Do you know whether you or your business would be considered a “professional” by our legal system and by your customers or clients?
If you give advice of almost any nature and/or advertise yourself as an expert, you will most likely be considered a professional under the law. This also means you will be held to higher standards of customer care. You can even be sued for errors and omissions (E&O) when your advice doesn’t work as planned.
Standards of care can be harsh
As an expert, you have a duty to clients – and sometimes to other third parties – to do high quality work, act in a prudent manner, and not commit any errors that could cause harm.
Professionals like accountants and lawyers have detailed standards of conduct as part of their state licensing. Even if your vocation or profession does not have published practices, the courts will penalize you if your quality is not up to par with others in your line of work.
Think of standards of care as a moving target as expectations inflate.
Potential liabilities are also increasing
You can be held liable for general liability by clients and third parties for bodily injury and property damage claims. Knocking over the client’s Ming vase, and inadvertently tripping the executive assistant on the stairs are unfortunate examples.
Then, errors and omissions claims come from your liability for financial loss that results from your erroneous advice. Remember that an omission – or a problem you knew about but did not explain – can result in as much damage as an error. Examples of economic losses might include:
- Your inappropriate marketing advice causes your client’s new product to be late to market and not reach expected sales.
- Your project estimate is incomplete and inaccurate: your customer – a contractor – has costly delays in completing a major kitchen remodel.
- Your email for a client goes out to inappropriate parties with a confidential report, and your client gets sued for breach of confidentiality.
- You are late updating your computer system and get hacked. Personal information entrusted to you by customers is stolen resulting in multiple thefts of identity and fraudulent credit card charges.
- Recently a computer programmer was updating software for a large client. He read code incorrectly, and deleted archived financial data that the company had no way to retrieve. A suit was brought for $5 million.
Insurance protection is essential
B2B customers today are often insisting on proof of E&O coverage in addition to standard insurance policies. Even a “small” lawsuit can far exceed a firm’s revenues and the personal assets of the owner.
Professionals, consultants, and small businesses that offer advice must purchase professional liability, or E&O coverage in today’s litigious world. These specialized policies cover claims for economic loss from negligent advice or breach of duty. Perhaps more importantly, the insurance company will defend you and pay your legal fees. The average cost of defending an E&O claim was recently reported to be $47,000, even when the defendant was found innocent.
When something goes wrong there is plenty of blame to go around. Don’t get caught as the unprepared scapegoat: review your coverage, educate yourself about risks, and make sure you have adequate protection against devastating and expensive liability.
If you have questions or more complex circumstances, don’t hesitate to click reply or give me a call: email@example.com | 510-685-3883. There’s never a charge for brainstorming!
Did You Know?