As an independent contractor, you’ve probably had set up your own insurance coverage, including property, business insurance, health insurance and possibly other policies. Along with these, you must evaluate your need for professional liability insurance, which will protect you if a client files a suit regarding how you did or didn’t fulfill your professional obligations. This coverage, also called errors and omissions insurance, may be necessary, in addition to any general liability policies you may have, to protect you in the event that clients taking legal action against you, claiming that you caused them financial loss or interruption of services.
Examples
Let’s say you design a customer database for a client. A glitch after implementation prevents anyone from accessing that data for one week. The company sues, using weekly sales figures to argue that you caused the company to lose RM500,000 in sales. Professional indemnity/ liability insurance with coverage of at least that amount plus your legal fees would protect you in the event of a judgment.
- You’re at higher risk in the tech businessThe tech industry is particularly susceptible because technologies—and even our jobs—are so new: The law is still being defined and shaped, and there’s no clear standard on what constitutes acceptable and reasonable client expectations or even on what an IT consultant is. There are simply not enough legal precedents in this industry yet.
- Dissatisfied/dishonest clients could bring claimsThe standard IT claim is brought when clients perceive that they’ve lost money because of something you did (an error) or something you should have done but didn’t (an omission). Another type of claim could arise when a client simply isn’t satisfied with the job you’ve done. Perhaps the client expected your solution to deliver something it doesn’t or to function in a different way. However, to your understanding, it functions exactly as agreed. Ideally, you and the client will negotiate a solution, but if you can’t, your client may sue. Worse, dishonest clients with well-equipped legal departments may decide to sue to avoid paying monies they owe you. Contemplate the prospect of explaining why your solution does work as intended to a judge who knows little or nothing about technology, and insurance may suddenly look like a good idea after all.
- The work you do and the type of clients you take place you at low risk.
- You make sure that every contract you sign—perhaps using a contract that’s been approved by a lawyer experienced in IT professional liability cases—offers some degree of protection against lawsuits.
Do you have professional liability insurance?
As an independent consultant, have you bought errors and omissions insurance for your business? Have you decided it’s not worth the expense?