When a client or tender contract says your company must hold professional indemnity (PI) insurance of a stated amount, do not treat the clause as a box to tick. Read it together with the liability cap and the indemnity. A contract can require S$1 million of cover while making you liable without limit, or for losses your policy will never pay, such as liability you take on only because the contract says so. Before signing, line up three things: what you promise in the contract, what your policy actually covers, and what your company could pay if the two do not match.
Why does a client insist on PI insurance in the contract?
A client asks for PI insurance because it wants money behind your promise. If your advice, design or software work is wrong, a judgment against a small company with few assets is worth little; a PI policy gives some comfort that a valid claim can be paid.
The requirement usually appears in three places in a services contract:
- An insurance clause stating the type of cover, the minimum limit (for example “not less than S$2 million for any one claim”), and how long you must keep it after the work ends.
- An indemnity clause under which you promise to make good the client’s losses from specified events, sometimes “howsoever arising”.
- A limitation of liability clause that caps what you can be made to pay, or, in a client-friendly draft, carves the indemnity out of the cap entirely.
Trouble starts when these clauses come from different precedents. Our guide to the indemnity clause in Singapore explains how an indemnity differs from an ordinary damages claim. This article focuses on fitting that indemnity to your insurance.
Where do the contract and the policy usually fail to match?
PI policies are written to cover your legal liability for a breach of professional duty, such as negligent advice or an error in your work. They are not designed to underwrite every promise you choose to make. Many PI wordings contain a contractual liability exclusion, which typically removes cover for liability you have assumed under a contract that goes beyond what you would have owed anyway at law. Wordings vary, so check your own policy, but the common gaps look like this.
| Contract term | Typical PI policy position | The gap for your company |
|---|---|---|
| Indemnity for all losses “howsoever arising”, whether or not you were at fault | Usually responds only to liability that would exist without the indemnity, for example negligence | No-fault losses may fall on the company’s own balance sheet |
| Uncapped liability, or indemnity excluded from the cap | Insurer pays only up to the policy limit, less any deductible | Anything above the limit is uninsured |
| Fitness-for-purpose warranty or guaranteed result | Many policies cover failure to use reasonable skill and care, not guaranteed outcomes | A strict promise can create liability that cover does not follow |
| Liquidated damages or service credits | Often excluded or limited | Penalties for delay are commonly self-funded |
| Fines and penalties passed through to you | Insurability depends on the law and the wording | Do not assume a regulatory fine can be recovered from insurance |
| Cover to be maintained for six years after completion | PI is usually written on a claims-made basis, renewed yearly | If you stop renewing or close the business, later claims may be uninsured |
The last row matters more than most owners realise. Under the Limitation Act 1959, a claim in contract or negligence can generally be brought within six years, and a negligence claim for latent damage can come even later. A claims-made policy generally responds to claims first made, and notified, during the policy period. If a client sues in year four for a mistake made in year one, the policy that responds is the one in force in year four, not the one that existed when you did the work. Our sibling guide on run-off cover when closing a professional firm explains what happens if no policy is in force at all.
What should you check before you sign?
Work through the contract in this order.
- Find the cap. Is there one? What is it based on (fees paid, a fixed sum, the insurance limit)? Which claims sit outside it?
- Read the indemnity trigger. Is it limited to your negligence, breach of contract or breach of law, or does it apply to any loss connected with the services?
- Compare the required insurance with your actual policy. Check the limit, whether it is “any one claim” or “in the aggregate” for the year, the deductible, the territorial and jurisdiction limits, and the professional services described in the schedule.
- Look for the exclusions that bite. Contractual liability, guarantees and warranties, liquidated damages, fines, and work outside your declared business activity are the usual ones.
- Check the run-on period. If the contract demands cover for six or more years after completion, decide whether the company can realistically keep renewing for that long.
- Send the draft to your insurance broker or insurer. Ask in writing whether the indemnity and liability terms are within cover. Keep the reply.
- Negotiate, then record the outcome. Minute the decision at board level if the company accepts a risk that sits outside its cover.
How can you negotiate a fairer allocation?
Most clients accept that a supplier cannot carry unlimited risk for a modest fee. The aim is to bring your promises back inside what your insurance and balance sheet can support. Common agreed positions include:
- Tie the cap to the insurance. For example, “liability for professional negligence is capped at the amount recoverable under the professional indemnity insurance required by this agreement”, or a fixed multiple of the fees.
- Narrow the indemnity to fault. Replace “howsoever arising” with losses “to the extent caused by the negligence, breach of contract or breach of statutory duty” of your company.
- Exclude indirect and consequential loss, such as loss of profit, loss of data or business interruption, unless specifically agreed.
- Replace guarantees with a skill-and-care standard. Promise to use the reasonable skill, care and diligence expected of a competent professional, rather than to achieve a result.
- Agree the insurance clause wording. Ask for cover “on customary terms and conditions available in the market”, with an obligation to maintain it “so long as it is available at commercially reasonable rates”, rather than an absolute duty.
- Share the defence process. Notice, conduct of claims and consent to settle should not conflict with your insurer’s conditions, which usually prevent you from admitting liability or settling without consent.
If the client refuses to move, the decision is commercial: price the uninsured risk, ask whether additional cover is available, or decline the work.
Will a Singapore court enforce your liability cap?
A cap only protects you if it is part of the contract, clearly covers the claim, and survives the Unfair Contract Terms Act 1977 (UCTA). Under UCTA, a term that excludes liability for death or personal injury caused by negligence is ineffective, and many other exclusions and limitations must satisfy a reasonableness test, especially where one party deals on the other’s written standard terms. When a clause limits liability to a specified sum, section 11(4) directs the court to consider the resources the party could expect to have to meet the liability and how far it was open to that party to cover itself by insurance. Our guide to whether an exclusion clause survives the Unfair Contract Terms Act covers the test in detail.
So a cap set at the level of PI cover the client itself required is often easier to defend than an arbitrary figure, while a cap far below the cover you hold may be harder to justify.
Example: A five-person Singapore engineering consultancy bids for a facilities upgrade. The client’s form contract requires PI cover of S$2 million for any one claim, maintained for six years after completion. It also contains an indemnity for “all losses howsoever arising from the services”, which is excluded from the liability cap. Its broker warns that losses outside negligence would fall under the policy’s contractual liability exclusion. The consultancy proposes three changes: limiting the indemnity to losses caused by its negligence or breach, applying a cap equal to the S$2 million insurance limit, and maintaining cover for six years “provided it remains available at commercially reasonable rates”. The client accepts the first two and asks for annual certificates of insurance.
What did reported cases show about caps and refunds?
Two widely reported international disputes show why the contract terms, rather than the insurance alone, often decide how much a supplier pays.
CrowdStrike and Delta Air Lines (2024 to 2025)
After a faulty CrowdStrike software update caused a worldwide IT outage in July 2024, Delta Air Lines said the disruption cost it around US$500 million. As reported by Reuters, CrowdStrike’s lawyers responded in August 2024 that any liability under Delta’s contract was capped at an amount in the “single-digit millions”. Delta sued in a Georgia state court, and in May 2025, as reported by Reuters and other outlets, the judge allowed Delta’s gross negligence and computer trespass claims to proceed while dismissing parts of its fraud claims. The lesson for any supplier: a cap can reduce exposure dramatically, but a claimant facing a cap will look for a cause of action outside it. The reports we reviewed did not record a final outcome.
Deloitte Australia’s partial refund (2025)
In October 2025, as reported by the Associated Press, Deloitte Australia agreed to repay the final instalment of a contract worth about A$440,000 with Australia’s Department of Employment and Workplace Relations. The report it delivered contained errors, including references to non-existent research and an incorrectly attributed quotation, and a revised version disclosed that a generative AI tool had been used. The department said the substance and recommendations of the report were maintained. For a smaller firm, the lesson is that a client complaint about the quality of work can lead to a fee refund or credit without any court finding. A refund agreed directly with a client may not be covered by a PI policy, and many policies require insurer consent before you admit fault or offer to pay. If a client is alleging your work caused loss, read our sibling guide on what to do when a client claims your advice caused loss before you reply.
What should you keep on file once the contract is signed?
- The signed contract, with the insurance, indemnity and liability clauses flagged.
- The broker’s or insurer’s written view on whether the contract terms are within cover.
- Each year’s certificate of insurance sent to the client, and the date it was sent.
- A diary note of the policy renewal date and any contract obligation to keep cover after completion.
- The board resolution or minute recording any accepted uninsured risk.
If a claim does arrive, the policy’s notification and claims conditions matter as much as the contract. Late notification or an early admission of liability can give an insurer grounds to reduce or refuse a claim. If an insurer refuses to pay, our guide on what to do when an insurance claim is rejected in Singapore sets out the options. For the wider picture of how PI cover works, see our professional indemnity insurance guide, and for how a negligence claim against a professional is built, see professional negligence claims in Singapore.
Frequently asked questions
Is a certificate of insurance proof that the contract is covered?
No. A certificate usually confirms the insurer, limit and period. It does not confirm that every promise in a particular contract falls within the policy’s cover.
Can I simply buy a higher limit to satisfy an uncapped indemnity?
A higher limit helps with the amount, but not with the scope. If the indemnity extends to losses where you were not at fault, a contractual liability exclusion may still apply whatever the limit. Narrowing the trigger is usually more effective than buying a bigger limit.
Should we tell our insurer about every new contract?
Not usually, but you should tell your insurer or broker about contracts with unusual liability terms, new types of work, overseas jurisdictions, or limits the client requires above your current cover. The proposal form and any material change in your business can affect cover.
Does a government tender contract allow these changes?
Public sector tender terms are often less negotiable, and a qualified bid may be marked down or rejected. Raise questions through the clarification process before the closing date. If you are bidding jointly, our note on consortium bids for government tenders explains how partners usually split responsibilities, including insurance.
Official sources: Unfair Contract Terms Act 1977; Limitation Act 1959; Monetary Authority of Singapore (which regulates insurers and insurance brokers).
Insurance cover itself should be arranged through a licensed insurer or insurance broker, who can confirm how your policy responds to a particular contract.
Need help with a contract that requires PI insurance?
If your company, or you as a director or shareholder, is dealing with a client contract that demands professional indemnity insurance, an uncapped indemnity or a claim under such a contract, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, for example if a claim is made against your company or you are sued, we will refer you to a firm on our panel of Singapore law firms that regularly handles commercial contracts and professional liability disputes. Raffles Corporate Services is a corporate services provider, not a law firm or insurer, and this article is general information, not legal or insurance advice.
The Raffles Corporate Services Editorial Team, Raffles Corporate Services