You're a professional. You're experienced. You're meticulous. Your customers love you. What could possibly go wrong?
Nobody's perfect. However diligent you are there's always the possibility of a small mistake, a misunderstanding, or the hot-headed reaction of an unreasonable client. Any of these can blow up into a dispute.
As a professional, every time you do any work for a client, you take on an exposure. If something goes wrong - or if there's a disagreement between you and your client - you're open to an accusation of negligence.
If a client accuses you of negligence you'll have to defend yourself. At the very least you'll incur attorney's fees to clear your name, at worst you may have to pay compensation, and possibly your client's legal costs as well. Professional Liability Insurance protects you against those risks.
As a professional the service you offer is regarded as needing specialized skills, training or knowledge. You're regarded as being able to give clients a certain level of expertise - often to a standard set out by your profession - and you can be held legally and financially accountable for the service or advice that you offer.
If you provide a service or give advice, and you want to protect your business and your personal assets, you need Professional Liability insurance.
Sure, at one time, Professional Liability Insurance was required only in traditional professions such as doctors and lawyers. But now it's vital for anyone who works as a consultant in any field.
Professional Liability Insurance can't turn the clock back, but it can protect you from a disgruntled client.
Professional Liability Insurance is also known as errors and omissions Insurance. You're covered against the financial consequences of either:
an error - something you did wrong
an omission - something you failed to do
If something goes wrong, and a client makes a claim against you for damages, you'll need insurance to cover the legal costs of defending yourself and the costs of any damages you may have to pay.
If you provide consulting services, you'll often have clients with deep pockets who can afford legal costs that are beyond your reach. Professional Liability Insurance from a reputable insurer helps level the playing field.
Professional Liability litigation is outside the expertise of most general commercial lawyers. Your insurer's lawyers, on the other hand, specialize in Professional Liability litigation and negligence lawsuits.
Smaller clients will probably hire attorneys on a contingency ('no win, no fee') basis. Were you to hire your own lawyers, you'd probably be asked to pay a sizable deposit, and you'd have to pay their bills as they arose. And remember, unlike the plaintiff, you'd to have to pay your attorney whether you won or lost.
Even if you successfully defend yourself, it's unlikely that the court will award costs in your favor.
'But I didn't do it!'
It's vital to realize that the accusation of negligence against you doesn't have to be valid - you still have to defend yourself.
You may not have done anything overtly wrong; a client's perception that you over-promised or over-sold may cause them to claim against you.
Many claims arise from lack of clarity in the contract, misunderstandings, or simply confused communication between professional and client.
Certainly, you can have the best in-house processes and procedures, do the best work, and never make a mistake, yet that may not stop someone from alleging negligence.
That's why it's so important to have the right Professional Liability Insurance policy behind you.
There's the perception that by forming an LLC (Limited Liability Company) you can avoid Professional Liability Insurance.
Unfortunately it's not that simple.
The corporation will still need protection if it's sued for negligence.
If you own the company, you want to protect its assets. If it doesn't have assets, the plaintiffs may come after your personal assets as an officer or director of the company.
Either way, you want the protection Professional Liability coverage can give you.