No one wants to deal with a Professional Indemnity (PI) claim—but if your company offers services, advice, or expertise, it is a risk that comes with it. One of the most effective ways to reduce that risk is to have solid contracts in the first place.
A well-drafted contract is more than a formality. It is your first layer of protection when expectations go sideways, a project derails, or accusations of negligence surface.
Here’s what you should be including and excluding in your contracts to reduce the chances of getting a lawsuit and facing a PI claim.
Key Clauses to Include to Prevent Lawsuits
1. Clear Scope of Work (SOW)
Ambiguity is one of the leading causes of PI claims. If your client thinks you were supposed to deliver A, and you thought it was B—you’re already in trouble.
What to do:
Spell out exactly what you are responsible for delivering, the timelines, milestones, limitations, and any assumptions. Be as specific as possible. And always include what is not included.
2. Limitation of Liability
This clause defines the maximum amount your company can be liable for. Without it, your exposure could be unlimited—even for small jobs.
What to do:
Set a reasonable liability cap (often tied to the contract value or a multiple of fees). Make sure it is not considered “unconscionable” under local contract laws, i.e. that it is not extremely unjust or overly favourable to one party, to the point that it is against the principle of fairness.
3. Disclaimers & Exclusions
If you are not providing legal, tax, or financial advice—or if your deliverables depend on third-party inputs—you should say so explicitly.
What to do:
Include disclaimers that limit liability for indirect losses or outcomes beyond your control. State that advice is based on the information provided at the time.
4. Indemnity Clauses
This determines who takes responsibility for certain damages or legal claims, i.e. to say “if something goes wrong because of your actions, you will cover the costs or losses”. It is particularly important in vendor, supplier, or subcontractor agreements.
What to do:
Use indemnity clauses strategically to protect your business against client misuse, IP infringement claims caused by client data, or misrepresentations outside your control.
5. Change Management Process
Scope creep is a fast track to client disputes and potential PI claims.
What to do:
Include a clause that requires a formal process for change requests—whether for new deliverables, timelines, or costs.
6. Client Responsibilities
Not all deliverables are in your hands. If your work depends on the client providing timely access, approvals, or data, that needs to be in the contract.
What to do:
Clearly outline the client’s responsibilities and how delays on their side may impact delivery.
7. Dispute Resolution Clause
When disputes arise, the way they are handled can make a big difference in whether a claim escalates to legal action.
What to do:
Include a dispute resolution process such as mediation or arbitration before legal proceedings. This can buy time, reduce costs, and preserve relationships.
8. Entire Agreement Clause
Clients may try to rely on previous conversations, emails, or proposals to claim misrepresentation or breach.
What to do:
An “entire agreement” clause confirms that the written contract reflects the full agreement and overrides any prior discussions. It ensures that only what is written in the contract is legally binding.
9. Confidentiality & IP Protection
Professional services often involve access to sensitive data, trade secrets, or proprietary information. A data leak or IP dispute can trigger both reputation damage and legal action.
What to do:
Include confidentiality obligations for both parties. Clarify who owns what IP, and what rights (if any) the client has to use, reproduce, or modify the deliverables.
10. Termination and Exit Terms
A contract should plan for both the beginning and the end. Poorly defined exit terms often lead to messy fallouts or claims of wrongful termination.
What to do:
Spell out how either party can terminate the agreement—notice periods, breach procedures, and what happens to fees, work in progress, or return of materials.
11. Force Majeure Clause
If something outside your control stops you from performing your obligations, you do not want to be held liable.
What to do:
Include a force majeure clause that covers events like natural disasters, pandemics, or political unrest. Define what qualifies and how parties should respond (e.g., delays vs. termination).
Red Flags That Can Lead to Lawsuits
Conversely, here are some red flags to avoid in your contracts to prevent lawsuits.
1. Vague or Broad Language
Contracts filled with unclear or subjective terms (e.g., “reasonable effort,” “industry standard”) often lead to differing interpretations—and disputes.
2. Missing Payment Terms or Invoicing Schedules
Lack of clarity on pricing, payment deadlines, or penalties for late payments is a common source of legal claims.
3. One-Sided Terms
Overly aggressive or lopsided contracts that heavily favour one party can cause pushback, damage trust, or lead to legal action for breach or unfair practices.
4. Lack of Signature or Legal Capacity
Unsigned contracts or those signed by someone without legal authority to bind the company are often unenforceable in court.
5. Unrealistic Timelines or Deliverables
Setting overly ambitious targets without buffers or flexibility opens the door to performance disputes and potential breach claims.
6. Contradictory Terms
When different parts of a contract conflict with one another, it becomes a legal headache—and a judge may have to decide what takes precedence.
7. No Clear Remedies or Penalties
If the contract doesn’t say what happens when one party breaches it, it could lead to messy litigation over damages or consequences.
8. Overreliance on Boilerplate Templates
Every contract should be customised. Using generic templates without tailoring them to the specific relationship, jurisdiction, or industry increases legal risk.
Your Professional Indemnity insurance is there to protect you when things go wrong. But the best strategy is to avoid claims in the first place. Well-structured contracts help manage client expectations, define boundaries, and reduce your liability exposure.
Whilst Anapi is there to provide insurance advice and help you get the right insurance coverage, we also want to help you reduce your risk of getting lawsuits in the first place.
