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We live in a time when anyone can sue anyone else for a legitimate reason or not. It is a fact that you don’t even have to do something wrong to get sued. If your client or business partner, for example, feels that you have wronged them somehow, they may decide to sue you.
Some insurance experts even say that it’s become foolish not to buy insurance. Defending a claim on your own, without your insurer’s assistance, can become a daunting, time-consuming, not to mention financially-crippling process.
Consider purchasing adequate insurance policies depending on your profession and your unique risks. If you are a professional service provider, one of the most important policies you should have is the professional liability policy. Depending on your industry, this coverage is also known as errors and omissions or malpractice insurance.
Do you have questions about legal malpractice insurance or any other policies your law firm might need? Don’t hesitate to reach out to an expert broker from our dedicated legal practice.
Whatever is your preferred name for the coverage, it is the policy that would respond best to any claim of a professional error and your number one lawsuit insurance policy.
What Risks Do Professional Service Businesses Commonly Face?
Given the variety of professions that fall into the “professional service businesses” category, it’s no wonder there are so many risks associated with them. It’s become redundant to say that risk is inherent to businesses since that’s a fact everybody knows. But what are the risks professional service providers commonly face?
First of all, there is always the risk of not living up to your client’s expectations. Even if you did your best and, for example, negotiated a good settlement for your client, there is a chance they expected even more and are not satisfied with your work.
Sometimes your clients could simply misunderstand what you promise to deliver to them. However clear you think your explanations and promises are, there is always room for confusion and unrealistic expectations.
There is also a risk of making unintentional mistakes. For example, you designed roll-ups, banners, and pamphlets for your client’s big gala event, and you accidentally shipped them to the wrong address. If the deadline was tight, your client probably had to use some old materials, and they could decide to sue your company for negligence.
Speaking of deadlines, you should be particularly careful with those. No matter how high the level of services you provide, you violate your client’s trust and potentially your contract with them if you don’t deliver your work on time.
Another common risk is a potential failure to disclose information. For example, if you are a real estate agent, you are obliged to disclose any information affecting the property’s price. Suppose you omit essential details on a property when presenting it to a buyer, and they decide to buy because they trust you. In that case, they can also choose to sue if they discover your dishonesty after signing the contract.
Let’s also not forget the old-fashioned risk of giving bad advice. This mistake can end up being costly for almost all professionals, but particularly for those working in financial and investment services. Your client could make a bad investment based on the advice they received from you and end up losing substantial amounts of money in the process.
You can expect they would want to recuperate the lost funds, and if they can’t do it through another investment, they might decide to sue you and your business.
How to Protect Your Business From a Lawsuit?
When it comes to protecting your business from potential lawsuits, the best way would be to start from the basics. Listen carefully to your client’s wishes and be realistic about your abilities and the deadlines you can pull. Don’t promise anything you can’t deliver.
Signing a contract with every new client is good practice that also protects your business. Keep detailed notes and records of everything you and your client agree on when starting a project together. If need be, you can always go back to your documents and check if you completed your part of the deal.
However, if you fail to honor your end of the contract, acknowledge your error and apologize to the client. A sincere apology would let your client know that your mistake wasn’t intentional and that you will make an effort to fix things. If possible, correct your error immediately, or ask your client to stretch the deadline a bit to deliver what they expect from you.
Remember always to treat your client with respect. Even if it may not seem like the best way to go, always tell the truth and be professional in every situation, however difficult it may seem.
The ultimate way to protect your business is to obtain a professional liability insurance policy. It would give you peace of mind knowing that your insurer would have your back in case of a lawsuit against your business.
How to Protect Your Law Firm?
Being a lawyer is a relationship-based profession, meaning that you should do your best to keep your clients happy. And it’s not just because you want to protect your stellar reputation that means a great deal in your line of business, but also because it could save you from some nasty malpractice lawsuit.
The American Bar Association (ABA) has been publishing some practice points to provide advice to lawyers and point out the importance of properly understanding the rules of practice and ABA’s formal opinions. A recent publication emphasizes Model Rule of Professional Conduct 1.4 and the importance of communication in avoiding a malpractice suit.
A lawyer should keep their client up-to-date on everything related to their case, whether the news is good or bad. That should help your client have realistic expectations from the case and not blame you for things out of your control.
As much as the global pandemic has made some aspects of doing business challenging, it has also shown us that there are many ways to keep communication going. Phone calls, text messaging, video calls, emailing – these are all efficient means of communication. Utilize them to maintain seamless communication with your clients and keep them in the loop.
Also, we cannot stress enough how important it is to keep track of all the dates related to the cases you are working on. Late filing is one of the leading causes of liability lawsuits against lawyers.
Last but not least, purchase a robust legal professional liability insurance policy. While it will not prevent lawsuits, it will cover your business in case of a claim against you and provide financial support during the process.
How Would Your Professional Liability Insurance Policy Respond to a Lawsuit?
Before we discuss the details of the coverage, you should know that the professional liability insurance policy would only cover your claim if the error or omission you made were unintentional. If your actions that harmed your client were deliberate, you would have to cover all claim-related costs yourself.
If, however, the claim comes as a result of negligence, here’s what a comprehensive professional liability policy would do for you as corresponding lawsuit insurance:
- Cover legal defense costs: This includes lawyer’s fees and the costs of a potential investigation.
- Pay the administrative fees: The sum can be substantial when all the administrative fees pile up. Having your insurance take care of that expense provides a great deal of financial relief.
- Pay settlement costs: If both sides decide to settle the claim outside the courtroom, your lawsuit insurance will cover all settlement costs. If the process involved mediation, the policy would cover that expense, too.
- Cover court judgments: If the lawsuit reached court and the jury awarded damages to the plaintiff, your insurance policy would cover all your related expenses, including court fees. Note that your policy can cover your costs up to your premium limits.
- Compensate expert witnesses for testifying in court: If necessary, your insurer would hire impartial expert witnesses to share their expertise in court.
Note that most professional liability insurance policies include the “duty to defend” clause that implies that your insurer would take care of providing legal representation and prepare your defense accordingly.
When you become aware of a professional liability claim against your business, the first thing you should do is to contact your insurer. They will advise you on how to proceed with the matter and activate your policy under the coverage you purchased with them.
The Importance of Having Professional Liability Lawsuit Insurance
Professional liability lawsuits can be highly stressful and time-consuming. If you don’t defend them properly, they can also be detrimental to your reputation and potentially lead to financial ruin for your business.
Suppose that you don’t have a professional liability insurance policy in place. You would have to organize your defense yourself and cover all the accompanying costs. If you decide to settle the claim, you should know that both sides need to agree on the amount. If the claim reaches the court, the awarded damages could be extremely high.
As we mentioned before, if you have insurance, your policy will cover all those costs.
Most professional liability policies are claims-made policies. That means that the policy must be active when the alleged event happened and when your client filed the claim. To ensure you have coverage for any potential claim that could arise, purchase your professional liability policy as early as possible and always renew on time. Gaps in your coverage could result in you having to cover all the expenses yourself, which can end up being extremely costly.
If you don’t have a professional liability policy for your business or think you might be underinsured, feel free to reach out to one of our experienced brokers anytime. You can also sign up to Embroker’s digital platform and get your quote online.
What factors do insurers look at when determining the cost of your law firm’s legal malpractice insurance?
If you’re curious about the difference between general liability versus professional liability insurance, continue reading to learn about the nuances of each, how they’re similar, and how they differ.