Whatever the nature of your business, you have probably worked hard to get to where you are today. Yet did you know that all that hard work could typically be obliterated by just a moment’s bad luck or human error? Welcome to the domain of professional indemnity insurance (PII)!
A moment’s misfortune
It’s typically a basic principle of legal action that a lack of intention does not in itself remove liability.
What that means is that however much you may have tried to avoid it happening, if you cause damage to a client through accident or professional negligence then you may be vulnerable to having damages awarded against you.
In some cases this could all revolve around an error happening in just a second or two. Accidentally losing that highly confidential client data or sending very commercially sensitive information to the wrong company, are just some of the things that could land you in very hot water.
Of course, the problem may be more systematic. Perhaps you’ve been unlucky and find you are unable to meet your commitments due to circumstances beyond your control. The problem is that your client may not see it that way and hold you to be in breach of contract due to professional negligence.
Whatever the cause, if your client launches a legal action for damages against you then you’ll typically start seeing some major costs mounting up very quickly.
Professional indemnity insurance
This form of protection typically offers help in two respects:
- legal and related costs (you may incur these even if the action is subsequently dismissed or you win);
- covering subsequent awards against you.
As with any form of insurance, these policies have their own specific conditions and terms. The exact circumstances of cover and the amounts involved will typically vary amongst providers and it may be a sensible idea to peruse these closely before making any final purchasing decisions.
Note that although your intentions may or may not be a factor in a court finding against you, they may well have an effect on your insurance. Some types of cover are only available if the actions that lead to the claim were categorised as accidental – typically all professional indemnity insurance policies may not cover criminal actions or malicious and intentional damage caused to a client.
It has to be acknowledged that management consultants professional indemnity insurance isn’t a description that trips lightly off the tongue! Yet the name is far more complicated that the reality.
The risks of being sued for professional activities
It would be nice to think that we can engage in our professional activities without the need to worry about the threat of legal action but sadly that may be a risky approach.
The reality is that as a management consultant, you work closely with clients and provide them with your advice and guidance to help them in their decision-making and business transformation.
If everything goes well, you typically will look forward to receiving your fees and hopefully, your client’s sincere appreciation for your services.
If things go wrong though, in addition to forgetting the praise, you may also need to anticipate legal action for damages of the generic professional negligence type.
Management consultants professional indemnity insurance may help you cover the potential costs of that possibility.
Typically, this form of protection exists to help with the financial costs you may face from legal actions and court awards arising from accidental or professional negligence. It may be important to note that typically this would not cover instances where you or members of your staff were guilty of intentional acts.
These types of policies may be able to offer you cover for things such as the loss of confidential client documents or data, slander, accidental contraventions of intellectual property rights, late delivery claims, libel and unintentional breaches of contract.
If this sounds to be something akin to overkill, then it might be prudent to remember that courts do not necessarily decide on damages based upon intention – they are more likely to be influenced by the losses sustained by your client. In other words, even if the incident was entirely accidental, you may still find yourself facing a huge compensation bill.
Insurance to help you sleep easy at night
If you’re engaging in professional activities then the cost associated with management consultants professional indemnity insurance may be a small price to pay for having that financial support in place.
If you are a management consultant then somewhere near the very top of your critical success factors will be the need to inspire client confidence. How could management consultants insurance help you achieve that?
Client confidence – an intangible thing
It’s not easy to precisely define client confidence. If you have a contract with a client and some successful history of working together then hopefully that’s an indication that the client has confidence in you.
Yet at the outset during tenders and proposals, particularly if you have no previous record of working together, the client may be looking at a whole range of indicators trying to assess whether you’re someone that they wish to do business with.
Yes, your price and skills will be important factors but your client typically will also be looking for indications of your professionalism and maturity as a provider of service.
Management consultants insurance is one indication that you have thought seriously about the nature of the business you’re engaged in.
Client perceptions of risk
Clients today are typically looking for partnership and shared risk activities.
The days when you as a service provider could get it badly wrong and walk away carefree are now almost gone.
Clients know only too well how much it’ll hurt them if you are guilty of what they may typically call professional negligence. Both they and you no doubt sincerely hope no such thing will ever happen – but they may well be asking themselves the question what if?
They may well want to see that in such, hopefully unlikely circumstances, they may be able to recover some of their costs and damages through being able to sue you for professional negligence.
So, they may insist upon working with management consultants that demonstrate maturity and professionalism through having a visible and secure form of management consultants insurance (part of professional indemnity insurance) in place.
It may be a fairly safe bet that they will see the absence of such cover as a sign of a cavalier approach to business engagement rather than a sign of your confidence that nothing can go wrong!
Fault – a secondary consideration
In this context, the concept of blame and fault is secondary. If things go wrong in your activities on behalf of your client then it is their perception that counts because that will be the thing that decides whether or not legal action should follow.
If that does happen, you may find yourself on the painful end of some serious legal representation costs even if their action is subsequently unsuccessful.
If the client’s action is successful, then the awards may be staggeringly high and typically you’ll have to find the money yourself unless you have management consultants insurance to help.
For IT consultants, mistakes may prove to be very expensive. IT consultants insurance typically exists to help protect you against such costs if you’re unlucky enough to incur them.
Why do IT consultants need insurance?
If you accidentally create a problem for a client or even if they just believe you have created a problem for them, then you may hope that a rational discussion will be all that’s required to resolve the issue.
If that works then fine – but what if it doesn’t?
Business today typically can’t afford mistakes. Errors cost money and like it or not, we live in a business culture where increasingly the philosophy is that someone must pay.
If your services result in serious damage to your client, then they may take you to court seeking financial restitution – and that’s unlikely to be for trivial sums.
If you don’t have IT consultants insurance then typically you’ll need to find these sums yourself.
If this sounds implausible:
- in 2008 British Gas demanded compensation from consultancy Accenture of around £182million for a flawed IT system.*
I’m not a big company!
Perhaps not, but it only takes one mistake by one person to sometimes cause potentially very serious and expensive consequences.
IT consultants insurance is part of what’s commonly termed professional indemnity insurance or PII for short. It can offer protection against various professional risks that could result in legal action against you.
The exact nature of the cover provided varies depending upon the provider of your insurance and the product you select. Typically you may find protection against things such as:
- accidentally losing key information of your clients;
- accidental contravention of confidentiality and non-disclosure agreements;
- accusations of slander or libel;
- infringing (unintentionally) someone’s intellectual property rights.
It’s perhaps worth contemplating that a court may not take much notice of the size of your company when making awards – they may be much more focused on the damage sustained by your client.
That’s why the awards may be large and certainly big enough to cause you serious financial pain.
Even if you do not lose such a case, you can’t guarantee being awarded costs and you may have run up significant legal bills in making a case for your own defence.
It won’t happen to me!
It’s certainly to be hoped that you do avoid being sued but is that hope something you’re willing to gamble your professional and possibly personal financial future on?
Of course, having IT consultants insurance can’t stop one of your clients suing you. It may mean though that you can rest a little more easily knowing that if the worst happens, you have financial support to fall back upon.
*Source: Contractor UK – http://www.contractoruk.com/news/003785.html
Yes, IT contractors insurance costs money! There’s a fair chance then that you’re wondering if it’s worth the cost.
Of course, ultimately only you can make that decision. While doing so though, it may be advisable to think just as carefully about the risks of doing without it as you will about the cost of the premium.
Modern professional life – not a laughing matter
One of the most commonly heard words today in business and the media is accountability.
If you’re charging a fee for your professional services, your client and those around you will expect exemplary service. If they don’t get it or something just simply goes wrong, then they may hold you accountable and look to you for professional compensation.
Those scenarios may be seriously expensive, perhaps ruinously so. That’s why IT contractors insurance exists.
The nature of professional risk
So what exactly are your risks?
That will clearly depend upon the specific nature of your business and activities but you may find yourself on the receiving end of claims for compensation due to things such as:
- professional negligence resulting in loss of a client’s data or documents;
- accidental infringement of intellectual property rights;
- implementation of solutions that are not fit for purpose and through which your client suffers material loss;
- late delivery on target dates;
- and so on.
IT contracting and insurance
IT contractors insurance is part of a generic insurance product range called PII (professional indemnity insurance).
It means that in the event you’re facing legal action for the above reasons, plus others, then you have the security of knowing that insurance is in place to help you survive. It may be worth also keeping in mind that even if the claim against you fails, you may still incur significant legal and other expenses in defending yourself.
In fact, today some employers are insisting on seeing that it exists before they’ll award an IT contract.
PII and honesty
Typically, PII exists to protect you against honest mistakes or circumstances beyond your control.
It typically won’t offer you financial protection if you’re found to be guilty of intentional malpractice or criminal intent.
The facts of life
If you are unfortunate enough to suffer a successful professional claim against you, the sums involved may in the worst case destroy your business and seriously affect your professional life.
Seen against this backdrop, the cost of IT contractors insurance may not seem so expensive at all.