- Professional liability insurance
Professional liability insurance, also called errors and omissions insurance, protects small businesses against the costs of client lawsuits over unsatisfactory work.
Professional liability insurance protects against claims of negligence
An oversight or mistake by your consulting company or research firm could cause financial setbacks or reputational damage to your clients, and lead to an expensive lawsuit. That’s why finding the right professional liability insurance should be a part of your risk management strategy. It can help protect you from financial losses related to a liability lawsuit.
These policies offer coverage related to:
- Work mistakes
- Undelivered services
- Accusations of negligence
Many companies require their business consultants to have professional liability insurance, and provide proof of coverage with a certificate of liability insurance. Regardless of your line of work, clients want to know that you have the right coverage to pay for any damage caused by your actions or neglect.
It’s all about indemnity
The idea of indemnity is frequently discussed when talking about professional liability insurance, and it’s the foundation of most business insurance policies.
Simply put, indemnity is a commitment between two contracted parties, where one will compensate the other for any covered losses during the policy period.
This compensation could be in the form of a cash payment, or repair or replacement of damaged property. The insured losses could include things like property damage and legal expenses.
In the case of professional liability, also known as professional indemnity, the insurer takes on the policyholder’s liability for their professional work and compensates them for legal action against them.
How professional liability protection works for consulting firms
Professional liability insurance provides protection for consulting firms when they are accused of an error, failure to deliver promised results, or professional negligence. Because it's a claims-made policy, consultants need to keep this policy active to ensure coverage for work done in the past.
Even if you’re not at fault, being accused of an error can be costly. If a client claims a consultant's inaccurate projection or some other mistake caused financial damage, you may find yourself in an expensive legal battle. Professional liability insurance helps cover your legal fees – which can be significant.
Project delays can have a significant impact on your client’s bottom line. If a client takes you to court over a missed deadline, your professional liability coverage could help pay for court costs, along with a judgment or settlement.
Accusations of negligence
Clients usually have high expectations. If your work doesn’t meet their standards, you could be accused of professional negligence. When your consulting work is challenged, professional liability insurance helps pay for legal expenses, including the cost of hiring an attorney.
How liability insurance coverage protects different types of consultants
Helping a company improve its performance is no small task, and management consultants can take the fall if a client misses their revenue projections. That's why professional liability insurance is vital for this profession.
This policy gives you the financial protection you need, even if you’re not at fault. It'll cover a management consultant's legal costs, including settlements, if a client holds you responsible for their company's disappointing performance.
A tabulation error or an inaccurate projection can lead to a lawsuit for a market research analyst. Even if your consulting firm isn't at fault, you might still have to pay for a costly legal defense.
Professional liability insurance provides critical financial protection for market research analysts and others whose data is directly tied to client revenue.
IT consultants take on additional risk because they often make software recommendations to clients or oversee cybersecurity. If an IT consultant recommends insecure software and the client's data is exposed, the client could sue.
For protection against this type of liability, IT professionals buy technology errors and omissions insurance (tech E&O), a package that includes both professional liability insurance and cyber liability insurance. Any consultant who works in IT or technology should consider this protection.
Other important policies for consultants to consider
Professional liability insurance covers several risks inherent in the consulting industry, but it does not offer complete protection. Other policies to consider include:
General liability insurance: This policy covers the most common business risks: third-party injuries, third-party property damage, and advertising injuries.
Workers’ compensation insurance: This policy is required in almost every state for consulting businesses that have employees. It covers medical costs for work-related injuries.
Business owner’s policy: This policy combines general liability insurance with commercial property insurance, typically at a lower rate than if the policies were purchased separately.
Fidelity bonds: A fidelity bond can compensate a client who accuses an employee at your consulting company of theft.
Cyber liability insurance: Consultants who handle sensitive data should buy this policy for financial protection against data breaches and cyberattacks. It also provides liability coverage for consultants who recommend software or handle cybersecurity.
Get free quotes and buy online with Insureon
Are you ready to safeguard your consulting firm with professional liability insurance or another policy? Complete Insureon’s easy online application today. Once you find the right policy, you can begin coverage in less than 24 hours.