Professional liability insurance for consultants
What happens if a client sues you, claiming that you made a mistake that hurt their business? Professional liability insurance, also called errors and omissions insurance, protects consultants from costly lawsuits over work mistakes.
Why do consultants need professional liability insurance?
Even when you’re very good at what you do, a dispute with a client can end in a professional liability lawsuit. If a relationship with a client goes sour, you could be accused of negligence even if you didn’t make any mistakes.
Whether a professional liability lawsuit has merit or not, it’s always going to be expensive to take it to court. Contract disputes cost businesses a median of $91,000, but many independent IT consultants don’t have a legal team standing by or a large bank account to draw these funds from.
Many factors beyond your control can affect the outcome of a project. And if your name is on the contract, you’re the one that will be held accountable. Professional liability insurance (also called errors and omissions insurance or E&O) pays for your defense costs and other legal fees.
Work mistakes that trigger professional liability claims for consultants
Clients might file professional liability claims in response to a range of perceived or real work mistakes by a consulting firm, such as:
- Missed deadlines
- Breach of nondisclosure
- Improper documentation
- Misrepresentation of facts
- Failure to prevent a data breach
- Loss of data, improper procedures, or negligent handling of data
What does professional liability insurance cover?
Professional liability coverage pays for your legal defense, including the cost of settlements, court judgments, and other expenses outlined in your policy. The policy doesn’t cover overtime or extra expenses you accrue fixing the problem for the client.
E&O insurance also doesn’t cover the cost of lawsuits that involve criminal offenses, like theft of client property. For these types of situations, you may want to create a contract that outlines procedures for conflict resolution and clearly states your and your client’s rights.
Professional liability vs. general liability insurance
While professional liability insurance covers work mistakes, general liability insurance covers common accidents involving clients and customers.
General liability insurance can help your business grow quicker, as some clients require both professional liability and general liability insurance coverage in their consulting contracts. These clients are looking to reduce their risk by ensuring that insurance will cover the cost of accidents or mistakes.
If your business rents or owns commercial property, you might want to save money by purchasing general liability coverage as part of a business owner’s policy (BOP). A BOP bundles general liability insurance with commercial property insurance, which protects your business assets from incidents like theft or fire.
Read more about professional liability vs. general liability insurance.
How much does professional liability insurance cost for consultants?
The cost of consultant liability insurance depends on the type of policy along with its limits, deductible, and your claims history. Risk factors like location and revenue can also affect the cost.
Most tech companies purchase technology errors and omissions insurance (tech E&O), which has cyber liability insurance built in. Errors and omissions insurance for consultants and other tech professionals costs a median of $61 per month, or $728 annually.
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