Even though the profession of a management consultant is not new (the first management consulting firm was created in 1886 by Arthur Little) many still do not fully know what a management consultant does on a daily basis.
If we look at the big picture, a management consultant is your one stop shop when it comes to improve company’s operations and performance and solve any problems that arise. A management consultant reports and advises directly to senior management. A big part of their job is collecting data and aggregating that data into digestible reports that allow to pinpoint potential (or existing) problems.
As you can see, the job of a consultant is multi-faceted. If you are a management consultant yourself, we don’t need to tell you all the different jobs you do – driving to and from client’s side, collecting data, managing relationships etc. But most importantly businesses, big and small, put the future of their companies in your hands. A lot is at stake and a simple mistake or an incorrect advice can lead to your client loosing revenue, employees etc.
So what happens then? What happens if distraught client who lost profit following your advice sues you for damage?
One of the most essential insurance policies you can have is a Professional Liability Insurance for Management Consultant (also called Errors & Omissions) insurance. Professional Liability insurance was designed to protect businesses who provide professional advice or services for a living from lawsuits. While the insurance policy can not guarantee you won’t get sued, it will help cover the expenses related to the lawsuit. In the next section of the article we’ll talk more at length on what this key policy covers.
Of course a Professional Liability policy will not protect your business from everything. Let’s take a look at the important insurance policies for a management consultant.
Professional Liability – The policy that we mentioned above, is one that will protect/lawsuits are by far the most common and costly for businesses like yours. The PL policy will cover the costs associated with defending your case – cost of hiring an attorney, miscellaneous legal and administrative fees and of course the settlement. It’s important to remember that even if the lawsuit is baseless and is thrown out in court it would still cost money to defend yourself. The cost of attorney alone can amount to thousands of dollars. The Professional Liability policy will cover these costs regardless of the outcome of the lawsuit.
Please note that this policy only covers lawsuits/claims alleging professional wrongdoing.
General Liability – This policy also covers lawsuits from third parties, however unlike the Professional Liability policy, the coverage is only for general lawsuits. These include claims such as libel/slander, advertising related, property damage of the third party etc. A General Liability policy is very important because many clients will require its’ purchase as part of your contractual obligations. This policy contains a few notable exclusions, common in the insurance industry, however it is one of the broadest policies available. These exclusions include war, malicious intent such as assault and battery, and illegal actions. The policy is usually written based on “all risk” which means that everything is covered unless specifically excluded.
The policies above are the cornerstone insurance products that every management consultant needs. General Liability and Professional Liability while seem similar, could not be more different. In fact, each policy excludes the types of claims the other policy covers. This means that a General Liability policy will deny claims related to professional wrongdoing and vice versa.