Professional Liability Insurance for Consultants
The goal of any business consultant is to assist their clients in improving the performance while solving problems and improving processes within their business. Your clients rely on your expertise so that the normal mistakes can be eliminated and the need for creating a new mousetrap is eliminated. Why take the chance of making costly mistakes that someone else has made when you can avoid them by hiring a consultant who’s “been there and tried that”?
Typically, business consultants are experts in their field and have gained this expertise after spending years in the industry learning what works and what doesn’t work. A consultant will know the ins and outs of the industry they specialize in and help clients navigate through it by setting up best practices, repetitive processes, and provide a wealth of regulatory assistance.
Anytime we hold ourselves out as an expert or specialist; there are certain risks that are presented and should be mitigated by transferring the risk to a third-party insurance company.
You must consider Professional Liability Insurance if your consulting firm provides a professional service, regularly gives expert advice to clients, or is requested by a client to have professional liability coverage to complete a contract.
- Alleged Negligence – Alleged negligence typically involves complaints of giving incorrect advice, an omission of important details, or failing to deliver the service requested. In every case, these complaints are the result of financial loss or damaged reputation.
- Personal Injury (slander or libel) – If, while providing professional services, you or your firm is charged with inadvertent libel or slander.
- Defense Costs – Every professional liability complaint, whether frivolous or not, must be responded to by an experienced attorney. Your Professional Liability insurer will assign an attorney to investigate the complaint at no cost to you.
- Copyright Infringement – It’s not unusual for IT Consultants to be accused of copyright infringement by inadvertently infringing on another party’s software code. Marketing consultants are especially vulnerable to the risk of inadvertently infringing upon a third-party’s copyright, trademark, or logo. In these cases, your business consultant professional liability policy will pay for defense costs, settlement fees, and court-awarded judgments.
- Employees, Temps, Independent Contractors – Often professional liability complaints arise as a result of an employee, temporary staff member, or contractor providing advice that may have resulted in financial loss to your client. Your policy does extend coverage for these types of employees.
Coverage Not Provided
- Property Damage or Bodily Injury – The business consultant’s professional liability policy does not offer coverage for alleged acts of property damage or bodily injury. This coverage is provided through a General Liability or Business Owners Policy.
- Intentional Fraudulent Acts – Acts that are proven as fraudulent, dishonest, or criminal are excluded from coverage under the consultant’s professional liability policy.
- False Advertising – Coverage for advertising in a false manner will not be covered under your professional liability policy
- Employment Matters – Alleged claims of discrimination or harassment against employees or contractors are not covered under a business consultant’s professional liability policy. Talk to your agent or broker about Employment Practices Liability Insurance to arrange coverage for these types of accusations.
- Cyber Liability – Your professional liability policy will not provide coverage for failing to protect personally identifiable information in your care, custody, or control (on your hard drive).
- Patents and Trade Secrets – Accusations of intentionally infringing upon a third party’s patent or stealing trade secrets are not covered.
As you can see by the preceding bullet points, the business consultant’s professional liability policy does not provide coverage where another policy should. Speak with your broker about obtaining coverage for the categories not covered.
Typical Claim Example
Your IT Technology Firm is contracted to install and make changes to a client’s customer management system. While installing the software, a virus allows a hacker to access the customer’s database because you had to disable the firewall while performing the installation. Your client brings an action against you for the resulting financial losses.
Your business consultant’s professional liability policy will respond to this action against your firm by taking care of defense costs, settlement fees, or judgments awarded by the court, up to the limit of your policy.
Although the business consulting firm will be required to carry General Liability insurance before working with potential clients, the risk of a general liability claim is much lower than the risk of a Professional Liability claim. Speak to your agent or broker in order to get the necessary information to make an informed decision for your company’s protection.