When starting a new business, the first thing you’ll be doing is protecting it. The idea of the business has been in your head for so long, but now you’re sending it off into the world, letting it stand on its own two feet, and so you’ll need to make sure it’s equipped with the right safety gear.
The safety gear in question comes from an insurance provider that understands the unique risks your business is going to face. Whether it’s general liability, professional liability, or cyber insurance, the right coverage acts to shield your business, helping you to weather any unexpected setbacks that could have otherwise been crippling.
Most of these policies are ones you’ll be familiar with, but one particular policy can be a little more obscure. Errors and Omissions insurance has been around for a long time, designed to protect service-based businesses from claims of negligence, mistakes, or failure to deliver what was promised – but for those who haven’t heard about it, the concept of being held financially responsible for a professional error can come as a surprise.
You were preparing your business to be protected from a range of dangers, but can the clients themselves become their own threat? We’re going to look into this now, explaining whether a client can accuse your business of financially harming them, and whether you’ll need E&O insurance coverage to defend yourself against such accusations.
Can a Client Accuse Your Business of Financial Harm?
The short answer to this question, unfortunately, is yes. Even with the best intentions and practices, a dissatisfied client can still claim that your service – or lack thereof – caused them financial harm, and these claims can be taken very seriously. According to a recent study, around 53% of American businesses face lawsuits every year, and a large portion of these lawsuits are related to disputes over perceived professional negligence – in other words, the client believes the business has cost them money, and has escalated the situation to take legal action.
The reason a client might claim this can vary. For instance, if your business fails to deliver a product on time, the client may claim that this delay caused them to lose revenue, resulting in financial setbacks. Alternatively, if the work you provide is substandard or causes damage, the client might argue that fixing the problem or compensating their own customers has resulted in a loss.
Even in the IT consulting industry, clients can have a lot of power over how you’re perceived. Let’s say, for example, you’re tasked with installing a firewall to protect a client’s network. You follow all the best practices, implement the firewall correctly, and communicate all of your actions to the client in question. But despite these precautions, something goes wrong.
The client experiences a cyberattack that leads to a huge loss of data, or an operational downtime. This is something you could not have foreseen, but in the client’s mind, you were hired to perform a service, and that service was clearly insufficient. They then claim that your actions weren’t enough to protect their network efficiently, or even worse, the cyberattack itself was a direct result of the work you performed. After all, everything was running fine until you got involved.
It might not be fair, but that’s the kind of thing that can happen – and does happen – in every industry, and it’s something you need to prepare yourself for if you want your business to thrive in the future. As we mentioned previously, E&O insurance is the best way to protect yourself from these kinds of claims, giving you a financial safety net that can cover legal fees, settlements, and any other costs that could otherwise overwhelm your company.
It won’t mean you can’t be accused of financially harming a client. But it will mean you have the protections in place to deal with the fallout, helping you to focus on keeping your reputation, building your relationships with other clients, and even more importantly, giving you the confidence to grow without fear.
By Chris Bates
