The threat of being sued for simply doing your job is one of the more frightening scenarios professional service providers face. What can ease this anxiety? Miscellaneous professional liability (MPL) insurance.
Many consultants, public relations firms, call centers, advertising agencies and other service providers purchase this vital insurance coverage to help defray the economic losses that may result from errors & omissions in performing their professional services. Regrettably, too many providers mistakenly believe their firm’s general liability insurance policy already covers these risks.
“It’s a widespread problem,” says Michelle Aliperti-Urbielewicz, assistant vice president, underwriting at CNA. “General liability insurance covers slips, trips and falls that all businesses may confront, but it does not absorb the financial losses that arise from negligent professional services, inaccurate advice, substandard work, mistakes or failed contractual promises.”
The insurance coverage is also a critical resource in the event of a subrogation claim—a third-party lawsuit brought against a client that imposes responsibility on the provider of professional services for the underlying cause of the loss. In such cases, the client typically sues the professional services provider, which must then defend the claim even if it is a frivolous matter.
The threat of such uninsured losses makes MPL insurance crucial. Yet independent agents often encounter pushback when offering this important coverage. Professional service providers may say they’ve never been hit with a negligence lawsuit before and assume they never will be. Others may say they’re quite capable of absorbing the financial costs of such lawsuits, or they’re in cost-cutting mode and can’t afford the additional expense of the coverage.
“We’ve heard it all,” Aliperti-Urbielewicz says. “But we’ve also been privy to a remarkable variety of lawsuits brought against service providers that resulted in substantial uninsured financial losses.”
While Aliperti-Urbielewicz declines to relate specific MPL claims that have resulted in indemnity payments, she does present several hypothetical scenarios. Consider a claim involving a management consultant retained to provide advice to a client on streamlining production costs. The consultant compiles a restructuring plan calling for a new staffing model and supply chain process, and later revises the plan based on the client’s recommendations. However, the client fails to implement the plan in a timely manner. When they do so after a protracted timeframe of 18 months, several key employees have resigned and unique supplier issues have arisen.
In this scenario, the client may sue the consultant for $500,000, contending that the firm used unrealistic assumptions in the plan, subsequently resulting in lost profits and additional costs. “The investigation may reveal that the consultant’s revised plan was not memorialized in writing to the client. Alternatively, if the advice was delivered in writing, the writing was insufficient to provide a comprehensive defense,” explains Aliperti-Urbielewicz, who notes this type of scenario may result in settlement and defense costs as high as $135,000.
Another situation may involve a call center that provides 24-hour services for businesses that require towing services. The call center experiences high employee turnover and fails to properly train new employees. During periods of heavy call volume, businesses requesting tow services are disconnected, or their information is lost or incorrectly communicated to the towing company.
These types of hypotheticals may cause a business to cancel its contracts with the towing service, resulting in a loss of more than $150,000 in annual revenues. The tow truck company could then file suit against the call center, alleging negligence in responding to the calls. According to Aliperti-Urbielewicz, the defense costs alone could be as high as $12,000.
Such worrisome scenarios provide an excellent opportunity for agents to promote the value of MPL insurance. As Aliperti-Urbielewicz notes, “the specter of unexpected litigation costing tens of thousands of dollars—vastly more than the premium for the insurance—is a conversation opener.”
MPL insurance also offers a novel means to attract new clients. “If companies know you have $1 million in insurance in case something goes wrong with your service, it sends a message that an insurance company has the ability to provide coverage for the professional services you offer to your clients,” Aliperti-Urbielewicz says.