Summary: Real-life examples of claims arising from professional liability exposures and how a policy responds.
The demand for professional liability insurance has grown substantially in the past few years. That is partly because the trend in our society has been towards becoming more litigious, resulting in an increasing number of lawsuits brought against professionals.
As well, the influence of U.S. courts — which generally award higher judgements against professionals — has crossed over into Canadian courts, making such cases increasingly expensive. As costs rise, it becomes less possible for professional to absorb them, making the transfer of that risk to an insurance carrier a more realistic option.
Professionals owe their clients certain legal duties, based on contract law, tort law (also known as negligence), or statutory law. Professional liability insurance offers protection from claims arising from alleged negligent acts, errors or omissions on the part of the professional, while performing their services for their client. It is important to remember that while there must be a duty of care owed by the professional to the claimant in order for an action to succeed, the allegation does not have to be true for there to result in a costly lawsuit.
Here are two claims that show how professional liability insurance can respond.
The missing background check
A recruitment agency was retained by a consultancy firm to fill a mid-level position. The agency provided the firm with five potential candidates, and one of them was hired.
Three years later, the candidate was fired. As a result, they sued their former employer for wrongful dismissal. The consultancy firm, while preparing its defence, found that most of the candidate’s original resume that he had submitted three years ago was fabricated.
The consultancy firm then sued the recruitment company, alleging that it had not provided the professional service it had agreed to perform. The firm stated that part of the service should have included a thorough background check on every candidate.
Although it was not the policy of the recruitment agency to do background checks, they did not disclose that to their client in writing, and the case ended up coming down to the clients’ word against the agency’s. The professional liability insurer came to a resolution that was amicable to both parties.
Project control gone wrong
A business consultant was hired by a company to organize a project that was already past its due date and over budget. The consultant creates and signs contracts committing their professional business consultancy firm to bringing the project to completion.
As the consultant begins working, they realize the previous project manager did not accurately represent the scope of work entailed in finishing the project. After review, they realize that it will take twice the amount of time and resources that was originally agreed upon.
When the consultant presents this finding, the company accuses them of not properly assessing the project before signing the contract. The consultant’s professional liability insurance would respond to cover claims of negligence, even if no mistake was actually made.