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Meet Jenna: Without This Insurance Coverage, Her Consulting Errors Were Costly

[Note: I originally wrote this blog post in 2016, and I updated it in 2018 and 2023, but only to remove outdated links and enhance readability. This post reflects the blog structure used in 2015 and my writing style at the time. Both have changed measurably since then. Estimated reading time: 11 minutes.]

Jenna* had always been bright and ambitious. A precocious child, she’d established big goals early in her life. One of them was being an entrepreneur, a global consultant. Determined to make that reality, she launched her consulting firm right after attending a top-tier business school. She operated lean and mean and, because of her business school connections and some of her father’s, she got off to a strong start.

But, she had her eye on working with one firm that had an award-winning marketing team. It was a growing tech enterprise she’d learned about while working at her job as a consultant before business school when it was still a well-funded tech start-up.

An Exciting Dream Client

Jenna got the opportunity to work with this firm when one of her business school friends called her and told her he’d heard the company was looking for consulting contractors. He also warned her of management changes and rumblings of discontent as the new executives’ aggressive new growth strategy put pressure on the firm to generate more profit.

Undaunted by that last piece of news, Jenna submitted her résumé, a three-month marketing plan, and a short proposal. After waiting a few weeks, she got a call to meet with the CEO and a few of the other top executives at the firm about the role.

She made the trip to their West Coast offices and knew immediately she was in a different world. But, confident as always, Jenna overcame her nervousness and conquered the interview. The firm offered her a two-year contract at fantastic compensation a week later, which she accepted.

The contract contained clauses that made her nervous. They included a few making her liable for any poor outcomes based on marketing strategies she provided. But she signed it and kept her fingers crossed that all would go well. This opportunity, she convinced herself, could lead to bigger ones and, with her global ambitions, she determined she'd make it work.

She ignored her concerns and plunged into the work believing her life was about to change. It would change for sure, though not in the way she thought.

The Honeymoon Always Ends

The project went well for the first nine months allowing Jenna to push her fears about the contract to the back of her mind. But, there was always a gnawing “what if?” back there. Jenna learned the answer to that question when she got a new assignment as part of her consulting gig late in the first summer of the contract.

The client wanted her to “stretch” herself and use her sharp mind to create a unique marketing strategy for a new a legal software application they were developing to ‘revolutionize’ law practice management processes. The client wanted her to base her approach on some ‘novel’ marketing tactics their key competitor apparently used successfully.

During that team conference call, Jenna informed her clients that she didn’t like the business tactics this competitor, who had a pretty shady reputation in marketing circles, was using. These new “tactics” were as unprincipled as that firm itself, she said. But, Jenna’s client pushed back, telling her how important it was to her relationship with them that she ‘make this work.’

This software’s sales would drive year-end and first-quarter revenues next year, they told her. They wanted the marketing campaign to contribute to making that happen. They were giving her three months to the public software launch and a small team of marketing assistants to develop the marketing campaign strategy based on these tactics.

Jenna reluctantly agreed to develop the new marketing campaign but not before wondering if she should end the engagement “for cause.” After all, she was sure the client was asking her to do something that might be unethical.

But she remembered her global business aspirations and talked herself out of those thoughts. She pushed her apprehensions to the back of her mind with those about the contract and determined to move forward.

Besides, she was sure she could both execute this new strategy successfully and turn the shady tactics into ethical ones. She’d be a marketing hero, she thought, her confidence welling up. But, she was completely wrong. Her clients had other plans.

The Client’s Sleight of Marketing Hand

Jenna managed to develop a campaign strategy that represented the firm’s new product, which was still in early beta testing, in a strong but honest way.

Instead of representing that it was in its final form and had been successfully market-tested and passed for usefulness, her plan showed what it could be and created market anticipation for the fully-functional product. She eliminated the idea of constructing misleading client testimonials based on culled together positive comments from beta testers.

Trouble came when, during a video conference, Jenna proudly presented her written plan to the firm’s marketing VP. The VP said liked the plan overall but thought it needed a few ‘tweaks to work more effectively.’ Jenna argued that perhaps the team should slow the pace of campaign launch down and wait until the software was actually market-ready.

Or, just execute the marketing campaign strategy she'd created, which was truthful. The client vetoed her idea. After reminding Jenna of the revenue goals, the marketing VP made the changes she wanted—injecting the misleading information and tactics into Jenna's plan.

The client intended to represent a product that was nowhere near ready for the market was going as ready. They would take with pre-orders taken at full retail price for a finished application. The goal was to get enough pre-orders to complete development of the software they represented as already completed.

The firm wouldn't tell buyers they were investing in an unfinished software application. Jenna got most of the credit for this strategy, which because of how the marketing VP represented it to them, the firm's CXO’s loved.

But, Jenna hadn’t wanted credit for a lie. That felt shameful to her. The client hadn't thought this through thoroughly. Jenna’s head spun with panic about how they thought they’d get away with this since it was software. More importantly, how it would affect her reputation and her business if exposed? She wouldn’t have to wait long to learn.

A Top Marketing Blunder of the Year

The marketing campaign was a disaster. A global law firm customer of her client's had gotten a call from one of their contractors, who was anonymously beta testing the software. He informed the law firm’s CTO that it had a long way to go before it could work at all.

The company’s marketing executives, some of whom were Jenna's consulting colleagues, quickly figured out what Jenna’s client was doing in their marketing.

The law firm’s business development director sent a scathing email to the tech firm calling Jenna's client out for its misleading campaign intended to deceive the public into buying a worthless new legal software application. Then, the tech blogosphere got tipped off about this ‘new marketing strategy’ that Jenna’s client had tried when somebody anonymously forwarded a tech blog that email.

Jenna waited while the firm scrambled to stave off a PR nightmare. Looking to lay blame, they tried to figure out who the sources of the email leak or about the still ongoing beta testing were but they couldn’t. It didn’t matter anyway. The story was out. Industry blogs and journals were covering the story widely, and those stories spread rapidly across social media.

People made memes and gifs mocking the firm, and they went viral on business social networks. Ultimately, the client named Jenna as the ‘brainchild’ of the marketing ‘scheme’ and then terminated her contract while the marketing VP tried to resign quietly.

By late December of that year, the marketing campaign was showing up on “top marketing blunders of the year” lists everywhere. The company was a laughing-stock whose biggest clients bailed on her and almost put Jenna out of business. Her woes were just beginning, though.

From Bad Business News to Worse Legal News

Jenna greeted the new year with news that this year, she'd be one of the 36-53% of small businesses that gets sued each year. Her former tech firm clients had filed one for a breach of contract. Specifically, they alleged that she’d failed to give good advice and failed to meet professional service standards. They also were claiming she was unethical in her marketing approaches.

The former client was blaming her publicly for the marketing scandal, and she now had to battle for her reputation and her dreams of global business success. With no cash to fight a lawsuit—she’d used her three months savings to pay bills while she tried to restructure her business life—she maxed out her credit cards to get legal help.

She called her insurance agent to see if she had insurance protection for this catastrophe. He had only more bad news. He told her that the general liability insurance under her business owner's policy or BOP might have covered her business if the clients had claimed defamation, but they hadn’t.

Also, because there was no event that her BOP’s property insurance would cover, she couldn’t use its business interruption coverage while she rebuilt her business. Moreover, he informed her, the umbrella policy she’d brought as part of her homeowner’s insurance wouldn’t cover her, either.

He reminded her that he’d suggested she add professional liability or errors & omissions insurance as a rider to her BOP when she first took this contract. Wanting to save a few dollars and not aware of cheaper alternatives, she’d declined thinking nothing like this would ever happen.

But that insurance protection covers consultants while they offer professional advising services. It may have helped Jenna fight this lawsuit she now had to win.

Her former clients sued Jenna for at least three alleged mistakes and demanded over $1 million in damages in the suit. She didn’t have a million dollars or anywhere close to that much pay a judgment creditor.

Fighting a Legal Battle with No Insurance Shield

While she did have limited liability protection under her corporation, Jenna had no insurance protection in this fight. Now, she’d probably have to sell her townhouse and try to prevent bankruptcy.

But, battling this suit successfully was the only chance Jenna had to restore her reputation. She was in her mid-30s with a lot of her career left, and she was still paying business school debt.

She believed she had a shot at victory, too. She had proof that she’d written a plan that didn’t include those ethical breaches and misleading tactics. All she’d have to do is show that evidence in court, if the suit got that far, and hope the court would dismiss the lawsuit.

But she knew the former client was using this to try to regain their lost reputation, too. If they could make her look like a rogue consultant who’d used slick marketing of her own to take advantage of a relatively new business, they might be able to rebuild their reputation at her expense. She knew they’d probably take this to court and not settle since she was expendable to them.

Looking back, Jenna wished she’d emailed the client about her concerns around the new marketing strategy. She regretted she hadn't put her fears about the revised plan in writing, too. Jenna lamented signing a contract that left her so vulnerable. She wished she had purchased errors & omissions insurance. She now wished all this would disappear, but she knew it wouldn’t.

Now, she had to put her trust in the legal system and hope she could fund a lawsuit on her own since she hated to ask for her parents' help. Next time, she vowed, she’d buy whatever business insurance protection she could, including E&O.

But, she knew she’d have to win this lawsuit if she had any expectation of restoring her business reputation and rebuilding from what were now ashes. Only then would she be eligible to get business insurance coverage, she believed. She didn’t think insurers took risks on business owners who fought lawsuits for unethical business behavior and lost.

Worse, she knew she hadn’t committed any ethical breaches, but it was enough that these shady former clients accused of that. Now, though it might cost whatever she had left, she had to fight—and beat—this lawsuit.

[*Disclaimer: "Jenna" is a fictional character and this blog post is an entirely fictitious business account meant to illustrate the points made in this blog post. This post is written for informational purposes only. It is not meant to substitute for any legal, financial, accounting or other business or personal advice that should be provided by qualified professionals in those areas. Before taking any action based on the information contained here that could have legal, financial, or any other important consequences, consult with qualified professionals who can provide guidance that considers your unique circumstances. Since you maintain full responsibility and liability for applying this information to your business, contact licensed insurance providers, attorneys, accountants, other professionals, and your business partners/investors before deciding to apply information contained here to your enterprise.]

(c) 2016-2023. Dahna M. Chandler for The Stellar Communicator, Inc., a division of Thrive Media Collaborative, Inc. All rights reserved. This blog post may not be reproduced or reposted in whole or in part without express written permission of the author. Reading time estimated by Read-O-Meter.