What is professional negligence?

Professional negligence occurs when a professional (lawyer, insurance broker, accountant, architect, realtor, financial advisor, etc.) fails to fulfill their professional duties or obligations that they were hired by their clients to fulfill.

Understanding the key elements of professional negligence — including reasonable care, breach, causation, and damages — is crucial for both professionals and clients to navigate potential disputes and protect their interests. 

In this article, we will dive into everything you need to know about professional negligence and give you some tips on how to avoid claims in the first place. 

What is professional negligence?

When you agree to perform professional services for someone else who needs these services, you have a duty to provide “reasonable care” in these services.

If you fail to perform your professional duty, you breach your duty of care, which can cause harm or financial loss to the client. Since the client relied on your professional expertise and guidance, they may have grounds to file a claim for compensation to recover damages. 

Reasonable care is defined as “the degree of caution and concern for the safety of the self and others an ordinarily prudent and rational person would use in the same circumstances.” This means that to avoid a claim of professional negligence, you must adhere to the same standard of care that well-qualified professionals acting under similar circumstances would.

For a client to make a professional negligence claim, they must prove the following:

• Duty of care: What the service provider’s professional duty was
• Breach: The professional failed to perform this duty
• Causation: The professional’s breach of duty directly caused the loss

Examples of professional negligence in various industries

Now that we’ve gotten the “legal jargon” out of the way and defined the important terms, let’s take a look at everyday examples of what professional negligence looks like in the real world.

Medical professional negligence

A patient has been feeling sick for some time and visits the doctor, who sends the patient home without providing a diagnosis. Over time, their sickness worsens, and the patient then decides to get a second opinion. The second physician diagnoses a rare type of cancer and quickly rushes the patient to treatment. 

However, the patient feels that the original doctor, who did not give the correct diagnosis, was negligent. They decide to sue the hospital and the doctor for professional negligence.

Legal professional negligence

Continuing on a previous example, the patient then hires a lawyer, who begins the process of collecting evidence and preparing a case. The process proves to be extremely complicated and lengthy.

Due to the case’s complexity, the lawyer fails to preserve the claim by filing a lawsuit within the requisite one-year statute of limitations. This means that the client can no longer sue the doctor and hospital for negligence because the statute of limitations has expired on their claim. 

It also means that the client has lost a significant amount of money both on legal expenses and taking into consideration the money that could have been awarded to them had the case gone to trial. 

It’s reasonable to assume that the lawyer should understand the statute of limitations and should have filed the suit on time. So, the client has legal recourse. They can now bring forth a professional negligence claim against the lawyer in an effort to recoup losses. 

Accountant professional negligence

A small business owner hires an accountant to prepare their financial statements and file taxes accurately. The accountant, however, overlooks several key deductions and misclassifies certain expenses. As a result, the business is audited by the IRS and found to owe a significant amount in unpaid taxes, plus interest and penalties.

The business owner, facing unexpected financial strain and reputational damage, believes the accountant failed to exercise the necessary care and expertise expected of a professional. Consequently, the business owner decides to sue the accountant for professional negligence, seeking compensation for the financial losses that resulted from the accountant’s errors.

Insurance broker professional negligence

A homeowner contacts an insurance broker to obtain a property insurance policy that covers all potential risks, including fire, theft, and natural disasters. The broker recommends a policy and assures the homeowner that it provides full coverage. However, the broker fails to mention that the policy excludes flood damage, which is a significant risk in the homeowner’s area.

A few months later, a severe storm causes extensive flooding, and the homeowner suffers significant damage to their property. When the homeowner files a claim, they are shocked to discover that flood damage is not covered by their insurance. Believing the broker failed to provide adequate advice and misrepresented the policy’s coverage, the homeowner sues the broker for professional negligence, seeking compensation for the damages that were left uncovered.

How to reduce claims of professional negligence

As you can see from the above examples, negligence claims can affect a wide variety of businesses. If you provide similar professional services, it’s essential to be proactive and take precautions to mitigate potential professional negligence claims. Let’s cover a few best practices that could help drastically reduce your exposure.

Draw up precise contracts

For every client — whether it’s a new relationship or an extension of an existing project — you should always insist on a precisely written contract that clearly outlines expectations and the scope of work. It’s important to cover all aspects of the project in the contract in order to cut out any “grey areas” and ensure both parties have a clear understanding of your professional duties.

Set realistic expectations

It’s easy to get carried away in an effort to win a client by promising them outcomes that you aren’t certain that you will be able to achieve. While you may be successful in securing new clients or customers, this is also a very easy way to get your business involved in a professional liability claim. It’s best to set realistic expectations when discussing your services and outcomes with clients. Otherwise, you risk putting yourself in awkward and potentially expensive situations in which clients feel as if they have been cheated and are entitled to reparations.

Establish regular communication

You should never leave clients in the dark, and clear communication is crucial. Notifying them of any issues or changes in real time will improve their perception of your professionalism, even when you provide unpleasant news. For example, in order to ensure patients fully understand their conditions, doctors must be extremely clear communicators. Most people don’t understand complex medical language, so it is important for physicians to explain test results and diagnoses in clear and straightforward language. 

Lack of communication can leave the client angry and may even lead to them holding you liable for professional negligence. Stay in contact with your clients regularly. Even if you have nothing new to report, check in with them to know that you are still working on their project and are fully committed to it.

Keep thorough records

Unfortunately, many professional negligence cases tend to start out as “he said, she said” allegations, making these cases complicated to both prosecute and defend against. The best way to combat this is to keep diligent records of all your professional services. It’s always better to reach agreements and make decisions via email than over the phone since you then have a record of what was said, when it was said, and what was agreed upon. If you prefer doing business over the phone or in person, record your client conversations. If you or the client is uncomfortable with this, get a confirmation of what was agreed upon via email so that you have some record of it.

Seek client feedback

One of the best ways to avoid professional negligence claims is to regularly seek feedback from past and current clients. This allows you to catch client satisfaction early before it becomes a more severe problem. This not only helps you manage and nurture your relationships with clients but also allows you to address any issues that could lead to claims. For example, if clients complain about your communication skills or attention to detail, you can work to improve this before it is too late and a client raises a claim.

Keep learning

Keeping up-to-date with the latest developments in your field will help keep you safe from claims of professional negligence. Additionally, it’s also important to stay on top of changes in how state laws regulate duty of care.

Always have insurance coverage

Obviously, the best defense against professional negligence claims is to avoid them altogether. That said, you should always have a solid professional liability insurance policy in place as a “plan B.”  If a client raises a claim against you or your business, you will be liable to pay legal fees, settlements, and court-ordered payments. Professional liability insurance transfers this risk to the insurance company, protecting you from potential financial burdens.

How is professional negligence determined?

When a claim of professional negligence is filed, there are usually two methods used to determine if the reasonable duty of care was followed: foreseeability tests and multifactor tests.

Foreseeability tests are used to estimate if the professional could have reasonably predicted that their actions, or lack thereof, would cause any sort of harm or losses to the client.

Multifactor tests look at several factors to determine a professional’s duty of care, including:

• The severity of the harm
• Whether the professional could have taken a different course of action
• The cost of a different course of action
• Whether other safer or less harmful options existed

For the claim to be successful, there must be evidence that the service provided fell below the expected standards of the profession. The service also needs to have resulted in clear negative consequences such as financial losses, damages, or injury to the client or customer.

If the claimants cannot show that they suffered concrete damages as a result of the professional’s action, they won’t be able to claim negligence.

Additionally, the claimant must take reasonable steps toward minimizing the potential losses that arise from professional negligence. This is known as a “duty to mitigate.”

How to respond if your company faces a negligence claim

No one wants to face a negligence claim, but the truth of the matter is that the number of claims has risen in recent years. So, if you are in a high-risk industry such as medical, legal, or accounting, you should definitely have a plan in place for responding to professional liability claims.

Contact your insurer

When a professional negligence claim is filed against you or your company, your first step should always be to contact your insurer. This allows the insurer to immediately analyze the case and avoids coverage disputes or denial of coverage.

Get in touch with legal counsel

Your professional liability policy will likely include the cost of your legal defense and, in many cases, will provide you with a specialized lawyer for your case. So, all you’ll need to do is provide the company with detailed information about the claim as well as your records to back up your defense (emails, recorded phone calls, etc.). Your lawyer will advise you on the next steps and will guide you through the lawsuit, attempting to mitigate damages and avoid hefty penalties.

Protecting your business from claims of professional negligence with insurance

Claims of professional negligence can cause severe financial and reputational damage to any business, even if the business ends up winning the case. This is because such claims can be complex and take a long time to resolve, which often leads to inevitably high legal costs.

That’s why it’s important to be proactive and get ahead of potential claims by having an effective risk management plan and the right business insurance to protect you.

Professional liability insurance (also known as errors and omissions insurance) is the best way to counter professional negligence claims. It provides you and your company with financial protection from claims of negligence, malpractice, errors, and omissions that occur while providing professional services to your clients.

When a claim of professional negligence is made, your E&O policy will cover the legal defense, judgments, and settlements up to the policy’s limits.

It’s important to note that professional liability insurance is a claims-made policy. This means that the policy must be active at the time the claim occurs and at the time you reported the claim to the insurer.

It’s also important to remember that there are certain exclusions that professional liability policies do not cover, such as:

• Illegal acts or intentional harm to a client
• Personal injury or property damage (this is reserved for general liability coverage)
• Data breaches or cyber incidents (these claims are covered by cyber liability insurance)
• Employee-related claims (these claims would either be covered by EPLI or workers compensation policies)

Since many professional services carry very specific risks with them, it’s no surprise that insurers have created policies that cater to the specific needs of various industries. For example, law firms that want to protect themselves from negligence claims would buy a legal professional liability policy that is designed to cover the most common risks associated with that line of work, while software development companies would opt for tech E&O insurance to cover their specific exposures.