​Protect Your Business Against Claims Of Negligence

We always want to put our best foot forward when it comes to our business. We put in additional time and effort to make sure that we understand the requirements, deliver flawless products and/or services to our clients that exceeds their expectations by adding value to their projects. To do that we try to follow industry level best practices, maintain high quality through and through, set up rigorous control measures to prevent anything going wrong unexpectedly, and so on. But, at the end, we are only human and we make mistakes. Despite all your honest efforts and intentions, a single mistake seems to overshadow all your work and your business is threatened. How do you stop that? When a professional, or a business in this case, fails to pursue reasonably expected standard of care in their offered services or products and that mistake (error or omission) in turn leads to a loss or injury or damage to their customers, then it is regarded as an instance of Professional Negligence. The affected party may file a lawsuit against that individual or the business based on claims of negligence and this in turn can cause a serious damage to the business’s financial reserves and market reputations, even if they are proven not guilty at the end.

As always, it’s better to expect the worse and prepare for preventing it proactively than actually facing the misfortune and then start to fight it. The kind of insurance coverage your business needs at this point is called Professional Liability Insurance, or more commonly, Errors & Omissions (E&O) insurance.

What is E&O coverage?

An Errors and Omission Insurance policy covers your company or you as a professional individually, if a client holds you accountable for your provided service (i.e. the errors) or for one that you failed to provide (i.e. the omissions) and as a result, the client suffered some loss or damage or injury. This coverage protects the insured company or person from being forced to bear the full cost of the legal process to defend against the client’s claim of negligence and also helps to compensate for the damages awarded in those civil lawsuits. In most cases, the E&O policies provide coverage for the costs involving defense, judgments and settlements.

These following types of claims are covered under the Professional Liability policy, aka your E&O policy:

  • Claims of professional negligence
  • Claims for misrepresentation
  • Claims of violation of good faith and fair dealing
  • Also, claims of providing inaccurate advice.

Who:

The risks of unintentional mistakes like those covered in an E&Y policy are actually present with all types of business and/or individuals, irrespective of the industry they serve or the size or scale of operation. In a nutshell, if your business depends upon knowledge consultations, strategic advisors, selling designs and/or concepts or involves supervision of such related tasks, it should have sufficient exposure to E&O coverage clauses for your provided services.

Here’s a list of different service provider professions and businesses for which E&O coverage is always highly recommended, even though it is not an extensive list:

  • Doctors, Nurses and Medical institutions
  • Attorneys and Law farms
  • Accountants
  • Architects
  • Engineers in different industries
  • Graphic designers
  • Information technology (IT) consultants and software developers
  • Insurance professionals
  • Investment advisors and solicitors
  • Real estate agents and/or brokers
  • Management consultants

The best course of action is to consult with an insurance provider and confirm if your business is at risk or not and then procure the required coverage accordingly.

  • When:

The recommended time to get this coverage in place is right after a risk has been identified and confirmed by a knowledgeable authority and before any actual mishap takes place. As a business owner for any service provider company, you need to thoroughly analyze your risk exposure with a reliable insurance consultant and make this policy a part of your business’ insurance portfolio.

The importance of Professional Liability insurance coverage:

The most important benefits of getting this coverage are as mentioned below:

  • Choosing the right protection at the right time will definitely save you and your business from a serious financial impact, may be even from bankruptcy as the legal procedures are often quite high priced and mostly tend to span over a considerable length of time.
  • Also, this coverage extends its protection to another very important factor to your business’ success: your client’s and/or your market reputation. This is an intangible asset for any business that is really hard to build and equally easy to break.

Do not lose your hard earned money or your client’s trust by leaving it all on chances of zero error delivery. Protect yourself and the business and assure your clients of your reliability as a service partner before anything can go wrong.

Other steps to protect your business from Claims of Negligence:

Now that we’ve covered the basics of Professional Liability insurance policies in terms of protection against claims of negligence, let us go over a few Best Practices that may help you to avoid the lawsuits effectively for you. Whenever you start working on a new project or an extension of an ongoing project, you can choose to be proactive and take these precautionary steps to be ready to mitigate possible future claims:

  • For every job from a client, new or existing, always maintain a written contract that clearly mentions the nature and volume of work to be done and what would not be in scope of the job. Also, mention the agreed amount of fees and timelines for the job.
  • Be sure to keep the stakeholders’ expectations realistic. It never helps anyone to commit more and deliver less, irrespective of the job specifications.
  • Maintain a steady stream of clear communication throughout the job with all the stakeholders. Timely notifications serve to address the client's’ concerns much better than sudden unexpected changes.
  • Establish quality control measures and use both internal and external audits, whenever possible, to monitor and ensure that the procedures are still relevant and effective.
  • Stay updated on your state's laws and regulations regarding duty of care in your line of service. It will help you to identify areas in your business that need attention to avoid the lawsuits and in preparing for the possible negative outcomes, in the worst case scenario.

Finally, update your knowledge of the current developments in your skills and field of operation, periodically. This will help you to ensure having all the acceptable industry practices updated in your business processes.