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E&O Insurance Critical for Management Consultants and Consultancy Firms

No one is immune to suits alleging negligence during the performance of their work, including management consultants. This only stands to reason, as the majority of the work management consultants provide falls under the auspices of “professional consultation”. When something goes wrong, errors and omissions claims are what comprise most of the suits brought against the consultant or consultancy firm.

Just take a look at a case in point from a well-known insurance company that provided Errors & Omissions coverage, also known as Professional Liability, to a management consultancy firm with annual revenues of $50 million: The owner of a auto parts distributor hired the firm to help the company with staffing, budgets, and executive decision making. The consulting firm implemented a reorganization strategy that redefined management roles and delegation, initiated spending controls, and used a new staffing model to address the organization’s needs. However, after 18 months during the reorganization, the client alleged that the spending control solution and staffing model had a negative impact on its bottom line when the expense of hiring and training new employees was taken into account. The client sued the management consultant for negligence in rendering a flawed solution to its problem, seeking compensatory damages including, but not limited to, lost profits. The case was settled for $150,000, with defense costs exceeding $75,000.

Some triggers that could cause a client to sue a management consultant firm may involve:

  • Improper documentation
  • Improper fact verification
  • Missed deadlines
  • Misrepresentation of facts
  • Breach of nondisclosure
  • Loss of data, improper procedures or negligent handling of data
  • Failure to prevent electronic theft of records and confidential information
  • Employee theft and sale of client’s trade secrets
  • Deliberate dissemination of false information
  • Violations of state and federal law, such as violation of right to privacy

As a management consultant, making sure that you’re protected against a loss is key. That protection comes in the form of E&O Insurance, which will provide you with coverage against claims relating to an error or omission that may have occurred while you performed services and that subsequently resulted in a lawsuit. Even if you feel that your advice is not responsible for your client’s loss, you still have to hire lawyers and take time out from work to fight your case. E&O will pay those defense costs for a covered loss.

Axis Insurance Services is the E&O expert, providing a diverse group of management consultants with insurance solutions. Give us call at (877) 787-5258 to find out how we can help you protect yourself and your business.

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Blogged on: January 17, 2012 by Mike Smith
Error Omissions
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