Alberta Risk Advice by Cielito Villanueva

I have noticed recently that there seems to be a growing trend in consulting, training, or coaching. Although each of them provides a unique service, a lot of consultants have one thing in common: a written agreement with their clients but even a contract or waiver/release written by the best lawyer couldn’t guarantee that a client won’t file a lawsuit. In fact, it is a democratic right to make a claim if a person feels they have suffered financial and emotional damages. Moreover, today’s society is becoming more litigious. People are becoming more opportunistic. So much so that rarely is one company named in a suit, but several are named in hopes that one of them will be held liable.

But why should a consulting business be concerned if they are only providing advice or recommendations, and not forcing a client to do whatever it is they are consulting them to do?

As a consultant, you are marketing yourself as an expert in solving a client’s specific problem. Regardless of what your contract states, a client is paying you to satisfy a need. Don’t get me wrong, a lot of times if a need is not met all you will probably get is a complaint and perhaps some lost referrals. But what if a client feels that as a result of following your advice they have suffered financial or general damages such as pain and suffering or inability to perform certain functions? What if they present this to a lawyer who feels they might have a case? If it is filed in small claims court you could defend yourself, but if you don’t want to take the chance or if it doesn’t end up in small claims then you have to consider hiring a lawyer to defend you no matter how trivial the case may be. I don’t think I need to state the obvious, but the costs to defend yourself can easily exceed the actual damages sought by the claimant.

Do you set aside money for legal defense for your business? If yes, how much are you prepared to lock away? If no, then you’re like most businesses because it’s not possible to predict how much you will need to put away for future legal defense costs. You could set aside $1,000 a month starting today, but if you get sued in four months you will have only $4,000 to defend yourself. In this case, you better hope the claim is low or judged in your favor fast, but realistically you’ll need more than hope; you’ll need a plan.

So what can a consultant do to plan for the often high costs to defend claims?

As a consultant, you would be wise to secure yourself with an Errors & Omissions Policy, also known as Professional Liability. Not only is an E & O Policy for doctors, lawyers, architects, or engineers, but it is also for other professionals who may be exposed to claims made by clients–frivolous or not. Additionally, you should ask your commercial insurance broker to give you specific details of the coverage for defense costs such as the dollar amount limit. More importantly, your broker will explain more of the benefits of an E & O Policy specific to your consulting business.

In essence, claimants are motivated to sue because it often does not cost them a dime as their attorney will collect their fees after a settlement or judgment in their favor, but a defendant does not have that luxury. So whether you feel you have no exposure to liability, you are certainly exposed to the costs to defend.

Cielito V