Warren Buffet famously said that “it takes 20 years to build a reputation and five minutes to ruin it”. Most people remember this line, but he also said something more about reputation that I find equally poignant: “Reputation is what makes people feel secure working with you.”
As an insurance professional, I find this so true, even in my own field. A mistake made, be it a decision, a statement or an action, could have significant negative consequences for my clients and the company. Given that everyone makes mistakes, it is highly probable that a mistake will be made and a client will suffer as a result. If that happens, there are two scenarios.
You don’t have professional indemnity insurance and the worst happens. Think of an attorney missing an important submission date, an accountant swapping two numbers around or an architect submitting the wrong version for a large project. Although your business may be small, the companies that you provide your services to are usually not. And the financial consequences that they may suffer because of your mistake can often be worth more than your business itself. They would hold you liable, issue suit. You may or may not be able to hire an attorney to defend you, but if you did, in fact, make the said mistake, damages would be awarded against you. The attorney that you hire is usually one that is affordable for you. Your business could shut down as a result of not being able to pay the damages that you are liable for. Your client will be understandably aggrieved in this scenario as they are not able to recover their loss. What do you think they will start saying about your business to anyone who asks and even those who don’t?
You have professional indemnity insurance and the worst happens. You receive a letter of demand or summons from your client holding you liable for the financial loss that they suffered as a result of your mistake. You forward it to your insurance company, and they take over. They liaise with your client going forward. They appoint an experienced attorney to handle your matter. The selection of the attorney would be based on the relevant expertise of that attorney in your particular field as well as the size of the amount being claimed. You carry on with running your business, and your insurer handles the claim and keeps you updated. If you are not liable, the insurer will cover the legal cost of your defence. If you are found liable, the insurer will cover the legal cost as well as the damages that are payable to your client. Here your client has been dealt with professionally, and if you are liable, they have received compensation for their loss. What do you think they will say about your business, and do you think they would work with you again?
We all make mistakes – it’s the ability to make good once that happens that is important. That could be the difference between your business thriving or closing.
To find out how Auto & General Professional Indemnity Insurance can help your business today, contact us on 0861 00 02 09 or at liabs@autogen.co.za.
