Consultants are hired to improve their clients' businesses in one way or another. This means the expectations are high and an oversight or mistake on the consultant’s behalf could damage the potential growth or reputation of that company. This can lead to costly lawsuits.
Professional Liability Insurance, also known as Errors and Omissions (E & O) Insurance, was designed to protect the consultant from financial loss and/or ruin if a suit is brought on by unhappy clients. If a client claims you were professionally negligent (whether it’s as legitimate complaint or not); provided shoddy, incomplete, or incorrect work; made mistakes or oversights; or that your business failed to perform professional duties, your Errors and Omissions Insurance kicks in to save you the cost of attorney's fees, settlement or judgment expenses, bond premiums, and other court costs, up to the limit of your policy.
Professional Liability Insurance is particularly important for consulting professionals because your client's perception of the work performed can be subjective leaving the consultant vulnerable to the clients’ perceptions. In some instances, the decision to file suit can be driven by the client's desire to find a scapegoat than it is a reflection of the quality of the work actually performed.
Many companies who hire consultants require they carry Professional Liability (E & O) insurance. Even if the coverage is not required, consultants should always carry Professional Liability due to the huge potential financial implications of their work.
Professional Liability Insurance is usually written as a ‘claims made’ policy, meaning it only covers incidents that occur during the life of the policy, which is why it's important to protect your business with an adequate Professional Liability (E & O) policy before you begin work. Depending on state laws, a client could file a professional negligence lawsuit against your business even months after you've finished your work on a given project.