How Professional Liability Insurance Can Help You Fight a Lawsuit

Professional Liability Insurance can help pay for a lawsuit when a third party (typically a client) alleges your business…

  • Made a mistake.
  • Failed to meet professional standards.
  • Committed an oversight.
  • Missed a deadline.

IT is crucial to the way your clients conduct business, and this reliance on your work creates professional liability exposures for you.

A problem with your tech may end up costing your clients time or money or harm their reputation. Outages cause losses. Bugs leading to downtime mean lost productivity. Missed deadlines can scuttle a client’s new venture.

How do you protect your business from these lawsuit risks? Carry out all agreed-upon work and provide top-notch services to prevent a lawsuit from happening in the first place. And just in case something unexpected happens: invest in Professional Liability Insurance.

When Can IT Professionals Be Sued?

When you’re hired by a client, the client expects you to deliver work that meets professional standards. Your work needs to be as good as, or better than, the work of other IT subcontractors, and any mistakes or oversights could result in a professional liability lawsuit.

For instance, a server outage, data loss, security breach, or other tech issues could aggravate your clients and leave them with tangible financial losses. When that happens, they may sue you to recover the damages. Professional Liability Insurance is designed to cover these exact circumstances.

See “5 Professional Liability Exposures Every Tech Business Has” for more about common lawsuit risks in the IT industry.

Why Professional Liability Insurance?

If you’re sued, your business will be flooded with legal bills – and if you run a small business, there’s little chance you can afford to pay these costs out of pocket. That’s why it’s especially important for small-business owners to have liability insurance. It gives you financial security in case something goes wrong.

The Court Statistics Project, which publishes court data from around the United States, found that the average contract litigation cost $91,000. Translation: lawsuits are expensive. When you’re sued, you’ll have to pay for:

  • Attorney fees.
  • Court costs.
  • Settlements or judgments.

Even if a client threatens you with a lawsuit but ultimately drops the case, you could be out a few thousand dollars. A study [PDF] by the U.S. Chamber Institute for Legal Reform found that these frivolous cases cost between $2,000 and $5,000.

We surveyed more than 12,000 IT professionals and found that their average revenue was between $60,000 and $220,000. That places them right in the range where a $91,000 legal bill could put them out of business.

How Professional Liability Coverage Works

Say you’re one of the unlucky IT professionals sued by a client – what would Professional Liability Insurance do to protect you?

For a covered professional liability claim, your insurance covers attorney fees and court costs. If you lose the lawsuit or decide to settle, Professional Liability Insurance can also pay financial damages the court decides you owe the client (or the settlement amount).

That means that your insurance covers the big ticket costs of a lawsuit. How much coverage will you have?

All policies come with a limit – the maximum your policy will pay for each claim and the total it will pay for the year. The most common policy we sell covers up to $1 million dollars for each claim, and $1 million total for each year.

While lawsuits are expensive, a Professional Liability Insurance policy typically offers up to $1 million in protection for the small-business owner.