In today’s world, professional liability claims abound.
Professional liability insurance, also referred to as errors and omissions (E&O) insurance, is a vital policy for businesses large and small.
If you’re a professional working in almost any industry — be it legal, real estate, tech, or consulting — where your business offers services or advice, professional liability is a must-have. This kind of coverage acts as a safety net when a client claims that your work caused them financial harm due to mistakes, oversights, miscommunication, or negligence on your part. And even if you aren’t guilty of the accusations, defending your business will still cost you time and money — and E&O can help.
But don’t just take our word for it: Here are some real-life professional liability claims and cases across various industries that show why this coverage matters.
1. Legal professional liability claims example
As an attorney, you may find themselves defending others often, but there may come a time when you have to defend yourself. And you’ll be thankful you have lawyers professional liability insurance.
For example, missing a deadline by 16 minutes might not seem like a big deal, but if your tardiness is understood as negligence, it can easily escalate. Or at least it became an issue when attorney Steven Call filed a complaint for a bank that wanted to object to the discharge of a borrower’s debts at 12:16 AM, missing the midnight deadline.
The ABA Journal reported that Call represented the State Bank of Southern Utah, which had obtained a state court judgment against Allen Beal for more than $237,000 for loans collateralized by cattle and other property. Beal defaulted on the loan, sold the cattle, and filed for bankruptcy. The bank had to file its complaint by April 22, 2019, which was 60 days after the first meeting of Beal’s creditors.
Call argued that there was failure in the electronic system that prevented him from filing on time. Nevertheless, the Denver Appeals Court ruled against him. Now Call has left himself vulnerable to a procedural errors case that his client, the bank, could file against him.
2. Technology professional liability claims example
With the rise of AI and the ever-growing demand for all things digital comes a heightened level of risk for the tech industry.
You can help protect your tech business with professional liability coverage if you experience something beyond your control, like a cyber breach. It can also protect you from costly mistakes in your tech products or services, as in the case of a software failure. Again, you may think you are impermeable, but even big names in the tech world can make a mistake.
The 2019 case of Hertz versus Accenture is an example of just that. Hertz hired Accenture to create a new website in 2016. But, after various missed deadlines, $32 million spent, and a non-functioning end product, Hertz filed a lawsuit.
While the court ultimately dismissed Hertz’s claim in 2019 under the Florida Deceptive and Unfair Trade Practices Act, Accenture had to engage in legal defense, while also experiencing damage to their reputation. If they were a smaller firm without insurance, the cost of their legal defense alone could have shuttered their business, even if they won the case.
3. Accounting professional liability claims example
Accountants are responsible for extremely sensitive financial and personal information. Even the tiniest fumble can have a massive impact on your client. That’s why professional liability for accountants is imperative.
In this example claim scenario, an accountant prepared income tax returns and provided consulting services for a contractor for several years. The client also employed an in-house bookkeeper. The client was audited and it was found that they had purchased materials out of state that were used on in-state jobs. These materials were subject to a “use tax,” but the client did not remit the tax. The outstanding taxes plus interest totaled approximately $100,000.
What happened next? The bookkeeper, the accountant, and the client all played the blame game. The contractor sued his accountant, alleging that the tax preparer failed to advise him of the need to remit the tax. The accountant claimed that he was engaged only to prepare income tax returns and provide some limited consulting advice. Meanwhile, the owner said he relied on the accountant for all tax-related advice.
In the end, the matter was settled out of court for $50,000.
4. Real estate professional liability claims example
Professional liability is just as important for real estate agents as it is for any of the other industries mentioned so far. Again, you are dealing with private and personal information, not to mention helping clients make one of the biggest decisions of their lives. Emotions run high, and a lot of money is at stake. If things go wrong, the blame could more than likely fall on the real estate agent.
Here’s an example of a case where a realtor in Texas was sued after a sale had already been made. The buyer purchased a home that had been flipped. After moving in, their son fell through the flooring in the den. The buyer sued the inspector, the listing agent and broker, the seller, and their own real estate agent. The claim was for allegedly failing to disclose the defective subflooring on the home.
Texas law states that a real estate agent or broker has no duty to conduct an independent investigation of the condition of the home. The court ruled that the listing agent did not make any misrepresentations to the buyer. In this case, the agent may not have been in the wrong, but they still needed legal protection to prove that. Depending on how long the case would take to settle or end, that’s money out of the agent’s pocket, or a suit they would need to disclose with their firm.
5. Consulting professional liability claims example
Professional liability for consultants can come in handy in many unfortunate circumstances.
Here’s an example that details how an investment adviser managed a couple’s stock portfolio for several years. Against the advisor’s advice, the husband liquidated some stock and used the money to engage in day trading, resulting in some significant losses.
Shortly after this time, the husband passed away. And the stock market experienced a significant downturn as well and the portfolio declined in value by more than one third.
The widow sued the investment adviser, stating that he negligently managed the portfolio and failed to advise her regarding the risks associated with investment performance and the need to diversify.
Even though an investigation indicated no wrongdoing on the advisor’s part, the case was settled out of court due to the fact that the widow would have elicited substantial jury sympathy at trial. The total settlement amount was $200,000.
Key takeaways
Across any industry, mistakes are bound to happen and accusations are bound to be made. Whether or not you, as a professional, are in the wrong isn’t always the most important factor when navigating claims of malpractice or negligence. What does matter is that you have the coverage, both financially and legally, required to get you out of the muck.
Professional liability insurance can offer you a lifeline when you need it most. No one expects the worst to happen, but being prepared can make all of the difference.
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