Professional Liability Insurance – Where it Would Have Helped Big Time
Every year, large and small businesses alike are confronted with costly lawsuits due to professional liability allegations. According to the US Chamber Institute for Legal Reform, around 43% of small businesses face such legal battles. Unfortunately, court costs, attorney fees, and settlements could mean the end of your small business if you lack professional liability insurance.
The average contract litigation costs over $90,000. Even if you’re not at fault, frivolous cases could cost up to $5,000, according to the National Center for State Courts. Simple administrative mistakes by the business owner or employees could lead to enormous financial consequences and reputational damage. Let’s have a look at a few examples of where professional liability insurance would have helped big time.
The Negligent Consultant
Mr. X’s Repair Shop was in dire need of a new management system. Due to their quick growth, they became overwhelmed with hiring new employees, setting budgets, and making wise executive decisions. So, Mr. X decided to call Mr. Y’s Management Consulting Firm to help address the issues of his growing small business. The consulting firm came up with an almost flawless plan to fulfill staffing requirements, delegate new management roles, and set financial goals.
However, less than two years after the reorganization of management, Mr. X discovered a crucial error. To his dismay, the costs of hiring and training new employees were not accounted for. This had negative financial consequences for Mr. X’s Repair Shop, and he was outraged that the consulting firm had failed to consider these obvious costs.
Mr. X proceeded by filing a lawsuit against Mr. Y’s Management Consulting Firm, demanding compensatory damages for lost profits due to negligence. This case was settled for $150,000, but defense costs totaled over $75,000. Mr. Y was confident in his calculations and had never made this mistake in the past. Unfortunately, Mr. Y’s company went bankrupt from the charges of this lawsuit. If he had Professional Liability Insurance at the time, these costs would have been covered.
Delayed Claims Processing
Jane’s Insurance Company was starting to expand, and she decided it was time to hire a claim adjuster to help manage workers’ compensation claims. Several of her business associates recommended John as the best local claims adjuster. He agreed to take her as a client and handle her claims in a matter according to the state’s regulations.
Soon after, word caught wind of John’s reputation as a successful claim adjuster. He became flooded with new clients and believed he could manage these claims with his existing team. However, he lost several of his team members due to illness and other various reasons. He found himself unable to complete the existing claims, even though he and the remainder of his team put in endless over-hours.
Meanwhile, over 50 injured employees had filed a class-action lawsuit against Jane’s Insurance Company. These workers demanded compensation for their improperly filed claims due to negligence. Jane was able to settle these disputes without negative consequences for her business. However, she wasn’t about to take the blame for John’s mistakes.
Jane sued John for negligent claims processing to cover the costs of the class-action lawsuit. John had to pay over $125,000 in defense costs and paid a settlement of $1.2 million. At this point, John was probably wishing he had Professional Liability Insurance.
Missed Deadlines and Lost Sales
One local retailer decided to throw a huge sale for the holiday season. Of course, they would need to advertise and quickly start dispensing flyers around town. The store owner found a local printer who could complete the order of flyers in time to insert into the weekend newspaper. The store owner then signed the contract for the order and continued to arrange other preparations for the big sale.
Unfortunately for the store owner, his order had been miscategorized by one of the employees and accidentally completed three days late. This meant he could no longer advertise in the weekend paper and the flyers were now useless. The store owner was furious and wanted compensation for the lost revenue.
The store owner sued the print shop for breach of contract due to negligent misrepresentation. This cost the print shop $15,000 in defense costs with a $50,000 settlement. Although the owner of the print shop could pay for the damages without losing his business, it took him many years to recuperate his loses. Personal liability insurance would have been a tremendous help in this situation.
Prepare Yourself with Professional Liability Insurance
Professional liability insurance is essential for both large and small businesses. Almost half of small businesses face liability charges that could damage their financial future. Even frivolous cases can cost thousands of dollars and create huge inconveniences for your company. Having coverage could have saved the financial reputation of all the diverse businesses above.
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