As a management consultant your clients turn to you for advice and expertise, to improve their performance, or for strategy development. In this capacity you will often bring your own proprietary methodologies or strategies to identify problems or provide recommendations, which can open you to more exposure and certain risks.

There are certain precautions management consultants can take to reduce the risk level. One important precaution is arming yourself with Professional Liability insurance for management consultants.

Business insurance coverage, and particularly Professional Liability insurance, is important for any business owner, but for those that provide consulting services, it is critical. While Business Liability insurance coverage addresses claims of bodily injury or property damage, Professional Liability insurance, also known as Errors and Omissions (E&O) insurance, protects individuals and organizations against claims of professional negligence and errors or omissions in professional work. Specifically, Professional Liability insurance for management consultants will help protect against cases in which a client is dissatisfied with an outcome from a recommended business strategy, if they are disappointed in the perceived value of the service, or if they are financially harmed as a result of a consultant's mistake.

Professionals who most commonly need E&O insurance include doctors, lawyers and engineers. However, there are a handful of businesses in which E&O coverage is often overlooked, these include consultants, advertising agencies, Web hosting companies, service providers, Web and graphic designers, and other Internet-based service companies. Nearly every organization that provides a service to a client for a fee has E&O exposure, and because professional requirements are broadly in legal terms, Professional Liability insurance shields businesses from the unforeseen.

How Professional Liability insurance works

As the business climate grows more complex, so do the insurance needs of business owners. Business liability insurance coverage and E&O insurance is critical and both protect businesses in two vital areas: settlement expenses and legal defense fees.

Most E&O policies will cover judgments, settlements and defense costs, which, even if the allegations are found invalid, can escalate quickly. The expense of defending a lawsuit alone can lead to bankruptcy or extreme debt for many small business owners.

Policies will typically protect your work back to the earliest date of continuous Professional Liability insurance coverage. For instance, management consultants who have maintained continuous coverage since the year 2000, will be covered on any new claims brought against work performed since 2000. Should a policy be canceled or not renewed, thereby halting continuous coverage, the consultant may not be covered for previous work unless prior acts coverage is integrated into the new policy.

Defending a claim

If a claim is filed, E&O insurance will adequately prepare the individual or company to defend its case. It will pay for a strong legal defense and potentially save a small business or individual from severe debt. While mistakes are bound to happen, there are a few steps management consultants can take to mitigate claims:

* Have a written contract detailing what service will be provided, what is not included and the fees for delivering that service

* Communicate throughout the entire job; give the client realistic expectations upfront and provide regular status updates

* Implement quality control procedures, and regularly conduct audits to ensure the procedures are being adequately executed

While contracts and risk management procedures can help reduce the chances of professional negligence claims, there's no guarantee a mistake will not occur or that a client will be satisfied. E&O insurance will provide an extra layer of protection against the unexpected, and help you defend yourself against alleged claims of negligence. Defending a claim is costly and time consuming. Regardless of whether a suit is deemed unreasonable, attorney's fees will still need to be paid. Professional Liability insurance for management consultants will cover the costs of any resulting settlements or judgments brought against you.