I didn’t write a single line of code. I was hired as a “fractional CTO” to advise a startup on their infrastructure. I recommended a specific serverless architecture. On launch day, the architecture couldn’t handle the concurrency, and the site crashed for 12 hours. The startup missed their big press window and is suing me for “Negligent Consulting Advice.”
Key Takeaways
- Consulting is a “Professional Service”: You don’t have to touch the keyboard to be liable. Giving advice creates a duty of care.
- Pure Financial Loss: The client didn’t lose hardware; they lost money. General Liability covers zero percent of this. You need E&O.
- Standard of Care: The court asks: “Would a reasonable CTO have recommended this?” If the tech was experimental, you might be liable.
- Disclaimers: Did your report say “Estimates only”?
The “Why”: The Wrongful Act Definition
The Trap: Some “Technology” policies only cover “Software Development.”
If your policy definition of “Professional Services” doesn’t list “Consulting” or “Technology Advisory,” the carrier can deny the claim saying, “You aren’t insured for advice, only for coding.”
Check the Declarations Page under “Covered Services.”
The Investigation: I Quoted 3 Major Carriers
1. Markel
- My Analysis: Markel is great for consultants. Their definition includes “analysis, design, and consulting.” They understand that advice is the product.
2. Beazley
- My Analysis: Their “MediaTech” policy is broad. It covers “breach of duty” in providing technology services. A bad recommendation is a breach of duty.
3. Hiscox
- My Analysis: They have a specific classification for “IT Consultant.” If you picked “Web Designer” but were doing “CTO Consulting,” they might deny it. Classification accuracy is key with Hiscox.
[IMAGE: Screenshot of a “Limitation of Liability” disclaimer in a consulting report]
Comparison Table: Consulting Liability
| Carrier | Covers Pure Advice? | “CTO” Services? | Cost | Best For… |
| Markel | Yes | Yes | | Consultants |
| Beazley | Yes | Yes | | High-End Advice |
| Hiscox | Yes (If Classified Right) | Limited | $ | Solo Advisors |
Step-by-Step Action Plan
- Pull the Report: Find the document where you recommended the stack.
- Check for Warnings: Did you write “Scalability depends on AWS limits” or “Load testing recommended”? If yes, you have a defense.
- Notify Carrier: Report a “Wrongful Act” claim.
- Do Not Admit Error: Do not say “I chose the wrong stack.” Say “The stack performed differently than anticipated under load.”
FAQ
Is a verbal recommendation covered?
Yes, oral contracts and advice are liable. But harder to prove.
What if AWS failed, not my advice?
Then the “Proximate Cause” was AWS. You are defensible.
Can I get “Advice Insurance”?
That is exactly what E&O is.