Insureon Blog

How & Why to Prevent Malpractice / Professional Liability Lawsuits

7. April 2014 09:19

Woman makes uphappy face at garage employee who is on a laptop

As a small-business owner, you are no stranger to high demands. You single-handedly built your business from the ground up. Chances are, you’re willing to do what it takes to keep your clients happy.

But what if there was nothing you could do to make a client satisfied with your professional services? Even if you flawlessly handled their taxes, defended them in court, or treated their ailment?

The sad fact is that sometimes your business can be sued when you’ve done nothing wrong. Most of the time, professional liability or malpractice lawsuits come down to how your client perceives the worth of your services.

If your first instinct is to say you won’t lose money on a frivolous or meritless lawsuit, consider that such claims still cost between $2,000 and $5,000 without setting foot in the courtroom.

If you think you won’t ever be sued, know that 34 percent of small-business owners have been sued at some point in the last decade. (Read more about these staggering stats in the U.S. Chamber Institute for Legal Reform’s Tort Liability Costs for Small Business report.)

So how do you prevent these lawsuits from happening in the first place?

How to Dodge a Potential Professional Liability / Malpractice / E&O Lawsuit

Preventing a professional liability, malpractice, or errors and omissions lawsuit is relatively affordable when you know what to look for. Here, we’ll discuss some ways to reduce your risk of facing a devastating E&O claim:

Be Careful

If your business provides services to clients and customers, you could be sued for alleged errors you make in your work, oversights, or negligence. Your client’s attitude toward your business will determine whether or not they decide to drag a dispute to court.

For all these reasons, be sure you check and double-check your work. A tax professional, for example, may run their numbers again to make sure they don’t make an oversight that could cost a client thousands of dollars. A freelance writer might check their content against the terms of their contract to ensure they’ve delivered what they promised. (Freelancers of all walks: for more tips, read the post “Do Freelancers Need E&O Insurance?”)

Use Client Contracts

Though contracts can’t guarantee a client won’t sue you for supposedly breaching said contract, they can minimize your exposures by clearly spelling out your obligations to a client. Lay out the scope of your representation if you’re a lawyer. Get in writing the exact services you provide if you’re a marketing consultant.

In addition to specifically outlining your services, your client contract should also provide…

Communicate with Clients

Managing client expectations is one of the key ways to prevent an E and O lawsuit. If they understand in no uncertain terms what they’re getting from your business at the start, they have less room to feel disgruntled over the outcome.

If a client complains about the progress or result of your work, be sure to take the time to respectfully and thoroughly address their concerns. Offer solutions rather than excuses. When a client feels as though they are being listened to and that their input is valued, it goes a long way toward building their goodwill toward your business.

Good communication means…

To learn more about how good customer service can spare you a hefty liability lawsuit, read our blog post “6 Customer Service Strategies to Prevent Liability Lawsuits.”

Properly Train and Supervise Employees

Remember that if your employee makes a mistake, your business can be held liable for neglecting to train or supervise them. Before you let your employees represent your business, ensure they have adequate training and supervision. For example, if you own a small medical practice, your staff will need to understand basic standards of care and how to avoid HIPPA violations.

Refer Clients or Patients to Specialists When Necessary

Sometimes, you will reach the point in your client relationship when you can no longer meet their needs. Knowing your limits can help you avoid allegations that your advice caused your client financial losses.

If you don’t know how to best advise a client or patient, refer them to someone who specializes in the area in question. For example, say you’re creating a content marketing campaign for a client and they want graphics to accompany the material. You’d want to reiterate the scope of your services and refer them to a graphic designer for their other needs.

Keep an Organized Calendar System

Regardless of your profession, missed deadlines or double booked appointments can cause your clients to lose money. So be sure you keep an organized calendar and don’t stretch yourself too thin!

Document Client Communications

If you are hit with a malpractice or E&O claim, having documentation of all client communications can help ensure you aren’t wrongfully sued. Specifically, keep a record of advice or instructions that involve critical issues or outcomes (especially if they involve client instructions and decisions). Be sure you keep documentation of any follow-up correspondence, too.

Big Liability Costs for Small-Business Owners: Why It’s Worth the Extra Effort to Prevent an E&O Lawsuit

According to the U.S. Chamber Institute for Legal Reform’s study, small-business owners paid $34.6 billion out of pocket because they didn’t have any insurance to raft them through an unexpected lawsuit. Don’t let your business be caught underprepared!

Always be aware of your malpractice risks and be sure you take the necessary steps to prevent professional liability lawsuits from happening. At the same time, be aware that there is no silver bullet for completely mitigating your risks. As a failsafe, carry Professional Liability Insurance (aka Malpractice Insurance or Errors & Omissions Insurance) to cover your attorney’s fees and settlement or judgment expenses.

protect your assets


Errors & Omissions | Errors and Omissions Insurance | Malpractice Insurance | Professional Liability Insurance | Risk Management | Small Business | Small Business Risk Management | Tips for All Small Businesses

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