What is Professional Negligence & How do You Avoid It?

 By Diane Tait

Face it, running a small business is fraught with peril.  If supplies dry up or a hurricane or health hazard rears its ugly head, your business can take a hit. If a customer slips and falls in your place of business, you can get sued.  If your business computers are breached, hackers can steal or erase your data.  While I’ve written blogs in the past that have dealt with these issues, one of the legal landmines I have yet to address is professional negligence. 

Not all negligence is created equal. – Whether you like it or not, every business is obligated to take responsibility for the wellbeing of its customers and employees.  If not, a business and/or business owner can be held liable for injuries or financial losses caused by negligence.   A slip and fall in your establishment is considered ordinary negligence if the incident is taken to court. The same holds true if you or an employee doing the company’s bidding are involved in an accident that damages property or causes injuries to other parties.  However, if clients hire you due to your specialized skills or expertise, you can be held to a higher standard in the eyes of the law. 

Can you be charged with professional negligence? – While everyone knows that doctors, lawyers, and other medical professionals can be sued for professional negligence, otherwise known as malpractice, what many business professionals don’t realize is that they could be taken to court as well.  Most any service-based business can wind up being sued for professional negligence by a disgruntled client.  If the client wins the suit, a consultant, an advisor, a broker, an architect, an engineer, a stockbroker or even an insurance agent could wind up being on the hook for any losses sustained by a client.  Even if you prevail in court, the cost in time and money to defend yourself could harm or even bankrupt your business.

How does the court determine professional negligence? – Most courts in the US use two factors to evaluate culpability in professional negligence cases:

1.      The Foreseeability Test is used to determine if you should have predicted that your actions, or lack thereof, could cause harm to a client.

2.      The Multifactor Test scrutinizes several poignant factors to determine if professional negligence has occurred.  These include everything from the extent of damages done to the client, to assessing the other options available to you.  It also assesses whether you could have taken other actions to avert damaging the client, as well as how much such actions would have cost you.

To find you guilty of professional negligence, the court has to determine that the injury was foreseeable, that you breached your duty of care to your client and that the losses sustained were attributable to the actions taken by you.  

What can you do to steer clear of professional negligence? – While it’s true that you can please some of the people all of the time, all of the people some of the time but not all of the people all of the time, as a professional, you need to do everything in your power to make sure all of your clients receive the same level of care on your part.  You also need to do everything in your power to address grievances by any dissatisfied clients, even if it occasionally costs you money.  One dissatisfied client can do more harm to your business than ten satisfied ones can rectify.  Not only do clients have the ability to take you to court, but they can also post negative reviews online.  Below are five tips to help you minimize disgruntled clients.

1.      Don’t make the mistake of thinking you can work with anyone. – Just as clients take care to assess whether they should work with you, you need to determine if you should take on a client.  One D-client can bring a booming business to a screeching halt.   

2.      Don’t overpromise and underdeliver. – Another tactical blunder is to promise a client something you can’t deliver.  You’re better off walking away from a prospect than winding up taking on a client that you have no chance of satisfying.  If you do land a client, you need to be able to deliver on time and at the price you quoted.

3.      Always get it in writing. -  Don’t rely on handshakes or verbal agreements.  Make sure you put everything in writing.  This includes your service agreement, as well as logging all correspondence via email, phone, and text messages.  This way if you’re ever called into court, you’ll have all the documentation you need to defend yourself.  It also wouldn’t hurt to provide all your clients with monthly or quarterly reports that document the time you spent on their behalf as well as the results you achieved for them.

4.      Stay current with developments in your industry as well as those of the laws that pertain to your business. – One excuse that you’ll never be able to use to defend your position in court is that you were unaware of either.

Purchase liability insurance that’s appropriate to your needs. – Whether you work in a high-rise office tower or from your home, there are insurance products that can cover you for liability issues. 

1.      General liability insurance protects your business from physical injuries sustained by clients to property damage, copyright infringement, and defamation. 

2.      An errors and omissions policy covers any mistakes or oversights you make when servicing clients, as well as protecting your business should you miss a deadline or be unable to deliver any service you sold to clients.

3.      Product liability insurance is designed to protect manufacturers, distributors, wholesalers, and retailers from products that are deemed unsafe.

4.      Business interruption insurance can protect a business from losses due to unexpected shutdowns, such as those that are caused by fire, storms, or a health crisis such as that caused by COVID-19.

5.      Cyber-Insurance is the least understood and most needed liability protection available.  When one considers that big box stores and banks get hacked, what chance do you think your business has to keep hackers at bay?  Not only are your records vulnerable to theft, so too is all the sensitive data your clients entrust you with.  Should this data be compromised, not only will you wind up scrambling to plug the breach and get back to business, but you can be held liable for any client data that is stolen from your system. Cyber-insurance is designed to help pay to investigate and plug any breach, notify customers, handle crisis management and public relations, help cover any legal or business interruption expenses and if necessary, pay any fines or penalties levied by the court.

6.      Umbrella insurance can be used to extend your liability coverage to deal with losses that exceed the limits of other policies.

Diane Tait owns and operates A&B Insurance.  To find out more about how you can save money on boat insurance, go to her site.