Have you ever received a contract from a client that had a clause similar to this?
"You shall indemnify us for any loss, liability, costs (including reasonable legal costs), damages or expenses arising from any breach by you of the terms of this agreement, including any negligent or reckless act, omission or default in the provision of the Services and shall maintain in force during the period of this agreement adequate insurance cover with reputable insurers."
You might be wondering why a client would ask you to have insurance. If you're uninsured it can feel like a barrier to accepting the project and it might even feel intimidating.
After all, does this mean your client is anticipating the project to be high risk? Not exactly, but let's try to understand your client's point of view when asking you to be insured.
Working with insured professionals is safer
When clients hire freelancers to provide a service—whether it's design, development, marketing, anything—there's always an element of risk. The client is putting trust in you to:
- deliver work on time
- integrate into their workflow and team
- deliver work to a certain standard
- work to an agreed project spec
The freelancer carries a lot of responsibility. If that duty is evaded, disrupted or underperformed in some way, the client might be in a position where they lose money.
They might have to delay their launch leading to loss of income.
They might have to hire more bodies leading to extra expenses.
They might have to fix an expensive mistake.
The list goes on…
If that happens and the finger is pointed at the freelancer, the client needs to know that they won't be out of pocket. They need to know the damages can be recovered should that be a route they choose to pursue.
To give you some examples:
- A type error on packaging that's went to print needs fixed. The client asks you to cover the re-print costs since you were responsible for the packaging
- A technical error with your code leads to a client's app not functioning properly for a period of time. The client estimates how much money they've lost and holds you responsible for this
- You underestimated the project scope and, as a result, the deadline is missed. The client hires more freelancers to speed things up and asks you to contribute towards this cost
Reviewing some of the professional indemnity claims we've had where a client has pursued damages, the figure has ranged from a few thousand pounds up to tens of thousands of pounds.
If you're uninsured it's an unrealistic sum of money to part with (and trying to find the money can cripple your business or worse), but if you have professional indemnity insurance the request for damages can trigger your policy.
This is why it's a safer option for the client to work with insured professionals. This is why some clients will ask you to carry insurance.
Contracts can be negotiated
With that said, I always remind my customers that contracts are there to be negotiated. We see a lot of OTT requests from clients and the smartest option is to ask for a clause to be reconsidered or see if your client is happy with a compromise.
You can, of course, push back on terms you don't agree with or query clauses you don't understand. I'd encourage more freelancers to do this.
Using your insurance correctly
Being insured should give freelancers confidence going into each and every project, but it's important not to invite a claim against you. Doing so will invalidate your insurance.
If one of the examples we've talked about earlier happens to you, you must not respond with "It's OK, I have insurance. We can recover these costs from the insurer". Your policy is there to defend you and will only do that if a claim is made against you—not if you invite one to be made against you.
There are lots of other reasons why freelancers should be insured, but now you can understand your client's perspective and why it's becoming more common for contracts to have an insurance clause.