While even the best run firms may suffer a professional liability claim, firms that proactively manage their risk are going to have fewer claims and firms that have fewer claims are going to be more profitable. Risk management is a complex topic, but there are some basic strategies that are used by well-run firms to lower the frequency and severity of professional liability claims.  

Project and Client Selection: Develop a Project Evaluation Checklist
Is it a good project for your firm? What do you know about the client? Does he/she have a history of suing their design professional? Is the money there? How’s the schedule? A process to evaluate prospective projects and clients can dramatically decrease the likelihood of a claim. 

Sign Equitable Contracts
If there is a problem or litigation on a project, your contract will become a source of scrutiny. A contract is supposed to lay out who is supposed to do what as well as outline terms and conditions. A well-written contract that accurately describes the intent of both parties will help prevent misunderstandings and simplify the resolution of any disputes that arise.  Well-run firms have developed contract review policies and procedures to make sure their contracts are reasonable. 

Identify Problems Early
While the definition of a claim in a Professional Liability policy is “a demand for money or services,” most Professional Liability policies also allow for and strongly encourage their policy holders to turn in “circumstances” which may give rise to a claim. I cannot emphasize how important this is. It can not only protect your insurability down the road, but the earlier you act on a potential claim, the quicker and less expensively it is generally resolved.  Educate your staff to know the warning signs of a potential claim.  

Implement Dispute Resolution Provisions in Your Contracts
Litigation is incredibly expensive and the process is tremendously inefficient.  It is estimated that 19 out of 20 lawsuits are settled before a judge or jury makes a decision.  So if 95% of the time a litigated matter is going to be settled before adjudication, why litigate to begin with? Disputes resolved through mediation or other non-combative techniques are much less expensive, much quicker, and a lot easier on the relationships between the parties. The insurance industry believes so strongly in litigation that many insurance companies will cut your deductible in half if you resolve your dispute through moderation. 

No question, there is some randomness to who gets sued. You can do everything right and still get dragged into litigation. You can however significantly lower your odds. Make sure you have processes in place to:

      Select the Right Projects and Clients
      Enter into Equitable Contracts
      Identify Potential Claims early
      Resolve Disputes Quickly, Fairly, and Efficiently

Oh yeah, and make sure you have the right professionals on your side, i.e. a knowledgeable attorney and specialist insurance broker.