Technology and IT consultants offer opinions and advice regarding a wide range of tech and business-related issues. From time to time, those opinions or advice lead to losses for clients, whether because of improper follow-through on the client's part or some actual negligence on the consultant's.
When clients experience losses because of a consultant's advice, there's a chance that they will initiate a lawsuit in an effort to recuperate some of their losses. And in that case, Professional Liability Insurance (also called Errors & Omissions Insurance) will prevent a consultant from spending all his or her money on a legal defense.
Why Errors & Omissions Insurance Is More Important for Independent Contractors
For independent contractors, the need for E&O Insurance is of crucial importance. Here's why:
- If a client should sues you claiming a financial loss or even claiming an interruption of services, you as an independent consultant do not have the deep pockets of a corporation backing you. In other words, it is possible to lose everything you've worked for because of one lawsuit, whether the suit is frivolous or justified.
- Many of the clients who hire you will require that you carry this insurance.
- You do not have to be at fault to lose everything. Even if the lawsuit is totally frivolous, even if it is brought merely as a means of stalling a payment or for some other reason that has little or nothing to do with the work you performed, the cost of defending yourself against a suit that you eventually win could easily bankrupt you unless you have sufficient consulting insurance. (Want to read more? Click here to see how E&O relates to Facebook's IPO)
As a consultant, you do as much as you can to serve your clients well, but you may not be in control of every factor that affects your legal liability in the case of a problem. (Read more in "6 Common Myths about Errors & Omissions Insurance.")
Understanding & Managing Risk for IT Consultants
Who is most at risk? In today's world, virtually any independent contractor is at risk, but one profession seems to invite lawsuits more than others. If you are in technology or IT, you are at high risk. Why? For one thing, the field is so new that the laws and regulations are still being tested in the courts. There are simply not enough precedents yet in technology law to know what is acceptable and what is not.
But carrying liability insurance doesn't just protect IT consultants from the expenses of lawsuits. There's another significant benefit to carrying adequate insurance protection: many prospective clients will require that you carry insurance before signing a contract with you. Having a liability insurance policy in place can help you secure new projects more quickly and easily, thus helping you boost your revenue.
Don't let yourself believe that your clients would never sue you or to rationalize that your business is too small to sue, because as a consultant, you already have enough to worry about. Protecting your business with smart insurance that fits your risks will give you - and your clients - the peace of mind that you need to help their businesses grow.
Writtten by Brenna Lemieux - check her out at Google+ or Twitter