There is no rule that therapists cannot touch their clients (at least in the U.S.). The guidelines of professional organization do not prohibit hugs, for example. Each therapist (or clinic) forms his or her own policy. I agree with you that avoiding litigation is a big reason why some therapists might choose to have a blanket "no touch" policy. This is called "risk management" and stems from the idea that when there are successful lawsuits against therapists for misconduct, there are certain factors that preceded the misconduct. For example, if a therapist has sex with a client, it tended to be preceded in their relationship with hugs. This doesn't mean that every therapist who hugs a client will move on to have sex with the client, but just that those who do have sex tended to have previous hugs. So in risk management, the idea is to eliminate these associated behaviors like hugs, and you will cut your risk of moving on to misconduct like sex with clients, and so you won't get sued. Other behaviors associated with misconduct include frequent out of session contact (phone calls, emails), longer sessions than is typical (or sessions that frequently run late), more frequent sessions than is typical (> once a week), often scheduling the client for the last session of the day, and frequent therapist self-disclosure. None of these behaviors cause or necessarily lead to misconduct, but among therapists found to have committed misconduct, these behaviors were found more frequently than not.

What can a therapist do to manage risk and protect himself/herself from being sued? Read on for one psychologist's solution:
http://www.drmwilliams.com/SAdocs/trm.html