A consultant needs a professional liability insurance policy.

Various companies hire consultants and avail their services for the growth of their business. Further, many professionals open their consultancy firms and often work either out of home or from an office suite

As a consultant you or your employees would be offering a service or imparting advice to another party, but what is it faulty? What if the other party sues you?

As a consultant, you can face a wide range of risks, like as a PR consultant; you may face the risk of defamation, etc. To get coverage in such a case, it is advised to buy a professional liability insurance policy, which is also called errors & omissions insurance policy.

In case any of your clients file a case against you or holds you guilty of negligence of services, you can approach a professional liability insurance company who would come forward and cover both your legal suits and compensation that you might require paying to the other party.

In a case, where you miss the deadline of an important project or if the company with whom you are providing consultancy services experiences monetary losses, then you could get a legal notice. Further, a client can also sue you if the solution which you implemented caused the virus to enter or hack their company’s data and it has to incur losses due to this.

Getting errors & omission (E&O) insurance policy as a consultant means getting coverage against various acts that could cause losses or damages. Some of the acts covered under professional liability insurance policy are=

  • Documentation errors
  • Accounting mistakes
  • Failing to safeguard the client’s property or data
  • Misuse of the client’s data
  • Misrepresentation of products or services
  • Violation of laws
  • Theft, poor behaviour or ethics, breach of contracts, or mistreatment of any aspect of the client or their business
  • Ill advisement
  • Disclosure of proprietary or confidential information of the company and its products

Case: 1

After working for three years in the corporate world, Jayant Singh started working as a software consultant on a freelance basis. Last year, Jayant was hired by M.J Engineering for developing its customer database. The company asked Jayant to give his inputs on the customer database. Jayant gave some suggestions which when implemented caused technical glitches and due to which it became difficult for anyone to access that database for ten days.

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Here, M.J Engineering filed a case against Jayant as the company argued that due to a technical glitch, it had to incur losses of Rs 50 lakh in sales. As Jayant had errors & omission insurance policy, it approached the insurer for the claim settlement. The insurer carefully reviewed his situation and agreed to offer coverage.

As the case reached court, the insurer covered legal costs which Jayant had to incur in defending himself in the court. In the court, the verdict was given in favour of M.J Engineering, and Jayant was asked to pay compensation to the company.

Here again, professional indemnity insurance policy purchased by Jayant helped him. The insurer paid the compensation to M.J Engineering on behalf of Jayant.

Case: 2

You have a technology consulting company, and one of your employees suggests a particular billing system to your client. However, that system fails because the employee puts some wrong information into the system. Due to which, the client has to incur heavy losses. Now, the client wants you to make up for that losses.

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In the absence of professional liability insurance policy or errors & omission insurance policy, you would have to incur heavy losses. If you had errors & omission insurance policy, you would have saved your money and can immediately get coverage. If you had errors & omission insurance policy, you’d have got financial coverage as long as the losses or damages are not intentional. Here, the E&O insurance company would help you in covering both compensation and legal expenses.