Reputational Harm

Costliness: #1

$50,000

Frequency: #9

<5%

What Is Reputational Harm?

Think of reputational harm as "loss of face." A reputational harm claim happens when a business or individual sues you for causing them to lose face or when your business loses face because of something it does (or doesn't do).

For example, if you post on your business Facebook page that your former accountant, Gary, is a two-bit hack who's no good at math, and the post causes Gary to lose new clients, you can expect a lawsuit.

It's also possible that your business could suffer reputational harm, maybe by allowing a data breach that compromises your customers' privacy.

Who’s Most at Risk for Reputation Damage?

Media-related businesses (e.g., print, broadcast, Internet)

Businesses storing private customer / client information (e.g., healthcare, financial, retail)

Any business that uses social media

Media-related businesses (e.g., print, broadcast, Internet).

Businesses storing private customer / client information (e.g., healthcare, financial, retail).

Any business that uses social media.

Small Business Insurance Policies that Can Help with Reputational Harm Claims

Depending on the nature of your business and the context of the claim, three small business insurance policies may help cover your costs following a reputational harm incident:

  • General Liability Insurance: General Liability benefits can help if you’re sued for libel, slander, or defamation. The exception is if you’re a media company, in which case you’d likely require Professional Liability Insurance.
  • Professional Liability Insurance: If a client suffers reputational harm due to errors or negligence in your work (e.g., publishing something if you’re a media company), Professional Liability Insurance may cover the cost of defending the resulting lawsuit.
  • Cyber Liability Insurance: If your business suffers a data breach, Cyber Liability Insurance can help cover the costs of notifying affected customers, setting up credit monitoring, and paying state fines, if applicable.
  • Avoid making negative comments about anyone, especially in print or video.

  • In your advertising, avoid statements that you know aren’t true.

  • Educate employees, especially those involved in social media, about the risk of libel and slander.

  • Monitor and moderate what other people write on your website.

  • Encrypt any sensitive personal information you store (including health records, credit card numbers, and addresses).

More Details on Reputational Harm

Unlike the other small business insurance claims discussed in this report, reputational harm isn’t necessarily caused by one type of physical event. A false statement, a change in public attitude, or a violation of privacy can be enough to spur a lawsuit. And if your business is caught in the crosshairs, be ready for a battle.

Proving that you harmed someone’s reputation isn’t easy, so whoever is suing you likely considers it worth the cost. For your business, a reputational harm lawsuit means a lot of work by lawyers, which is why these claims are so expensive (and why it’s a good thing they can be covered by small business insurance).

When emotions run high, lawsuits are more common.

Want to avoid this experience? “The overarching rule in this area is: don’t say any comments that you know aren’t true,” says James Goodnow, attorney at Lamber-Goodnow Injury Law Team. “Hyperbole, exaggeration, and mischaracterization are the keys to ending up in court.”

That doesn’t mean you can’t discuss real, truthful business distinctions between you and your competitors, he says, but it does mean those discussions have to be anchored in reality. If you falsely characterize a competitor, it’s not only defamation, “but also a civil claim called ‘tortious interference with business relations’ – meaning you have damaged a business relationship.”

Lastly, Goodnow cautions that a lawsuit isn’t always purely business-minded in nature. Emotions have a part to play as well. “If a business feels attacked, that may mean it is more likely to speak with counsel and serve you with a lawsuit.”

As for reputational harm to a client brought on by your professional work, it’s hard to offer tips beyond “don’t make mistakes.” Stay up to date on the standards in your industry, fulfill your services to the best of your ability, and always check your work. Professional Liability Insurance is your friend if a client decides to sue your small business.