Jordan runs a digital marketing agency in Kirkland with fifteen people: strategists, designers, a paid media team, and two developers who build client landing pages. Clients range from local dentists to a regional software company.
The agency received a demand letter from a photographer's attorney. An image in a client's ad campaign, pulled from a free stock site by a junior designer, was not actually licensed for commercial use. The letter named both the client and the agency.
What he asked for
Which of his policies would handle the letter.
What the review found
The claim fell between two policies. The agency's general liability included advertising injury coverage, but that covers the agency's own advertising, not work it performs for clients. The agency's professional liability covered errors in services, but carried an exclusion for intellectual property infringement. Between the two, a copyright claim over client work had no clear home.
The master services agreement made it worse. The agency's standard contract promised to indemnify clients for "any claim arising from the agency's work product." That is a broad promise, and it was uninsured wherever the policies had gaps.
The paid media team moved client money. The agency managed ad budgets and sometimes paid vendors on clients' behalf. A compromised email account could redirect those payments. There was no cyber policy.
What we put in place
We replaced the professional liability with a media and technology E&O policy written for agencies. It covers negligence in services and also includes intellectual property coverage for copyright and trademark infringement in content the agency creates for clients. The retroactive date was preserved, and the current demand letter was reported to the prior carrier as a potential claim so its coverage question could be resolved there.
We added a cyber liability policy with breach response for client data, coverage for the landing pages the developers maintain, and a social engineering endorsement for fraudulent payment instructions.
We gave Jordan three edits to take to his attorney for the MSA: cap indemnity at the fees paid or at insurance limits, carve out materials the client supplies, and require clients to confirm licensing for any assets they provide.
Why it mattered
The prior carrier ultimately defended the stock photo claim under a reservation of rights, and it settled for a licensing fee. But the next claim like it, and in a busy agency there will be one, lands squarely in a policy built for it. The contract changes also mean the agency's promise to clients now matches its insurance.
If you run an agency
- Check whether your E&O excludes intellectual property claims
- Remember that general liability's advertising injury covers your ads, not your clients'
- Match your MSA's indemnity promise to what your policies actually cover
- If you move client money, buy cyber coverage with social engineering protection
More on professional services firms. Send us your MSA and ask for a free policy review.