A significant proportion of professional negligence lawsuits relates to some form of ‘bad’ advice, where the complainant believes they have suffered losses after following advice given by a service they have paid for.
This is why for consultancy firms, possibly more than any other industry, professional indemnity insurance is essential. If some advice you or one of your colleagues gives to a client whilst under contract goes wrong in some way, and the client loses money or their reputation is damaged, they could be looking to blame your consultancy firm.
This could lead to a lawsuit where you have to not only pay for legal representation, but also settlements and compensation payments should you be found to be liable. This can be devastating for a new firm with not much capital; it could sink your business before it even gets off the ground.
This is why a professional insurance policy should always be a top priority when setting up a new consultancy business, as it will generally cover the costs associated with this kind of unexpected legal action.
No one can predict the future, and you can’t always guarantee that nothing will go wrong as a result of your advice. This is why precautionary measures such as professional indemnity insurance were created for businesses, to cover the financial repercussions of mistakes made or the defence of false allegations.