Consulting on Street Lighting: Consulting Firm to Pay 20.000 Euros in Compensation
Consultants often ensure their clients are in the best light with their advice. That was literally the case in this real damage event from the exali files: A consulting firm was supposed to advise a municipality that wanted to convert its street lighting to LED lights. Why were the consultants alleged to be responsible for damages of over 20.000 euros, despite the client having accepted the work ...
Street Lighting Was Supposed to Be Converted to LED
This case, which happened to an exali policyholder, involves a consulting company that was supposed to advise a municipality on the subject of street lighting. They wanted to know whether it was worth converting the street lighting to LED lights and how much the community could save in costs as a result.
The consulting company calculated the cost savings that could be gained by the new lights, created an overview of the savings potential and ultimately recommended that the municipality convert to LED lights, which they then carried out. After the project was completed, the municipality accepted it and signed the delivery confirmation.
Consultants as Scapegoats
Everything appeared to go according to plan, but the case became bizarre after the end of the project. The consulting firm received a letter out of the blue from a lawyer who was commissioned by the municipality. The municipality held the consultants responsible for pretty much everything that they believed went wrong with the changeover. Here is the lawyer’s list in detail:
- The costs for retrofitting the street lighting were much higher than calculated
- The stated cost reduction through the LED lights did not occur
- The street lighting cannot be “dimmed”
- Additional costs were incurred due to the coordination with the network operator and the company that carried out the conversion
A Claim for Damages of 20.000 Euros and Nobody Knows How They Arrived at the Number
The lawyer accused the consultants of “misconduct” and put the damage caused to the municipality as a result of the incorrect advice at around 20.000 euros. However, it remained a mystery how they came up with this sum. Likewise, it was unclear why the consulting company should be to blame for all of this when it was only commissioned to calculate the savings potential through the LED lights and to make a recommendation.
It was also the responsibility of the municipality that the savings were not as high as calculated. Because, after the consultants’ examination, it came out that the municipality had not yet requested that the responsible energy provider adjust the flat-rate electricity billing.
In short, neither the reason nor the amount of the claim by the municipality were justified or comprehensible!
Professional Indemnity Insurance Helps Fight the Claim for Compensation for Damages
In the end, this is how the insurer saw it. The consulting company had taken out a Professional Indemnity for Consultants through exali.com and reported the case to us. After consulting, the insurer was unable to identify any consulting errors or omissions on the part of the policyholder from the facts and therefore commissioned a specialised law firm to defend against the claim for damages. At the moment the case has gone quiet, and it looks like the other side has realised that their allegations are baseless. As soon as there is more news, you will find out here!
The case shows very impressively how important the legal protection function in professional indemnity insurance is. Not all claims are justified after all. However, a legal dispute regarding such claims and, as in this case, for example, hiring a specialised law firm is costly. These costs are covered through professional indemnity insurance.
In the event of a claim for compensation for damages or a warning, the insurer will check at its own expense whether the claim is justified. If – as in this case – it is in all likelihood not justified, the insurer will cover the costs of fighting the claim, as with a private legal expenses contract. For example lawyer, court or expert fees are covered (in technical jargon: passive legal expenses insurance) This way, your insurance company will look out for you if you are confronted with unjustified or exaggerated claims as a consultant. That means, no matter how the case ultimately ends, your business is well protected with professional indemnity insurance.
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