Does your insurance cover associate mistakes? It is a question people often ask us.
It is always a great idea to hope for the best and plan for the worst.
However perfect you or your associate are, there is always a possibility that mistakes may happen. And sadly, some of those mistakes may cost you or your client money to put right or lose them some revenue while you do it (or both).
Many lead VAs carry what is known as ‘professional indemnity insurance’ to make sure that there is something in place for moments like that. This is not the same thing as public liability insurance or contents insurance or employers liability insurance. But a specific policy that is designed for when something goes wrong and costs a client money.
You will find many clients require a level of insurance, and many lead VAs require associates to carry their own insurance. Others do not. There is no single industry standard.
What is involved when a client says a mistake cost them money?
‘Damages’ is the legal term for money a court can make you pay to a client who has lost money as a result of your error.
This is not a fine but is directly related to the amount of money lost. An irritated client may claim a ‘loss’ but unless they can show some actual numbers and link that loss to the error, you are more likely to be dealing with a very cross client, rather than one who will ultimately successfully sue you in court.
The problem is that it is expensive to defend a claim, and most of us prefer to refer all that goes with it to lawyers who do this every day. You can end up with some pretty hefty legal fees even if you were completely in the right and if you can’t give your legal team some significant money to keep them going you may find yourself doing it all on your own
It can also be extremely stressful to try to argue about who should pay and who is right or wrong. Not only will you lose the unhappy client but you may take your eye off your business and end up losing other clients. Handing it all over to your legal team can at least let you carry on working and earning while it all works through.
Who pays when things go wrong?
Generally speaking, the client comes to you for a remedy as you were the person who charged them for the services.
If you feel it is the associate’s fault you may want to pass the costs of all of this on to them.
But without insurance, you are two freelancers arguing about whose car, house, or other worldy goods are going to be sold if this goes wrong. And that’s not funny.
If you have a limited company things are different but most freelancers are ‘sole traders.
KoffeeKlatch contracts and damages
We know that things can sometimes go wrong, so your KoffeeKlatch contracts are written with this in mind.
You can set out the level of your professional indemnity insurance (if you have any) and require your associates to carry it and prove that they have it.
These things are handled in what we call the Booking form as we know from experience that each of your clients will have different requirements and you may contract slightly differently with them (and with each associate).
Ultimately you have to make sure that the expectation of who pays for what is passed seamlessly from your client to your insurers and from you to your associate and their insurers.
Limits of liability
Contracts can be used to limit most liabilities (but never all) and to make your associate liable if you have to pay up.
But without insurance, there may be no money for anyone to pay up.
Read your insurance policy carefully
When you apply for professional liability insurance you usually have to say if you want your policy to cover work done by associates and contractors.
If you say yes, your premium may be higher than if you say no.
If you say no, you need to make sure your associates are properly insured.
It is really important not to assume anything. You (and your associates) only have the cover the policy says you have.
Some policies make it a condition that you notify them as soon as you think there may be a claim. You may sometimes invalidate your cover if you let things go too far down the road before doing so. Your associates may also have the same clauses so they should notify their own insurer promptly too.
Many policies include legal fees or at least some legal advice. Read your policy and be clear about what you are paying for.
You can’t insure once a problem exists
It is usually too late to take out a professional indemnity policy once a client says you caused them harm. So you need to make the decision on getting insurance and whether to put your associates on your policy or require them to have their own BEFORE anyone is unhappy.
Contracts designed to give you options
Here at KoffeeKlatch, we know that the issue of liability is often a sticking point when negotiating with a new client. It is important to get your contract, liability and insurance aligned.
Ultimately as a business owner, you have to decide what works for you and who is going to handle which risks and how. It’s all part of learning how the world of business works.
There is no one right answer, no one single way to set things up, but whatever you do, KoffeeKlatch is here to help you get those ducks in a row.