Professional negligence claims are an occupational hazard for small businesses. If already busy business owners find time to think about law at all, they tend to think about contracts. Negligence is often overlooked. But this is a mistake; professional negligence is sadly common and a real challenge for SMEs.
Professional negligence occurs when professionals fail to perform their jobs to an adequate standard; an IT director who designs faulty, virus-prone system architecture, or a lawyer who drafts a poor business agreement are examples of this. These failings can have very serious consequences. Your business files could be irretrievably corrupted, or you may find yourself forced to pay out serious money if your lawyers neglected to include clauses that exclude contractual liability.
Unfortunately, negligence claims can be difficult to pursue. They require much sifting through evidence before you can determine whether someone has breached their relevant professional standard; after all, if you’re not an architect yourself, it’s sometimes hard to prove that an architect designed your office poorly. But even before you get to the difficulties of putting together your case, for most small businesses the factor they need to be most wary of is the fact that the professional defendant is not alone; they’ll be supported by insurance companies, who provide them with Professional Indemnity Insurance (PII).
What does PII mean for litigants?
PII is a game-changer for any professional negligence claim. It changes what would have been a legal dispute about professional competence into a lengthy, drawn-out battle. It’s well known that insurance companies don’t enjoy paying out; in fact, their whole business model depends on doing so as little as possible. Consequently, they will happily lend their large financial muscles to opponents who are defending a professional negligence case. They’ll provide lawyers, they’ll provide funding for other costs, and they’ll often attempt to draw the whole process out as long as possible in order to avoid paying.
Often, they succeed; small businesses, who in many cases have suffered catastrophic financial losses due to their opponent’s negligence, can rarely afford to engage in a legal war of attrition with a well-moneyed opponent. It’s like a flyweight boxer taking on the heavyweight champion of the world; no matter how good your left hook, your counterpart is unlikely to feel it.
Distasteful as it may be to let somebody get away with irreparably damaging your business, sometimes you may feel like you have no choice. When you’re confronted with such an opponent, it’s typically easier to go home and lick your wounds than to fight on and deal with the devastating consequences. But if you think you have got a strong claim, then it’s important not to give up hope.
How can small businesses fight negligence claims
If small business owners could only rely on the traditional methods of pursing litigation, they would be unlikely to want to take the risk of pursuing a negligence claim. That’s because traditional (although still surprisingly widespread) payment methods are essentially a massive gamble with your finances.
The first payment method is pay-per-hour, which involves paying your lawyer on an hourly retainer. This makes it very hard to claim; if you lose, you could be liable for your opponent’s fees as well as your own. And litigation can be drawn out over years. Even if you can afford the costs at the beginning of your case, by the end, it could well have spiralled out of control.
To avoid this, people came up ‘no win, no fee’ arrangements, which let you defer the solicitor’s payment until victory – and if you lose, you don’t pay them. Still, it’s not an ideal way to go about professional negligence claims, where you’ll need evidence if you want to get anywhere. You need another professional to state that your opponent fell short of what would be expected of a reasonable member of that profession. To use the example of the IT director, you would need to find another IT director to attest to his failings in court. Unfortunately, professionals need to be paid for their time, and these significant costs won’t be covered by ‘no win no fee’ deals.
What other options are there?
With these deficiencies in mind, the temptation to give up and focus on rebuilding your business can be overwhelming. Nonetheless, before you reach this drastic conclusion, it’s worth examining alternative routes to legal victory.
Litigation funding, for example, lets you offer a portion of your eventual damages to a funder who will take care of all of your costs in return. Because funders are businessmen, not lawyers, they bring a more commercial understanding to the situation. They don’t back litigants out of generosity; if you don’t win, they go home empty-handed. They have every incentive to provide you with the best counsel and specialist witnesses available. Perhaps the best asset an alternative finance provider can supply is credibility. Your professionally negligent opponent and their insurers were expecting you to back down, but now that another business has backed your case, they’ll know it will be a fair fight. If the insurers get even a whiff of defeat, they’re likely to either settle or withdraw instead of accumulating further legal costs: insurers, like litigation funders, don’t back losers.
Whichever way you decide to pursue your negligence claim, you need to remember that no matter how strong you think your case is, if you don’t have a strategy to build your case in practice, you’re putting everything at risk – with no sure chance of getting anything in return. When pursuing a negligence claim, you need to put your passion to one side, no matter how justified, and treat it like any other business event: are the risks you’re taking on justified by the potential rewards? This is the kind of strategic thinking that will help small businesses get their day in court.
Michael Lent is director at Annecto Legal.