Consultant General Liability Insurance
Holding one’s self out as a professional consultant can be extremely rewarding when things go well; but when things do not go well, your insurance coverage will need to respond. No matter what field you or your firm consults in, there are certain risks that await every client relationship. Your risks are not only related to your client relationships, but also with employee and vendor relationships. Knowing this, it is important to take the necessary steps to transfer your risk to an insurance company. Your insurance broker will become your consultant and assist with navigating the policies you may or may not need.
While General Liability offers coverage on your premises and some personal injury, there are other unique exposures that also threaten the consultant’s business such as:
Cyber Liability Coverage
Cyber Liability Coverage has quickly become a hot topic in today’s marketplace, and the reason behind it should be obvious. Every business at some point during the day is connected to the internet and as such, is at risk of a data breach that could be financially devastating if sensitive information is stolen during the breach. A data breach is not solely about stolen information, but can also be about ransomware, destructive viruses, and the loss of proprietary information.
These cyber attacks don’t always come from a person living in their parent’s basement just down the street, but most often from another country where sophisticated hackers work as clandestine attackers to steal vital information from your hard-drive, systems, and peripheral devices. There is also the threat from employees with nefarious intentions and former employees looking for payback by exploiting sensitive data from your business.
Not only are you at risk of losing customers resulting from a data breach, but most jurisdictions also provide for serious consequences that result in severe financial losses. Every business that is connected to the internet either wired or wireless is at risk and regretfully the best-made plans for prevention end up failing at one time or the other. Consulting firms that keep client information of any kind on their hard-drive are especially susceptible to attack. Consider how your client would react knowing that sensitive information that was provided you, was stolen and used for identity theft purposes. You, as the consultant who probably signed a non-disclosure agreement, would immediately be exposed to an action for failing to protect sensitive information in your possession. For various reasons it is extremely important for every consultant to consider purchasing Network Security and Privacy Liability Coverage that will provide first party and third party coverage for:
- Unauthorized Access
- Transmission of Virus or Malicious Code
- Theft and/or destruction of Data
- Cyber Extortion
- Business Interruption
- Hacker Activity
- Lost Device
- Rogue Employee
- Loss of Physical Records
The unique and interesting thing about the privacy and network security coverages being offered today is that both policies provide first-party and third-party coverage. The first-party coverage protects you and your consulting firm for costs to respond to a privacy breach or security failure while also providing third-party coverage for costs related to actions or claims against you or the demands that regulators will place following an event. Costs resulting from a security failure or data breach can be considerable and varied depending on the type and extent of the attack.
- The investigation following a breach.
- Legal fees regarding notification and regulatory requirements.
- Costs for notifications and communications
- Costs of credit monitoring for affected parties
- Expenses for Public Relations
- Financial losses while network is down
- Legal defense costs
- Settlements, damages, and judgments
- Liability to financial institutions for reissuing credit cards
- Responding to regulatory inquiries
- Regulatory penalties and fines
What’s Not Covered
Unfortunately, there are quantifiable costs that are not covered under current cyber liability policies that can create significant financial damage for any consulting firm. For example, the harm that will ultimately come to the reputation of your firm and the inevitable loss of future revenue that will result from customers staying away after an attack. Your costs to improve technology systems and the value of your own intellectual property will not be covered as well.
Regretfully, data breaches and security failures happen to even the best-protected organizations, whether private or governmental. Knowing this significant risk is out there is all the more reason to speak with your agent or broker about obtaining the protection you need for you and your consulting business.
Employees: They can Help but they Can Also Hurt
Anyone that owns or operates a consulting firm certainly understands the need for employing highly skilled support help. Let’s face it, sooner or later you just can’t do it all. You search and search to find the personality that will accommodate your business and patiently improve their skill level to grow them into a valuable asset for the business. Then one day, it comes from out of the blue, a nicely packaged subpoena requiring your presence at a deposition. Your valued employee that you’ve worked so diligently to train and become your mini-me has filed an action against you for discriminatory reasons, and they are looking to take what’s yours! Now what?
In this case, most employers would call their insurance broker to find out if they have coverage in place and what their next move should be. Your broker then patiently explains that they recommended EPLI (Employment Practices Liability Insurance) but you chose to forgo it because at that time you had no employees and the agent wasn’t aware that you had hired anyone because every time they called to check in, you never called them back. Are you screwed in this scenario? Probably so.
Employment Practices Liability Insurance (EPLI)
EPLI is a type of liability insurance that covers your consulting firm for wrongful acts that may arise from the employment process. The policy will cover your firm for claims filed by current employees, former employees, and potential employees that you interviewed but didn’t hire.
Many Business Owners Policies and some General Liability policies will offer this coverage through an endorsement, but with lower limits than you may require. Employees that feel discriminated against or feel mistreated in the workplace are potential liability risks that need to be insured against for obvious reasons. Coverage is provided for the following:
- Wrongful termination or discipline
- Sexual harassment
- Gender, age and other types of discrimination
- Breach of employment contract
- Negligent compensation, promotion, or hiring practices
- Emotional distress or mental anguish
- Libel or slander
- Invasion of privacy
- Employee benefits mismanagement
In most cases of wrongful employment practices, the employer is taken very much by surprise because they aren’t aware of what constitutes a valid claim. Typically, small consulting firm owners take the attitude of “it’s my business, and I’ll run it as I see fit”. Unfortunately, this mindset can land the employer in a courtroom because today’s legislation is all about the employees and rarely about the employer. In fact, a large percentage of employment practices cases that are filed are eventually found to be frivolous and without merit. Even if such is the case, the employer must still respond to the charges, and that can become expensive. In almost every case, however, the employer was unaware of the perceived violation:
A female employee, who had been with XYZ Corporation for two years, exhibited a sudden drop-off in her work performance. Her supervisor set up a meeting with her to discuss her performance, but she failed to show up. She did show up for a rescheduled meeting, but she had alcohol on her breath. She complained during the meeting that she faced continuous sexual harassment from a senior manager and that his unwanted advances had created a hostile work environment. Her supervisor suggested that she take another position in the company at a different location, which the woman agreed to do. However, she failed to show up for work at the new location and skipped several more meetings with her supervisor. The company terminated the employee, and she filed a lawsuit, alleging sexual harassment and wrongful termination and seeking $1 million in damages. In her suit, she alleged that a senior manager had been sexually obsessed with her for nearly two years, had maintained an uncomfortable closeness with her in the workplace, and had continually harassed her with questions about her personal life. In subsequent interviews with managers and employees, it was discovered that the female employee and the senior manager were engaged in a consensual romantic relationship over the two-year period. Furthermore, witnesses said that the employee was also engaged in another love affair at the time, but she and the second lover had broken up at about the same time her performance dropped off. The company determined that it would rather settle than to go to court. After paying more than $120,000 in defense costs, the company settled with the former employee for $250,000.
It’s apparent in the above-mentioned claim scenario that the company was more willing to settle with the employee than go through a trial. In most cases brought against the employer, a settlement will be the result. However, unless your consulting firm has a solid EPLI policy in place, those settlement fees will be coming out of your pocket rather that being paid by your insurer.