My client owes me $15,000. I sued them in small claims. They immediately hired a lawyer and filed a counter-suit in Superior Court for $50,000, alleging “substandard work” and “missed deadlines” to intimidate me into dropping my claim. Now I’m on the defense.
Key Takeaways
- Shield, not a Sword: E&O insurance protects you when you are sued. It does not pay for you to sue others.
- The Counter-Claim Trigger: Once the client filed the $50k suit for “substandard work,” your E&O policy was triggered. The insurer must defend you against the $50k claim.
- Strategic Leverage: Insurance lawyers are ruthless. When they step in to defend you, the client realizes they are no longer bullying a freelancer, but fighting a multi-billion dollar insurance company. They often drop the suit.
- Collection Costs: You are still on your own for the $15k they owe you.
The “Why”: The Duty to Defend
The Trap: Designers hesitate to call insurance because “I started the fight.”
The Truth: It doesn’t matter who started it. If the counter-suit alleges a “Wrongful Act” (negligence/bad design), the insurer has a “Duty to Defend.”
However, the insurer will likely issue a “Reservation of Rights” letter, saying they will defend the $50k claim but will not help you recover your $15k.
The Investigation: I Quoted 3 Options
1. Hiscox
- My Analysis: Very familiar with counter-claims. They will assign defense counsel for the negligence claim. They will not pay for the lawyer to pursue your unpaid invoice, but the same lawyer can often handle the settlement talks for both.
2. LegalShield / Rocket Lawyer
- My Analysis: These are legal service plans, not insurance. They are great for writing the initial demand letter for the $15k. They are useless for defending the $50k malpractice suit (they don’t cover judgments).
3. NEXT Insurance
- My Analysis: Good defense coverage. I verified with an agent that a “retaliatory lawsuit” is still a covered lawsuit if it alleges negligence.
[IMAGE: Diagram showing the separation of “Collection Action” vs “Malpractice Defense”]
Comparison Table: Counter-Suit Defense
| Carrier | Defends Counter-Claim? | Helps Collect Money? | Cost | Best For… |
| Hiscox | Yes | No | | Defense |
| LegalShield | No | Yes (Letters) | $ | Collections |
| NEXT | Yes | No | $ | Budget Defense |
Step-by-Step Action Plan
- Notify Carrier Immediately: Upload the counter-complaint. Do not wait.
- Separate the Claims: Understand that you have two battles. Battle A: Getting paid (You pay lawyer). Battle B: Not paying them (Insurance pays lawyer).
- Let the Insurance Lawyer Lead: Often, the insurance lawyer will tell the client’s lawyer: “We have endless money to fight this $50k claim. Drop it, and maybe my client will settle the $15k dispute.”
- Don’t Drop Your Suit Yet: Keep your leverage until a global settlement is reached.
FAQ
Will my premiums go up?
Yes. A claim is a claim. But paying $500 more a year is better than a $50,000 judgment.
Can the insurance lawyer help me collect?
Technically no, but practically, their presence helps force a settlement.
What if the client is lying?
Insurance lawyers love proving plaintiffs are liars. It makes their job easy.