The Professional Liability Exposures of Consultants
Consultants essentially present themselves as experts in their chosen field, and are tasked with improving their clients’ businesses. Technology consultants advise their clients on how best to use information technology to achieve their business goals; marketing consultants help craft strategies to help businesses reach more potential customers; management consultants help businesses solve problems and improve business practices and HR consultants advise employers on the administration of human resources policies and procedures.
Because consultants take on a large amount of responsibility on behalf of their clients, a mistake or oversight on part of the consultant can cause damage to a client’s image or hinder business growth. When that happens, a business is likely to do more than just fire the consultant. Business owners who fault the consultant for financial damages or lost income often escalate to taking them to court in order to recoup some of those costs.
With each client they service, a consultant takes on a number of professional liability exposures. Most consultants don’t have the financial power on their own to cover attorney fees, court costs and judgment or settlement fees. Carrying adequate Errors and Omissions (E&O) Insurance, sometimes called Professional Liability Insurance, can help protect consultants and consulting firms from potentially devastating lawsuits. Below are a few examples of common professional liability lawsuits that E&O coverage can help protect against financially:
- Administrative error: Some administrative errors are more damaging than others, depending on the type of consulting. In HR consulting, an administrative error such as incorrectly inputting new employee information or submitting incorrect tax forms can cause compliance issues for a business. If these errors are not caught quickly, the business could be subject to fines, back taxes, legal fees and more – which they would then attempt to recoup by suing the consultant.
- Negligence: The term negligence is rather broad For example, a marketing consultant may make a mistake when reporting the results of a marketing survey, resulting in an inaccurate report. If the erroneous report is then used to create a marketing campaign, it can negatively impact the effectiveness of the campaign, essentially costing the business money in wasted marketing efforts and potential lost income. The consultant can be found negligent for not catching the mistake before the damage was done.
- Bad execution: Regardless of who is actually at fault for any problems, when execution of a plan goes wrong, the blame ultimately falls on the party that designed the plan. Whether it was due to an error in the plan’s design, or misunderstanding by an employee carrying out said plan, the consultant is the one who assumes the biggest amount of risk. However, with adequate E&O coverage, the consultant is protected from having to cover legal fees, settlement costs and other damages.
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