Consultants and Professional Liability: A Legal Case Study
Tuesday, December 27, 2011
Posted by: Admin
by Dave Sukert
An auto parts distributor.
A management consultant.
Case study: The
consultant is hired to help with staffing, budgeting and executive decision
making. The consultant implements a reorganization strategy that redefines
management roles, initiates spending controls and uses a new staffing model.
Allegations: Eighteen months after the reorganization the
client alleges the spending controls and new staffing model have resulted in a
negative impact to its bottom line. The client files suit accusing the
consultant of negligence in rendering a flawed solution and seeks compensation
for its alleged lost profits.
$150,000 settlement, plus an additional $75,000 in legal expenses.
If there is a
silver lining to the case, it’s that the management consultant had protected
himself with a professional liability insurance policy. The settlement and the cost for his legal
defense were paid by his insurer.
right coverage, he could have ended up with a lien against his property or in
severe debt. Owing to provisions within
the policy, even his lost wages for time spent during the deposition and trial
were paid by his insurance.
his only cost was a certain degree of aggravation and embarrassment. Although it’s nice to have insurance to foot
the bill, a claim can still damage your professional reputation.
have been done differently? How could he
have avoided the situation in the first place?
Here are a few steps management consultants can take to mitigate claims:
- Have a written contract and/or an engagement letter
detailing what services will be provided, what is included and the fees
for providing those services.
- Define time frames and milestones to demonstrate
progress and clarify deliverables.
- Outline what responsibilities are yours and what the
client must provide in order for you to get the job done.
- Communicate throughout the entire job, give the
client realistic expectations up front and provide regular status updates.
- Implement quality control procedures and regularly
conduct audits to ensure the procedures are being adequately executed.
contracts, engagement letters and risk management procedures can help reduce
the chances of a professional negligence claim, there’s no guarantee a mistake
will not occur or that a client won’t be dissatisfied.
liability insurance gives you an extra layer of protection against the
unexpected and can strengthen your legal defense against allegations of
negligence. Defending a claim is costly
and time consuming. Regardless of
whether a suit is reasonable, you will still need an attorney and as
demonstrated from the case cited, attorneys’ fees can mount up quickly.
If you are
operating ‘bare’, the best advice we can give you is to implement your own risk
management controls and talk to your insurance broker about a professional
liability policy. Considering the high
cost of litigation versus the reasonable cost of insurance, it just makes
Dave Sukert, a former
practicing attorney, is the senior vice president of underwriting at Aon
Affinity Insurance Services, and has 16 years experience in the insurance
industry. You can reach Dave at firstname.lastname@example.org.