Preventing Professional Liability Claims

On a courtroom drama, a civil trial can go from initiation to settlement in a few weeks. But in real life, you can expect to spend at least six months, if not years, fighting the claim. Take a look at the image below to get an idea of how a lawsuit progresses.

Even if you negotiate a settlement with the help of your Professional Liability Insurance benefits, the claims process takes time and pulls you away from your business.

In short: you’re better off avoiding court in the first place. Let’s look at how documentation and communication can help prevent professional liability claims.

How Documentation Helps Prevent Professional Liability Claims

“I’d say the biggest mistake small-business owners make is failing to have complete documentation related to the claim,” says Shavon J. Smith (@TheSJSLawFirm), an attorney and owner of SJS Law Firm. “Small businesses have a lot to juggle, and many tasks, such as thorough recordkeeping, go by the wayside.”

Have you noticed how often the word “documentation” pops up when discussing professional liability lawsuits? That’s not surprising, considering documentation helps your lawyer prepare your defense. However, written records can also nip professional liability claims in the bud because they…

  • Make sure you and your client have the same expectations.
  • Detail changes to a project’s scope, deadlines, and pricing.
  • Substantiate client requests.
  • Provide an easy way to settle disagreements.

So when a client thinks you were responsible for data security, you can show them the obligations listed in your contract. If a client claims they never authorized a change, you can simply forward them the confirmation email you sent after you both agreed on that decision. You may have a lot on your plate, but given how many problems good recordkeeping can prevent, documentation is one of the tasks you shouldn’t let slide.

What Kinds of Documents Can Prevent Professional Liability Claims?

Let’s be clear: no document can actually stop a professional liability claim from happening. However, it might reduce someone’s reasons for filing. That said, here are some of the written documents you may want to have on hand:

 

  • Contracts. Doing business on a handshake might seem like a good idea until there’s a disagreement. According to Gina Bongiovi (@LawyerGina) of the Bongiovi Law Firm, “All parities entering into an agreement need to be clear about both their expectations and what they intend to contribute – what are you getting and what are you giving?” A written contract not only makes that more clear, but may settle future disputes before they turn ugly.

 

  • Confirmation emails. Did something come up in a phone call that changes the scope of your project? Did you get permission to go over budget in a meeting? What may be a universal agreement one day may be remembered differently another. Send a quick email outlining verbal communication so you have a date-stamped record.

 

  • Client complaint resolution. Clients are going to complain. Your goal? Fix it before it gets out of hand. Develop a written procedure for handling complaints that outlines how to document the complaint, the steps you take to resolve the complaint, and your communications with the client.

 

You can create most of the documentation you may need on your own. However, consider teaming up with a lawyer for contracts and legal agreements, suggests Robert Stetson of Bernkopf Goodman LLP (@BernkopfGoodman). “Most small business disputes center around a legal document, such as a contract, lease, or insurance policy,” says Stetson. “Often, they turn on a phrase which could have been crafted in a manner more conducive to the small-business owner’s needs and the realities of their business.”

Why client complaint resolution procedures are important for small businesses

Gina Bongiovi, founder of the Bongiovi Law Firm, had a client who ordered thousands of dollars of merchandise from a promotional products company. When their order came, Bongiovi says, “The merchandise was all wrong – the logo was the wrong color, the shirts weren't the color listed in the catalog, the quantities were off."

After many attempts to remedy the situation, the promotional products company sued Bongiovi’s client for nonpayment. But instead of letting her client duke it out in court, Bongiovi made a call to the company’s CEO, who was mortified. He had no idea a suit had been filed and agreed to rectify the situation.

Three years later, the two companies still work together. Bongiovi’s initiative ultimately saved both businesses from a major headache. However, if the promotional products company had enforced a complaint resolution process, she wouldn’t have been involved at all.

Is Written Documentation the Only Way to Prevent a Professional Liability Claim?

When it comes to thwarting professional negligence claims, documentation rules the day. However, that doesn’t eliminate the need for good old-fashioned customer service. Usually, it’s the surprises that tend to upset clients, so try to notify them when you expect…

  • Timeline changes.
  • Budget overruns.
  • Shipment delays.

Nobody wants to tell their client that a project is going to take longer and cost more, but clear communication may stave off disputes and salvage relationships. Alert your client to the problem and tell them the steps you’re taking to fix it.

Just be sure to do it in writing.

Takeaways on Surviving a Professional Liability Claim

Let’s take one last look at the numbers. According to RocketLawyer, an online legal services provider, a small-business owner’s chances of being sued are high, considering that…

  • Approximately 100 million cases are filed in the United States every year.
  • 20 million of those are civil cases.
  • 60 percent of those civil cases are over contract disputes.

You don’t have to do anything wrong to get dragged into court. Many lawsuits are the result of simple human errors like miscommunication.

Long story short? Professional liability claims happen. If you’re prepared for them, they don’t have to wipe out your business. Just remember to:

  1. Carry Professional Liability Insurance (here's the skinny on average Professional Liability policy costs).
  2. Keep good client records.
  3. Use contracts liberally and update them often.
  4. Alert your Professional Liability Insurance provider if you get a whiff of a potential claim.
  5. Follow your lawyer's lead throughout the claims process.

Even if the worst-case scenario becomes a reality, remember what you learned here so you can get back to business quicker.