Convincing a client to use your genuine services is one thing. It’s another to misrepresent your company in order to get a contract, whether you do so purposefully or inadvertently.
Unfortunately, not every situation can be easily remedied. But when a business is aware of what makes an actionable misrepresentation claim, it makes it easier to solve the problem in the long run and avoid these types of management liability claims in the future.
There are three types of misrepresentation that can lead to management liability insurance claims: fraudulent, negligent, and innocent. Here’s a full breakdown on the three types and how they can be avoided.
A serious problem for any business to handle, fraudulent misrepresentation can do some serious damage. To avoid this problem, one party can’t lie to the other in order to coerce them to sign onto a project. If the party doesn’t even believe their own truth to the point where it’s considered reckless, that’s also considered fraudulent. For any business to avoid this problem, it’s clear that every statement made in a contract should be completely factual. While there’s nothing wrong with selling your product or services, there is something wrong with making false statements in order to secure certain contracts.
While this one is pretty similar to fraudulent misrepresentation, it’s a little more of a gray area. So if a party coerces another into signing a contact over false information and they knew about it, it would be considered fraudulent. But if the party was for some reason not entirely aware that they were lying (knew something was wrong but said it anyway), it would be considered negligent instead. Negligence can even happen if one party makes a statement that they totally don’t believe in or isn’t completely factual. If the court can prove that a party was careless, it’s going to be considered negligence.
If the party that’s trying to get the contract signed has no idea about the lies being told to push the contract in the first place, then it’s going to be considered innocent misrepresentation. While there’s still someone that’s going to be held liable for the incident and damages can be won, rescission is now out of the question. And to pursue damages at all, a claimant must prove that their company was completely shortsighted, financially and even emotionally.
Having a management liability policy in place can save a business from a world of headache. Don't wait for the claims to arise to secure coverage: contact an agent today to make sure that you have the coverage that you need for any potential claims.
About Axis Insurance
At Axis Insurance Services, we aim to help our customers identify their exposures and protect themselves. Founded in 1999, we offer insurance programs to a wide variety of professionals and industries including attorneys, real estate, healthcare, architects, and more, and also have a wholesale division. We pride ourselves on offering flexible insurance coverage tailored specifically to each customer’s needs. To learn more about our solutions, contact us at (201) 847-9175 to speak with one of our professionals.