When is it appropriate for consultants to purchase professional liability insurance?

Consultants who are unaware of the importance of professional liability insurance risk being sued if one of their projects fails. Here’s how such liability insurance coverage could help to liability insurance safeguard you and your livelihood.

It’s likely that you were required to set up your own insurance coverage as an independent contractor, including health insurance and potentially additional plans. In addition to this, you should consider whether you require Public Liability Insurance, which will protect your business if a client files a lawsuit alleging that you failed to meet your professional obligations.

liability insurance?

event your clients sue you, alleging that you caused them financial damage or service interruption.

Because you don’t have the financial means of a large corporation to liability insurance back you up in the case of a customer lawsuit, it’s critical to assess your risk and liability insurance consider coverage. In addition, a growing number of businesses are asking independent contractors to have liability insurance in place when working on their projects. If you work as a subcontractor, you may find that many computer consulting firms want their contractors to have professional liability insurance coverage similar to their own. You are able to determine your risk by looking at the type of work you perform, the clients you work with, and how well your contracts protect you from this type of lawsuit.

Assumptions

Assume you’re creating a customer database for a client. For one week following deployment, a flaw stops anyone from accessing that data. The company files a lawsuit, claiming that you are responsible for a $750,000 loss in revenue, based on weekly sales numbers. In the case of a judgement, professional liability insurance with coverage of at least that amount plus your legal fees would protect you.

A client might sue you if a solution you built introduced a virus or allowed a hacker to access company data, for example. It’s also possible that you’ll miss a deadline on a mission-critical project. You might get one of those fat envelopes full of legal documentation in your inbox if the company suffers a financial loss in any of these instances.

Is the danger real?

It’s easy to dismiss the dangers in these scenarios. “My software will never fail entirely like that,” you might think. At the very least, I’d have a backup mechanism for the legacy system. Because I utilise virus protection, an attack would not be my fault.”

However, your risk is determined by the possibility of a client filing a lawsuit against you, not by the likelihood of you losing one. Even if the complaint is entirely without merit—and the judge agrees with you—defending yourself against the claim could bankrupt you.

Here are some facts to consider:

In the tech industry, you’re more vulnerable.

As technology and the nature of our jobs are relatively new, the tech industry is particularly vulnerable. The legislation is continually evolving, and there is no clear definition of what constitutes acceptable and reasonable client expectations or even what an IT consultant is. In this field, there are just not enough legal precedents.

Clients who are dissatisfied or dishonest may file claims.

Clients file a conventional IT claim when they believe they have lost money as a result of anything you did (a mistake) or something you should have done but didn’t (an omission). Another form of dispute could develop if a customer is unhappy with the work you’ve done. Perhaps the client anticipated your solution to do something it doesn’t or to work in a different way than it does. However, as far as you can tell, it performs just as expected. You and the client should try to work out a solution, but if you can’t, your client may file a lawsuit.

You might be covered by your contract.

Even with the potential benefits, professional liability insurance is costly, with a one-year premium starting at around $1,000. Despite the issues highlighted above, it’s worth noting that liability insurance may not be necessary for all contractors in all situations. You may decide to skip coverage if one or both of the following requirements are met:

Your work and the kind of clientele you work with put you in a low-risk situation.

You make sure that every contract you sign provides some level of protection against lawsuits—perhaps by utilising a contract that has been vetted by a lawyer with experience in IT professional liability issues.

Although neither of these criteria guarantees protection, they do assist you in balancing investment and benefits, as you do with all other expenses.

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It is just a must to have a well-written contract that protects you against catastrophic financial loss. For example, you may choose to put in place a contract that stipulates that you will not be held liable for damages in excess of the amount of money earned from the job. However, do bare in mind that this may not necessarily hold up in court.

The type of job you do and the financial stake your clients have in it might help you measure risk.