How do I handle a client who insists I carry insurance just for them?

I have a unique client who is part of a larger organization but the project I’m involved in is separate from the rest of the enterprise and outside the jurisdiction of their IT. That’s where I come in. I inherited this project from a consultant who retired and passed it on to me.

The policy of this client organization is that any contractors are required to carry $5 million of general liability and an additional $5 million of Errors & Omissions insurance (and an additional million added to my car insurance). After getting an initial quote from an insurance broker it became obvious that the cost of doing business vastly outweighed the income it would provide. The project is fairly small (3 servers) and the client refuses to enter into a service contract or regular maintenance schedule (so far). It should be noted that none of my other clients require insurance.

My predecessor escaped this policy altogether somehow by playing the “I’m retiring soon” card and it worked. No such luck for me.

So I took this information and I used it to negotiate a new contract and the organization conceded that this project was unique and didn’t require the same level of insurance as their regular projects.

Which brings me to now. The revised contract states the amount of insurance coverage is at my discretion.

Great, right? Maybe not.

For the last 7-8 months I’ve already been doing the work (but am unable to bill for it until I have a signed contract) and in that period have only covered 1/2 of the lowest insurance rate available. So if i project that into the future, it means that it would take me 14-16 months to recover the costs of 12 months of insurance.

I’m curious what my acceptable options are in a realistic business world. Do I drop the client? Do I try to convince them to enter into a service agreement that pays me minimums enough to cover that insurance? Do I push once more for a service agreement?

I’m debating the ethics of charging a client for the insurance they require, when technically, the insurance would cover all my clients.

Any thoughts or advice?