By Harry J. Lew

E&O claim prevention often focuses on laws, regulations and business practices. Dropping the ball in these areas can spark lawsuits. However, if you run your business by the book, the presumption is you’ll easily ward off litigation. To some degree, this assumption is true. But it’s missing one key element: the human factor.

Violating a law, regulation or business practice can land you in hot water. But so can flawed human interactions (or communication). In fact, your actions or behaviors might be legally or technically correct. But if you interact with clients improperly (through faulty communication), you’ll likely create the wrong impression or expectation. If you can’t meet that expectation, even though it’s incorrect, you might get sued. How do client communications go awry? In four major ways we call the “Four M’s.”


The first M stands for Miscommunication, which refers to the mistakes people make when soliciting information from and providing information to their customers. Miscommunication is often implicated in flawed customer interactions that lead to litigation. So it’s important to avoid it whenever possible.

Miscommunication is harmful in every phase and type of business. Whether you’re closing a new piece of business or trying to renew or upsell a client or case, communication (or lack of it) will determine your success. Product-development, for both technical or non-technical products and services, hinges on strong team communications, as well. Whatever the business area you’re focused on, your effectiveness depends in large part on well you communicate with others.

What specific communication mistakes lead to lawsuits? Here are some major ones:

  • Failing to pay adequate attention
  • Not actively listening (confirming what you hear to the person, asking questions)
  • Not reading other people’s body language (and controlling your own)
  • Not modeling your own voice after other people’s vocal volume, speed and word choices
  • Not probing below surface conversation to what’s really being said (and not said)
  • Not giving and getting specific information that accomplishes the task at hand
  • Not vetting your own statements for accuracy
  • Not resisting the temptation to jump to conclusions about people
  • Not resisting the impulse to exaggerate your strengths

It’s easy to see how any one of these errors might result in an E&O or professional liability insurance claim. If you fail to pay attention to a prospect, you might end up developing a solution that fails to take into account a key need or problem. If that omission creates a financial loss, a lawsuit might ensue.

Similarly, if you don’t actively listen, you might fail to hear what the person is trying to convey, which might leave you unable to deliver the goods later. Being clueless about someone’s body language, vocal tone or underlying intent might result in you misreading a customer’s mental state. For instance, if someone is really angry with you and you fail to notice it, you might unwittingly make things worse by doing or saying the wrong thing.

When you fail to either give or get information that advances a sale or transaction or strengthens a client relationship, you leave matters on a weak foundation. This makes you vulnerable to litigation if a dispute arises later. Giving out inaccurate information can be perilous because people will take you at your word and then be disappointed if your word was not legitimate.

Jumping to inappropriate conclusions is yet another way litigation arises. If your “theory of the case” (i.e., who the client is and what he or she wants) is incorrect, then it’s much more likely your words or actions will be off target and create resentment. Finally, touting yourself might give clients motivation to take you down a notch. They might decide to sue you over something they might have otherwise forgiven because they didn’t like your egocentric attitude.

Clearly, miscommunicating with a prospect or client can backfire in multiple ways. However, a constant theme is the dashing of incorrect expectations. When your poor communication leads someone to expect something and then you fail to deliver on it, you will have created a grievance people won’t soon forget. If your failure also creates a financial loss, you may have stirred up a boiling pot of harmful litigation.


The second M standard for Misperceptions. Anytime you communicate a fact or concept from which a client takes away the wrong conclusion, you’ve created a misperception. They can arise in every area of your business. However, they occur most frequently in the sales process. Since many business owners and professionals sell complex services, it’s easy to inadvertently create misperceptions when you’re introducing your offerings and designing client engagements. Customers who don’t clearly understand what they’re buying will likely experience disappointment later. This makes them a lawsuit in the making.

The good news: you can avoid trouble by using the communication skills discussed earlier to probe for what the customer needs. Confirming unmet needs with a prospect before you begin designing your solution will assure that what you deliver is what the person expects. Obviously, you’ll have multiple attempts to confirm the person’s wishes before you finalize the deal. Make the most of them, because if the person thinks he bought something that you actually didn’t sell, you may be in for legal trouble later.

What’s more, the confirming process should be as granular as possible. You want to be certain the person fully understands every moving part of the project or transaction:

  • The product or service you’re providing
  • The price or fee to be charged
  • Financial terms
  • Fulfillment process
  • People involved
  • Due dates
  • Contingencies

The point is, you want to leave as little to chance as possible. Because if something unexpected happens that leads clients to think they’re being shortchanged, you may face legal action.

Misperceptions occur outside the sales process, as well. In your ongoing work with a client, you might fail to provide full information or context about a matter, leaving the client to fill in the blanks. Blank filling is a breeding ground of dangerous misperceptions. Or you might not be careful about your body language or vocal tone, leading someone to conclude your attitude is hostile or condescending when it really isn’t. Finally, you may use certain words that are clear to you, but unclear to the client. Thus, an incorrect connotation can create a misperception that can come back to haunt you later.


The third M stands for Misstatements, which are factual errors that undermine your client relationships. You can make them during the sales process and after a person becomes a customer. They’re a problem because, as with the other mistakes, they set the client up for dashed expectations. If someone realizes you made a misstatement, your credibility will suffer, which will undermine your ability to establish trust. This will sabotage your client relationship from the get-go.

Misstatements are generally the result of poor planning or sloppy execution. They’re not usually deliberate, but they can have as negative an impact as a deliberate lie (misrepresentation). Misstatements crop up in just about every business sector. For example:

  • A seller’s real estate agent might misstate a property’s condition to a prospective buyer
  • An insurance agent might misstate an annuity’s early surrender penalty
  • A travel advisor might misstate the features of a Caribbean cruise
  • A lawyer might provide incorrect information about his litigation history and expertise
  • An accountant might misstate the terms and conditions of an engagement for preparing financial statements

The point is, it’s easy to misstate the facts involved in a service, engagement or product sale. It’s not as easy to deal with the collateral damage to your client relationships and professional reputation. Habitually misstating facts may result in you getting sued when the truth comes to light. And it always does.


The fourth M stands for Misrepresentation. Although miscommunication is the mother of all “M Mistakes” due to its pervasiveness, misrepresentation may be the most dangerous mistake of all. When business owners or professionals lie with intent to deceive, they not only wreck havoc with client trust, but also strongly increase their odds of getting sued.

According to Investopedia, misrepresentation is “a false statement of a material fact made by one party which affects the other party’s decision in agreeing to a contract. If the misrepresentation is discovered, the contract can be declared void and, depending on the situation, the adversely impacted party may seek damages.” That’s a mouthful! But the takeaway is this: Avoid making the prior three “M Mistakes,” but really avoid misrepresentation.

Despite having severe repercussions, misrepresenting facts occurs in every corner of the business world. It’s especially common in industries that provide intangible services, in which complexity can mask deception. Financial services, real estate, accounting, law and travel and tourism are common seedbeds of misrepresentation. When these crimes bear fruit, clients may end up tens of thousands of dollars (or more) poorer. Litigation won’t be far behind.

The insurance/financial services industry is a case in point. Misrepresentation in this sector occurs in many different ways. Here are some typical scenarios:

  • An investment advisor representative (IAR) or registered investment advisor (RIA) withholds material facts about a potential investment’s volatility. A prospect invests a large sum, but loses money when the security plummets in value.
  • A life insurance agent builds an unrealistically high interest rate into a policy illustration, making the product appear more attractive than it actually is. Many years from now, the client wonders why her cash value is smaller than expected.
  • A property-casualty (P&C) insurance agent deliberately fails to disclose a material coverage exclusion to his client, angering the person when the insurer denies the claim in the future.
  • A securities broker uses an old company research report to convince a prospect that a stock is undervalued and primed for future growth. In reality, the company is on the brink of failure.

In the above examples, if the consumers involved lose enough money and become angry enough, they will likely sue their advisor. In fact, according to data from a major E&O insurer, misrepresentation accounted for the largest share of all life insurance agent E&O claims (25 percent).

Misrepresentation is also common in the real estate world, resulting from agents lying, perhaps unintentionally, or withholding information about property features such as boundaries, easements or unlicensed improvements. Misrepresenting the real estate listing agreement is also a common cause of agent or broker lawsuits.

As you can see from the prior discussion, you have almost unlimited opportunities to make mistakes that land you in court. Whether you miscommunicate, cause misperceptions, misstate the truth or deliberately misrepresent an important aspect of your work with a client, people will take offense, especially if financial losses are involved.

What’s more, the road from personal offense to filing a lawsuit is a short path, indeed. To avoid getting sued, take common-sense measures such as documenting your work, focusing on your expertise area and serving client needs instead of your own. And by all means, avoid the “Four M’s” we discussed in this article. Good luck!