Yes, you really, really need liability insurance if you are doing consulting. Call your insurance company and get one, and then say to your client that you are in the process of switching insurance companies, and that it will take a while.
i use contracts to clearly outline that the client is liable for any content published and we are only responsible for server maintanence up to a point that we will solve any problem that is under our control and not the fault of third party service providers, of course it is a little more long winded than this but it is cheaper than insurance once you have a solid contract drawn up.
Nobody really NEEDS liability insurance unless you are actually incurring some liability.
For example, I have a friend who does $300 brochure-ware sites for tiny businesses - they don’t process transactions, they don’t host anything, no cms, nothing. There is really no risk there, so liability insurance isn’t required. (I know, some people will say ‘anyone can sue you for anything’ but in the real world that isn’t a problem). I have another friend who runs a job search service with a pretty complicated online system - storing resumes and handling communications between employers and prospects. This really brings some risk as there are fairly large deals going around that affect people and if the system fails, there could be damages.
But, when a client says that they want you to have insurance they have every right to do that. Maybe you don’t need it, but they think you need and they want you to have it. Some clients require general liability, errors and omissions, even disability - if the client is worth enough to you then just get the insurance!
Legally, you can disclaim all sorts of liability but you can’t write away negligence, injury, errors or omissions, etc. If you have a client sign that kind of contract you may protect yourself from certain events, but if make a mistake you may be liable. Be careful with this kind of agreement - even if a client agrees to totally indemnify you from all damages of all kinds they and still sue you under some circumstances.
Liability insurance is not a requirement for giving a 1099 or for running a consulting business. Having said that, there is a growing trend for businesses, as a policy matter, to require that all contractors have insurance. Companies have lost big deals and contracts because they did not have insurance in place.
While not required, insurance is something every business should have if you can get it to cover your particular business. I recommend a three prong approach to risk management- forming an asset protection vehicle for your business (LLC or corporation), insurance, and proper limitation of liability/disclaimers in your contracts.
Unfortunately, small business lawsuits are a problem and they occur more often than you would think.
Before getting liability insurance, make sure you know exactly what’s covered, or more importantly, what isn’t covered. I recently discovered my PI insurance doesn’t actually cover me for much at all and while shopping around for a new policy, soon discovered that generally speaking, insurance companies don’t really like insuring web businesses; they tend to exclude most of the work that could actually lead to any real claims (hosting, ecommerce, forums etc).
As several of the posters above have indicated, there is no general requirement that a freelancer have insurance.
On the other hand, a contracting party can require whatever if wants (except those things barred by law such as discrimination based on age, sex, race or national origin). I have seen contracts where consultants are required to prove that they have not only a general liability policy but also automobile insurance and even go so far as to specify the minimum acceptable policy dollar limits. If someone doesn’t give them what they want, then they don’t get the contract.