Chapter 1: Malpractice Lawsuits: The Basics
Part 1: What Causes E&O / Malpractice Claims?
The first stop on the road to an E&O claim happens when a third party (someone who doesn't work for your business) expresses dissatisfaction with your professional services. If you can't find a way to resolve the issue, you could receive a "formal complaint" (or a "summons") from that person's lawyer. This document outlines your alleged transgression.
Remember, errors and omissions claims are related to the work you do. Some common claim triggers include…
- Professional mistakes or oversights. If you're a healthcare professional, this might mean that your patient believes you've violated a standard of care. If you're an architect, a client could blame your design for the flooding problems in their new home.
- Violations of professional standards. Let's say a veterinarian is accused of misdiagnosing an ailing dog's condition. The pet owner could sue the vet for malpractice to try to recoup the cost of the pup's expensive care.
- Simple negligence. This type of professional liability claim deals with "human errors" — the kind that could happen to anybody. For example, when the vet's assistant lets the dog outside, the dog slips his leash, runs across the road, and gets hit by a car. The pet owner could accuse the vet of negligence and sue accordingly.
- Breaches of contract. Say you're a graphic designer and you're working on a website for a big client. At the last minute, they change up the design, which pushes the schedule back two weeks. The client decides that you agreed upon a specific launch date in your contract and every day it's not up, his company is losing money. He sues for damages. (See our blog post, "Do Freelancers Need E&O Insurance?" to find out why one-person shops have professional liability.)
- Misunderstandings. Many Errors and Omissions claims stem from the simple fact that you are a professional and your client is not. Your clients might not always understand how things work or why the project is not going exactly according to plan. If they perceive the issue as a mistake on your part, you could be sued.
- Undesired outcomes. Sometimes clients and customers are simply disappointed in your work. They expected one thing, and you delivered another. Basically, you can be sued any time a client or customer is unhappy with the results you deliver. For example, a lawyer could be sued for legal malpractice if the client doesn't like that they didn't win their case.
It's important to realize that many complaints don't have anything to do with the quality of a professional's work. If someone ever feels slighted or that they didn't "get their money's worth," your business could end up getting served with a formal E&O complaint.
Next: Part 2: Who Can Make E&O / Malpractice Claims Against Your Business?