ask for?

An MSA names the coverage and the limit. Professional Liability covers claims that your work or advice caused a client a financial loss. Consultants often buy Miscellaneous Professional Liability. Technology firms usually need Technology E&O. Lawyers, medical providers and design firms (A&E) buy their own forms.

A $1M per claim limit with a $2M aggregate may not meet a clause that asks for $2M per claim. $2M per claim and $2M aggregate may not meet a clause that asks for $3M. Check whether the wording is per claim, aggregate or both, and whether primary plus excess may add up. Morrow can help you find limits of $3M and above.

What does per claim vs aggregate mean?

Per claim is the most the policy pays for one claim. Aggregate is the most it pays for all claims in the policy year.

What does a years-after clause mean?

A claims-made policy covers claims made and reported while the policy is active, for work done on or after the retroactive date (the earliest work date covered).

A "three years after completion" clause usually means one of two things. You keep claims-made coverage going, with a retroactive date no later than the start of the work. Or you buy an extended reporting period, also called a tail (extra time to report claims after a policy ends). A later retroactive date can break the clause. The client's wording decides whether a tail satisfies it. See claims-made vs occurrence.

What does primary plus excess wording mean?

"Any combination of primary and excess" means you may stack a primary policy with excess layers above it. Excess layers should follow form (use the same terms as the policy below). A commercial umbrella almost never covers Professional Liability, so it usually does not count. Confirm with the client that primary plus follow-form excess meets the clause.

What do certificate and notice requirements mean?

A certificate of insurance is a short summary form of your coverage. It does not change the policy. An MSA often asks for one before work starts and again at each renewal. Many MSAs also want notice if your policy is cancelled, but many policies only promise notice to you, the named insured.

Can a client be an additional insured?

An additional insured is another party covered by your policy. On Professional Liability it is usually not available. The client is typically the party making the claim. See additional insured and Professional Liability.

What is a waiver of subrogation?

Subrogation is your insurer's right to recover what it paid from someone else who caused the loss. A waiver gives up that right against the client. Whether a Professional Liability policy allows it depends on its wording.

What will underwriters ask for?

• An application describing your services
• Revenue by service and your largest clients
• The MSA insurance section
• Loss runs, which are reports showing your past claims
• Your current policy, including its retroactive date

What affects the cost?

• The services you provide and your revenue
• The limit you need and its layers
• Your claims history
• Your retention, the amount you pay on a claim before the policy pays
• Your retroactive date and years-after requirements

Frequently asked questions

What if my MSA asks for more Professional Liability than I have now?

Morrow can request new quotes for the limit you need: a new primary policy at the higher limit, or excess layers. Ask for quotes that keep your retroactive date and prior acts coverage (coverage for earlier work) where the market allows.

Is a certificate of insurance enough to satisfy an MSA insurance clause?

Not always. A certificate only summarizes your coverage, and many MSAs also set limits and time periods the policy must meet.

Will my policy cover everything I promise in the indemnity clause?

Not always. Many Professional Liability policies exclude liability you take on by contract beyond what you would owe anyway. See the contractual liability exclusion.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.