First, let me start with my own disclaimer that I am no lawyer and that what follows should in no way be considered legal advice.

No company has the right to tell me how to run my business. My search reports are my work product and are proprietary in nature.  Furthermore, I have the right to take whatever steps I deem necessary to protect my interests.

I would draft a nicely worded reply basically stating that their acceptance, use of and payment for my work product constitutes an express agreement that it shall not be edited, altered, modified or amended in any way, manner or form.  In short, I'd call their bluff.  My guess is that if they are truly concerned about liability issues, they won't be so quick to dump you for some cut-rate hack.

Just my 2¢.

Regards,
Scott Perry