Professional Liability Insurance for Management Consultants
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Professional Liability Insurance
for Management Consultants

As a management consultant, the advice you give your clients can make or break their business. That's a hefty responsibility, and one you don't take lightly. But even when you're at the top of your game, the best client relationship can turn sour. And whether it's due to a miscalculation on your part or circumstances beyond your control, if you get sued, you can find yourself in a very expensive situation.

That's where professional liability insurance comes in. Also known as "errors and omissions" or "E&O" insurance, professional liability is designed to cover your management consulting business if one of your clients claim that you're responsible for their financial loss.

For example, if you're hired as a turnaround expert, but with your guidance the company's fortunes take a turn for the worse, your client could allege that the professional advice you provided caused the company a financial loss. If you're sued—even if you don't believe the loss was actually your responsibility—you'll still have to hire lawyers and take time out from work to fight your case.

Up to policy limits, professional liability insurance pays for your legal defense, the time you spend in court instead of working, and other expenses as specified by your policy. If you're legally obligated to compensate your client for the loss or other damages, your E&O insurance will pay that award as well, according to the provisions in your policy.

What You Need to Know

E&O insurance policies are typically issued in increments of $1 million and have per-claim deductibles ranging from $1,000 to $25,000. These types of policies are issued on a "claims-made" basis, meaning that coverage must be in force both at the time of the alleged incident and at the time the claim is made, so it's wise to keep your policy in force even after you've completed an engagement.

Because your client may require that you carry professional liability coverage, read the fine print in your contract to be sure you have the amount specified.

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Professional Liability Insurance Tips

  • E&O policies are typically issued on a "claims made" basis. For a claim to be covered, the alleged error or omission must be covered by the policy and must have taken place on or after the retroactive date of coverage, but before the policy's expiration date; and the claim must be made while the policy is still in force. To ensure protection, you must continue your coverage long after your engagement is complete.
  • E&O insurance won't protect you if you should get sued for something like stealing a client's customer away. For these types of situations, you may wish to create a contract that outlines procedures for conflict resolution and clearly states your and your client's rights.
  • The chance of getting sued often has less to do with the quality of your work than with your clients' temperament and expectations. If your client relationship goes sour for any reason, you could be accused of negligence even if you didn't make any mistakes. That's why it's so important to carry professional liability insurance, even if you've never been sued.