Small-business owners have a lot riding on the integrity and high standards of their services. One misstep or dissatisfied customer, and you may end up facing a million-dollar lawsuit. Even if a disgruntled client’s claim has no merit, defending your business in the lawsuit can still rack up serious legal expenses.
Need more convincing? Check out these three times when Professional Liability Insurance came to the rescue for businesses accused of negligence.
1. One Man Left Behind
While enjoying a scuba diving excursion run by Ocean Adventures and Sundive Charters near the oil rig Eureka with 20 other divers, Daniel Carlock surfaced and suddenly found himself alone. According to the Los Angeles Times, despite his absence, the dive master marked Carlock as present, and the boat moved on to a second dive site seven miles away. Carlock was abandoned, floating in the ocean 12 miles off Long Beach, California. What a pickle! He was rescued nearly five hours later after being spotted by a group of Boy Scouts.
You can probably guess what happened next. Carlock sued Ocean Adventures and Sundive Charters, claiming he had suffered post-traumatic stress disorder and developed skin cancer from sun exposure. After a five-year legal battle, he was awarded $1.68 million in damages.
The lawsuit highlighted inefficient industry standards on how to count divers. Even though jurors agreed Carlock was partly responsible, they decided Ocean Adventures and Sundive Charters were negligent and had to pay up. Good thing Professional Liability Insurance can cover those costs.
2. Wedding Singer Switcheroo
Brides-to-be can be particularly discerning when planning their big day, and Bridget Griffin of Nanuet, New York, was no exception. She meticulously picked the flowers, venue, photographer, cake, and, of course, the entertainment.
According to the New York Times, Griffin and her new husband, Michel Amiel, hired the Frank Terris Orchestra of Yonkers led by Paul Rich – a young 20-something singer promising to deliver a lively mix of pop hits. Strolling into their wedding reception, the couple found out Rich had quit the band a week earlier, so the band replaced him with Tony Avena – a 40-something crooner with more of a Frank Sinatra-vibe. Oh, and they didn’t tell the bride and groom about the switch beforehand. Whoops.
Griffin and Amiel sued the group over failing to deliver promised services. The Yonkers City Court awarded the couple half of the $3,275 they spent on the band, as well as $500 in punitive damages.
Weddings are emotionally-charged events, and couples expect contracts to be fulfilled as agreed upon. Hopefully, the Frank Terris Orchestra of Yonkers had Errors And Omissions Insurance (aka E&O Insurance) to pay their court costs and damages owed to their unhappy clients.
3. Hackers Hit the Bullseye
Target, the retail giant known for its red bullseye logo and first-rate shopping experience, suffered a harsh blow to its sterling reputation when it experienced one of the worst known data breaches during the 2013 holiday season. Hackers acquired credit card information for over 40 million customers and 70 million other records with shopper addresses and phone numbers, according to Insurance Journal.
The retailer hasn’t disclosed the exact details of its insurance coverage, but it likely has Professional Liability coverage and Cyber Liability Insurance. Target's data breach costs climbed to an estimated $61 million in Q4. Luckily, its insurance covered around $44 million, leaving Target with only $17 million to cover on its own. In other words, insurance paid for about 72 percent of Target's data breach costs.
It’s important to note that Professional Liability Insurance doesn't cover all data breach expenses. An E&O policy can only cover matters related to professional negligence and mistakes. For instance, banks with customers affected by the breach are suing Target for nearly the $400 million, which is how much it cost to replace all those stolen credit cards. A court just ruled that Target should have done more and made mistakes in carrying out its data security, which means an E and O policy might help in this situation.
On the other hand, Target would need to rely on its Cyber Liability Insurance (also called Data Breach Insurance) to help pay for the cost of customer outreach, credit monitoring, forensic investigations, and PR expenses.