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How to Avoid Errors and Omissions Lawsuits

How to Avoid Errors and Omissions Lawsuits

Seven steps for avoiding E&O lawsuits and dealing with any suits that come up despite your best efforts.

Thursday, January 9, 2014/Categories: computer-consultants

With the Chamber of Commerce estimating that small businesses pay more than 80% of expenses associated with business lawsuits, it's important for IT professionals to develop a plan to minimize their exposure to risks that could trigger such a suit. That plan should also include strategies for dealing with any suits that arise (i.e., paying the cost of legal defense an E&O claim without draining company resources).

Here’s a guide to how IT businesses can build a plan that does both.

7 Steps to Reducing the Risks of an E&O Lawsuit

For small IT companies, risk management is about providing strong services, developing good relationships with clients, and managing personnel. Specifically, are there seven things every IT project manager needs to do…

  1. Know what your client wants. Knowing exactly what your customer wants can be difficult. There is a "communication gap." You're an IT expert and they're a layman who understands the results they want, but doesn't have the technical expertise to know how to get them. When in doubt, over-communicate, ask questions to verify, and check in at various points of a project to ensure you're on the right track.
  2. Manage deadlines. One of the biggest challenges for IT project managers is estimating and meeting deadlines. Customizing software can be an incredibly complicated and difficult task. A client's preexisting IT infrastructure, the regulations their industry has to follow, and the structure of the company will complicate your task.
  3. Warn clients about delays. If you do miss a deadline, keep your clients in the loop. Should you hit a road bump in development, inform them if you think it might cause a delay. This will prepare clients for any potential lost productivity they might suffer, allowing them to plan for it and hopefully avoid it. 
  4. Test software iteratively. There are many schools of thought on software testing. By testing each component as it’s built, iterative testing is one way software testers can control their liabilities. This process tests coding and usability issues at each stage. It may seem like more work, but because it nips problems in the bud, software engineers often find it saves them time in the long run. (For more on programming liabilities and how to reduce them, read "5 Ways Web Programmers Can Be Sued").
  5. Understand contracts. As a business owner, you sign lots of contracts, so it's best to know how they work. Using a lawyer is the smartest way to protect your business, but this might be too expensive for some small businesses. Regardless of whether you use a lawyer, though, you should take it upon yourself to understand the basic language and function of the contracts you use most often. More specifically, pay attention to the indemnification sections of your contracts, which define how you can held liable for work done by you, your employees, and any contractors you hire.  
  6. Build strong customer relationships. It's a cliché that business is built on personal relationships – but it's true. Being friendly and professional with clients ensures clear communication. Strong customer relationships prevent misunderstandings that can lead to lawsuits.
  7. Educate your clients. With a third of all data breaches caused by employee errors, it's vital that you educate your clients on data security. Remember that you can be sued for a data breach even when a client is responsible. To learn more, read "Your Most Powerful Anti-Data Breach Tool: Client Education."

It shouldn't surprise you that these seven steps are about doing your job well. But what might surprise you is how many of them have to do with client relationships. Communication and education are nearly as important as the choices you make about software and hardware. Understanding the technical as well as personal aspects of your business is a key part of avoiding errors and omissions lawsuits.

And if a client decides to sue you despite your best efforts, you can protect yourself with a small business insurance policy called Errors & Omissions Insurance. This coverage pays for the cost of defending yourself against customer claims that your work doesn’t pass muster, including settlement or judgment costs

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