Background knowledge of professional liability: liability risks of freelancers and the self-employed [+ checklist]


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The golden age of crafts is over. Anyone who takes the step into self-employment today is doing this more and more frequently in the “new professions”. For example in the IT, creative or consulting industries. As exciting as these new fields of activity are, the liability situation has also become complex. Many underestimate this, as do the gaps in professional liability providers when it comes to the scope of insurance.

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Here writes for you:

Ralph Günther Passfoto_Ralph Günther 2013Ralph Günther is an insurance expert and founder as well as managing director of exali.de.

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Personal liability mercilessly underestimated

The start-up boom in Germany continues: More and more experts are taking the step into self-employment, startups and Company enter the market with innovative concepts and new services. For example, at the beginning of 2013 there were around 1,23 millions of self-employed in Germany, as the statistics portal Statista shows. By comparison, ten years ago it was just 533.000.

But regardless of whether you are a new entrepreneur or an “old hand” in the self-employed business: In my damage experience I keep finding that personal liability is mercilessly underestimated when it comes to damage due to errors in the professional activity.

Risk through legal and contractual liability

However, the fact that the customer or third parties can take the independent service provider in the event of liability or recourse in the event of liability or recourse results from the statutory provisions - in particular the liability law in the BGB. Anyone who inflicts damage (personal injury, property or property damage) to another person is legally responsible by law.

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In addition, there are the risks arising from the contractual requirements of project brokers and contracting entities, who must often be accepted by the freelancer in a highly competitive market. They offer the possibility to use the freelancer on the basis of contractual agreements and performance claims, which can go beyond the legal liability (visibility: aggravation of liability).

Damage examples from the IT, creative and consulting practice

The scope of the possible risks is also illustrated by the following:

Self-marketing went backwards:

Because she published a protected word mark as a slogan on the business platform XING, a freelancer from the media area fluttered into the house with a warning. Provisional dispute: 100.000 Euro.

Consulting without success:

Because the analyzes and recommendations of a freelance consultant did not lead to the desired success for his client, the client was charged with 70.000 Euro for the missing project supplement.

Total loss:

Due to a small mishap when working in the system, an independent IT expert paralyzed his customer's cash register system. For one hour, 400 stores lost nothing - a loss of around 200.000 Euro lost sales.

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Many self-employed people therefore take preventive measures and try to exclude or at least limit liability in their terms and conditions. However, this is not an optimal solution.

What does a professional liability insurance?

As practice shows, such a disclaimer by terms and conditions is deceptive, because in most cases disclaimers or limitations in the terms and conditions do not stand up to judicial review. It is not so easy to “undermine” legal liability.

Excessive damage can be absorbed by a professional liability insurance. However, caution: professional liability is not equal to professional liability.

Dangerous retreats of professional liability insurers

For instance, many providers traditionally only cover personal injury and material damage as well as resulting consequential damages, leaving the protection of so-called pure assets - including, for example, legal violations, deliberation errors or programming failures - completely out of the question.

And also in terms of co-insurance of the already mentioned contractual liability, most insurers are cautious. In particular, when the occupational liability insurance is offered on the basis of the General Liability Conditions (AHB). These categorically exclude claims that go beyond legal liability.

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Separating wheat from chaff

The “chaff from wheat” also separates when it comes to “protecting against legal violations”: some insurers make protection in the event of legal violations dependent on a previous legal examination, which is difficult to implement in practice.

Or they completely exclude the cost overpowered in the case of legal violations in Common Law countries (USA, England, Canada) - in times of global professional services a dangerous insurance gap.

Checklist - Important criteria of professional liability insurance

But it goes differently, of course. In order to sensitize freelancers and self-employed workers for what a good professional liability insurance can provide for protection, I have put together a checklist with selected criteria:

  1. The definition of insured activities and services should be kept open (so-called open cover). The co-insurance of activities from overlapping industries is also optimal.
  2. The current professional liability insurance should also provide protection for pure property damage - including, for example, infringements.
  3. Claims in the area of ​​contractual liability as well as breaches of secrecy agreements and data protection laws should be insured.
  4. Publication risks, eg by self-marketing, own website, blogs or social media profiles, should be covered. Likewise, violations of competition and advertising.
  5. The territorial scope should apply at least to Europe and Switzerland. Online Business recommends worldwide coverage.
  6. Depending on the business model and the branch of the self-employed, the professional liability insurance should also cover optional claims, such as
  7. Rescission of the client from the project,
  8. Personal liability (corporate liability) as managing director or interim manager
  9. certain typical contractual penalties in terms of contract or project contracts
  10. Damage caused by hacker and cyber attacks (DoS attacks, computer abuse, data theft, etc.)

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