Professional liability insurance covers many violations of intellectual property rights. The key is whether the negligent professional services of the insured firm resulted in the harm. In a contract, many clients differentiate the duties of the design firm related to alleged violations of intellectual property rights from alleged harm that might have occurred from negligent design services. Clients often understand that a professional liability policy will only defend the policyholder from allegations of negligent professional services, and require by contract indemnification of actual costs, losses, and damages. But in regard to alleged violations of intellectual property rights, clients often demand a defense.

 

Since it is highly likely that a violation of intellectual property rights on a project is not a shared responsibility, few clients are willing to treat such harm or allegations of harm in the same way that many are willing to treat allegations of negligent performance of professional services. Allegations that a third party was harmed because of design negligence usually involve allegations against not only the design team, but also the client and other parties. Since those situations are difficult to sort out and concurrent liability is often found, it makes sense for each party to defend its own interests and apportion the costs based on actual fault.

 

Because design professionals are in control of so much at the design stage, an allegation of the infringement of intellectual property presents a different scenario. Design firms have a greater ability to control the risk of copyright, patent, or other infringement situations. Therefore, many clients also want them to take charge of the defense of any infringement claim. It is difficult to present strong arguments against such a contractual requirement; it is a business decision that the firm has to address.

 

Although professional liability insurance coverage only extends to actual harm (a cost, loss, or damage) caused by the failure of the policyholder to perform professional services to the applicable standard of care (negligence), attempting to limit a firm’s exposure in a copyright or other intellectual property infringement situation would be a difficult contract negotiation. No client would agree that a design firm should be legally untouchable if the firm intentionally infringes on either the client’s copyright, or any other copyright, patent, or intellectual property right. And most clients do not want to burden themselves by having to conduct a defense when the cause of harm was so clearly out of their scope of responsibility and control.

 

There is also the effect on the law that a contractual provision limiting the defense of an intellectual property infringement case might cause. Legally, firms are responsible for the harm they cause whether they cause the harm intentionally or negligently. If a client uses a contractual indemnity provision or a contractual defense and indemnity provision that only mentions negligence as the source of contractual responsibility, a court could well interpret that provision of “private law” between the parties as a statement that the client is waiving its right to recover for harm caused by the firm in any situation other than negligence in the performance of professional services. So the client might be afraid that in the case of intentional infringement it is stuck with paying for both defense and damage.

 

Since design firms have such strong control over the selection of materials and systems and the use of intellectual property, most are willing to take on the business risk of defense and indemnification.