What is Professional Negligence?Insurance Explained
Professional negligence occurs when a professional (lawyer, insurance broker, accountant, architect, realtor, financial advisor, etc.) fails to fulfill the professional duties or obligations that they were hired by their clients to fulfill.
When someone agrees to perform professional services for someone else who needs these services, the hired professional must exercise “reasonable care” in providing these services.
Reasonable care is defined as “the degree of caution and concern for the safety of the self and others an ordinarily prudent and rational person would use in the same circumstances.”
This means that to avoid a claim of professional negligence, the professional must adhere to the same standard of care that well-qualified professionals acting under similar circumstances would.
When a claim of professional negligence is filed, there are usually two methods used to determine if the reasonable duty of care was followed: foreseeability tests and multifactor tests.
Foreseeability tests are used to estimate if the professional could have reasonably predicted that their actions, or lack thereof, would cause any sort of harm or losses to the client.
Multifactor tests look at several factors to determine a professional’s duty of care, including:
- The severity of the harm
- Whether the professional could have taken a different course of action
- The cost of a different course of action
- Whether other, safer or less harmful options existed
For the claim to be successful, there must be evidence that the service provided fell below the expected standards of the profession. The service also needs to have resulted in clear negative consequences such as financial losses, damages, or injury to the client or customer.
If the claimant cannot show that they suffered concrete damages as a result of the professional’s action, they won’t be able to claim negligence.
Additionally, the claimant is expected to take reasonable steps towards minimizing the potential losses that arise from professional negligence. This is known as a “duty to mitigate.”
An Example of Professional Negligence
Now that we’ve gotten the “legal-speak” out of the way and defined the term, let’s take a look at what an everyday example of professional negligence looks like so that even a layperson can grasp what professional negligence actually constitutes.
Let’s say that a patient goes to the hospital after feeling sick for some time. Their physician fails to diagnose a rare type of cancer and the patient’s condition steadily worsens over time. The patient gets a second opinion and receives the correct diagnosis. They receive the right treatment and are now in good health.
However, the patient feels that the physician that gave the first opinion was negligent. They decide to sue the hospital and the doctor. They hire a lawyer who then begins the process of collecting evidence and preparing a case. The process proves to be complicated and lengthy.
Due to the case’s complexity, the lawyer fails to preserve the claim by filing a lawsuit within the requisite one-year statute of limitations. This means that the client can no longer sue the doctor and hospital for negligence because the statute of limitations has expired on their claim.
It also means that the client has lost a significant amount of money both on legal expenses and taking into consideration the money that could have been awarded to them had the case gone to trial.
However, because it’s reasonable to assume that the lawyer should understand the statute of limitations and should have filed the suit on time, the client has legal recourse. They can now bring forth a professional negligence claim against the lawyer in an effort to recoup losses.
How To Reduce Claims of Professional Negligence
If you are someone who provides the types of professional services in which negligence claims are common, it’s essential to be proactive and take precautions to mitigate potential professional negligence claims. Let’s cover a few best practices that could help drastically reduce your exposure.
For every client, whether it’s a new relationship or an extension of an existing project, always insist on a precisely written contract that clearly outlines the nature and scope of work. It’s important to cover all aspects of the project.
Set Realistic Expectations
Sometimes it’s easy to get carried away in an effort to win a client by promising them outcomes that you aren’t certain that you will be able to achieve. This is also a very easy way to get your business involved in a professional liability claim. Make sure that you set realistic expectations when discussing outcomes with your clients in order to avoid awkward and potentially expensive situations in which clients feel as if they have been cheated and are entitled to reparations.
Establish Regular Communication
Clear communication with the client is crucial. Notifying them of problems and changes in time will improve their perception of your professionalism, even if the news often proves to be rather unpleasant. Sudden and unexpected changes may leave the client angry and make them more likely to hold you liable for professional negligence. Stay in contact with your clients regularly. Even if you have nothing new to report, check in with them to know that you are still working on their project and are fully committed to it.
Keep Excellent Records
Unfortunately, many professional negligence cases tend to start out as “he said, she said” allegations. The best way you can combat this is to make sure that you are keeping diligent records of all your professional services. It’s always better to reach agreements and make decisions via email than over the phone since you then have a record of what was said and what was agreed upon. If you do prefer doing business over the phone or in person, record your client conversations. If you are uncomfortable with doing that, get a confirmation of what was agreed upon via email so that you do have a record of it.
Keeping up-to-date with the latest developments in your field will help keep you safe from claims of professional negligence. Additionally, it’s also important to stay on top of changes in how state laws regulate duty of care.
Protecting Your Business from Claims of Professional Negligence with Insurance
Claims of professional negligence can cause severe financial and reputational damage to any business, even if the business ends up winning the case. Such claims can be very complex and can take a long time to resolve, which often leads to inexorably high legal costs.
That’s why it’s important to be proactive and get ahead of potential claims by having an effective risk management plan and the right business insurance to protect you.
Professional liability insurance (also known as errors & omissions insurance) will respond to these types of claims. It will provide financial protection from claims of negligence, malpractice, errors, and omissions that occur while providing professional services to your clients.
When a claim of professional negligence is made, your E&O policy will pay for legal defense, judgments, and settlements up to the policy’s limits.
It’s important to note that professional liability insurance is a claims-made policy. This means that the policy needs to be active at the time during which the situation that led to the claim occurred and at the time you reported the claim to the insurer.
It’s also important to remember that professional liability policies have exclusions that they will not cover, one of the most common being illegal acts or intentional harm to a client that a professional knowingly committed.
Since many professional services carry very specific risks with them, it’s no surprise that insurers have created policies that cater to the specific needs of various industries. For example, law firms that want to protect themselves from negligence claims would buy a legal professional liability policy that is designed to cover the most common risks associated with that line of work, while software development companies would opt for tech errors & omissions insurance to cover their specific exposures.
To get a better understanding of how to protect your company from claims of professional negligence and other liability issues, don’t hesitate to reach out to one of our expert brokers to secure the right coverage at the best possible price.