4 types of professional liability lawsuits (and how to avoid them)

Insureon Staff.
By Insureon Staff
June 11, 2015
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Why do consultants get sued? Learn how to avoid disputes and gain protection against four common lawsuits with consultant insurance.
Two business men discuss and sign contract.

Management consultants, market researchers, and other consulting firms are asked to optimize a client's business strategy. That's a tall order. Missed revenue numbers, unexpected costs, and problems executing your strategy could lead to a lawsuit from your client.

Professional liability insurance for consultants can cover lawsuits over the quality of your work, but let's face it: you'd rather not face a lawsuit at all. Lawsuits can be devastating for a business's reputation. When you're running a consulting firm and working hard to earn new clients, you simply can't afford to have your reputation tarnished.

Let's look at four common reasons clients might sue you, and what you can do to prevent the following disputes:

  • Underperformance / missing projections
  • Frivolous suit
  • Clients fail to execute your plan
  • Recommending bad employees and contractors for clients

Consulting lawsuit tips: How to handle disputes about performance

Your client didn't hit the numbers you promised, and now they're upset and threatening to sue your business. What do you do?

First of all, a consultant shouldn't promise any numbers. Clients ask for specific projections (if such things exists), but you should avoid making any concrete predictions. You need to manage their expectations from the start.

But let's say you did all that and the client is still upset at the performance of their company. What do you do now? Offer the client additional services at a reduced fee. Though you might not make as much money as you'd like, it's better than angering the client further and having them take you to court.

What is a frivolous lawsuit and how do you avoid it?

A frivolous lawsuit is one in which a client sues you unfairly or without much proof. These lawsuits are often expensive. Even if it's unfounded, you still end up paying to defend your company in court.

To prevent frivolous lawsuits:

  • Have professional liability insurance in place (a client will be less likely to sue you if they know you're backed by an insurance company)
  • Practice excellent customer service
  • Keep communication channels open and update clients on your progress
  • Address small problems as they come up

It may seem surprising, but a consultant can avoid many small disputes simply by being a good communicator and practicing good customer service. If clients see you as a professional, they'll be much less likely to pick a fight with you.

Common consulting lawsuit: Client fails to follow through

Management consultants often face this challenge: they institute big changes, but the client doesn't follow through. How do you prevent a client's weak follow-through from spoiling your work?

  • Check in frequently.
  • Provide clear and concrete goals.
  • Ensure the client understands their part in hitting these milestones.

It's not enough to tell your client that they need to be actively engaged in the implementation of your strategies. Get it in writing. Include these expectations in your contracts and memoranda to the client.

HR consultant lawsuit: Recommending a bad employee

What happens to an HR or management consulting firm that recommends a bad employee or contractor? The client could easily sue the consultant for damages related to this employee's mistakes, lost productivity, or other loss the company incurs.

How do you handle this dispute? Offer a refund or discount to keep the client happy. Ideally, you would avoid this dispute by knowing exactly what the client wants from their employee / contractor, getting their sign-off, and performing a thorough background and reference check.

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