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Don’t Play Telephone: Protect Yourself from E&O Claims with Professional Indemnity Insurance

Don’t Play Telephone: Protect Yourself from E&O Claims with Professional Indemnity Insurance

Professional Indemnity Insurance protects IT firms from the high costs associated with Errors & Omissions lawsuits and damages.

Friday, January 10, 2014/Categories: errors-and-omissions-insurance

Remember when you would play Telephone as a child? On your turn, you promised you would speak so clearly no one would mishear what you said. You'd be the only person to win the telephone game. (As adults we know that this isn't the point of the game - but it definitely was as a six year old.)

But despite your best intentions, the word got messed up every time.

This game is still played out every day in the IT and Technology industry. Quick deadlines, complex material, and many "hands" all result in miscommunication. Just as in a game of telephone, your best efforts at clarity can still leave your clients baffled.

But at this point in your life, a misunderstanding doesn't end in uncontrollable giggles: This time it can end in a costly lawsuit.

Though errors and omissions are covered by your Professional Indemnity Insurance policy, it's often hard to bounce back after a lawsuit - especially because the risk for an E&O lawsuit is higher in your industry. Here are some tips on how you can lower your chances of having to tap into your Professional Indemnity Insurance policy.

3 Things Your Elementary Teacher Said That Apply to Preventing a Professional Indemnity Claim

  1. Be Reasonable. Congratulations! The popular kids just asked you to play with them - that is, a hot startup wants you to develop an interface to streamline its internal operations. Big bucks. But what the company wants is outside your team's tested abilities, and your deadline is much tighter than usual. Though you think you can get it done, the project has a lot riding on it: If you're accused of overselling or misrepresenting your firm's services, it might cost you your business. Our suggestion? Tell your client your concerns before you draw up a contract, and ask your team if they can manage the work.
  2. Over-communicate. There were always "those kids" when you played Telephone: the one who was too afraid to be the only one to ask for a "repeat," the one who didn't speak clearly, the one who didn't even want to play in the first place - and then messed everyone up on purpose. Thankfully, as a business owner, you can prevent these miscommunications from affecting a project's outcome. Our suggestion? Establish a culture that encourages team members to voice their smallest concerns about potential mishaps, recommendations, and tracked progress. Use simple vocabulary with clients. Many Professional Indemnity claims are the result of a knowledge gap. Most of the time, your clients don't have the technical knowledge your firm does. If you can't explain what you're doing to your eighth grade neighbor, don't expect your clients to understand, either.
  3. Be organized. Sometimes you get so far into the game - or so distracted by snack time - that you don't remember what the original phrase was or whom you're supposed to be telling! Thankfully, simple organizational methods can keep the project on track. Our Suggestion? Have a lawyer draw up a contract after you and your client decide on the terms of service. This way, everyone will be on the same page and have a reference point in case of confusion. Create a plan with daily objectives to ensure you finish the project by the required deadline. If you fall behind, having a schedule lets you know well enough in advance to contact your client to change deadlines.

Your Best Defense Against Professional Indemnity Claims

The best way to defend your IT firm against Professional Indemnity claims? Get everything in writing.

Even in the case of careful communication, details can slip through the cracks. Imagine that, after noticing you wouldn't finish by your initial deadline, you called your client and agreed, verbally, for an extension. But two weeks later, you receive notice that your client is suing you for breach of contract. You could be found liable unless you have tangible evidence that everyone agreed to the extension.

Thankfully, Professional Indemnity Insurance pays for legal costs as you defend yourself in court, and pays for fines and judgments if you're found liable. But you can easily prevent large increases in premiums following a suit by careful recordkeeping.

And don't limit tracked communication to your clients: Have your employees file progress reports as they work. A couple minutes at the end of the day can save you thousands of dollars in case of an Errors and Omissions lawsuit.

Why Is Professional Indemnity Insurance on a "Claims-Made" basis?

Your friend can't sue you for a mistake you made while playing Telephone 20 years ago. But technology advances and copyrights are still as lawless as the Wild West: In 20 years, your client could potentially sue you for the work you're doing today. A Professional Indemnity Policy pays benefits on a "claims-made basis," meaning you'll be covered only if your policy was in place both when you submitted the challenged work and when the claim was submitted.

Protect yourself by asking your insurance agent how Professional Indemnity Insurance can help you secure Errors and Omissions coverage.

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