Contagion targeting is off

When multiple enemies are close together, contagion rarely hits what my mouse is highlighting.

Same.
There seems to be some kind of auto aim that makes it hit something different. I tested it with 2 enemies and was very careful. Essence drain went where it should and hit enemy 1 after that I made sure that enemy 1 is still under the cursor and highlighted and contagion went off on enemy 2.
I had one very bad case where contagion literally hit an enemy behind me when I was pointing on enemies right in front of me

It's not contagion-specific.

Generally the game handles it pretty bad when you're trying to land a small aoe precisely where you're pointing.

It's especially bad on non-flat terrain.

It's either the game doesn't project target position well enough (so that your mouse aiming always gets offset) or it's due to always-active autoaim screwing precise targeting.

Putting an Unleash gem on Contagion helps a little. But yeah, aiming is bad in general, not just for Contagion.