Everybody makes mistakes. But sometimes a mistake – even an innocent one – can lead to big problems for your freelance business. Here’s how it could happen, and what you can do about it.

A Tale of Two Logos

Emily is a freelance graphic designer. She’s been freelancing for about three years, and she’s been doing pretty well. A lot of her clients come from word of mouth. One day she gets a call from a large company in her town. Their new marketing director was a client of Emily’s at his previous job, and he has recommended her to his new company. Emily is thrilled because this will be by far the largest client she’s ever had.

The company wants a redesign of their logo. Emily works day and night on the project and comes up with three designs. The client meets with Emily to discuss the various options and chooses the logo they like best, tasking Emily to make a few tweaks to the design. When the logo is finished, Emily’s client rolls out their new logo to some fanfare.

A few weeks after the logo’s launch, Emily gets a call from the client. They have received a cease and desist letter from a large company in another industry, who claims the logo Emily designed is similar enough to their logo to cause confusion among consumers.

Emily’s client doesn’t want to get sued by the corporate giant, so they have to change their logo, and they also have to reprint everything that includes it. They can sue Emily to recover part of their costs to do this. Emily has a contract that says that she is providing work for hire, and her work product belongs to her client once she completes it. Yet she can still be sued.

Emily’s was an innocent mistake. She designed the logo herself, and she didn’t think it looked enough like the other corporation’s logo to cause confusion. And maybe it didn’t. But Emily could still be on the hook.

Here’s what Emily needs to know

A contract won’t always protect you. Even the world’s most ironclad contract won’t prevent you from being sued. Some people will sue for anything, even if they seemingly signed away their rights to do so. And they can often find a loophole in the contract that lets them go to court.

A lawsuit is expensive – even if you win it. While you may emerge victorious in court (if it comes to that) you will still have spent a lot of time and money – and probably lost a lot of productive time when you could have been earning income – before you even get to that point.

If you are working as a sole proprietor, your personal assets could be at risk ask well. Unless Emily set up her freelance business as a limited liability partnership or corporation, her client could come after her house, her retirement account, and other assets, if she is found to be liable for the expenses they incurred.

The best way to protect yourself is with liability insurance. Having a professional liability insurance policy could cover Emily’s costs to defend herself against the lawsuit, as well as any settlement or judgment she is required to pay, up to the policy’s limits. When you consider how much you could lose if you were sued for an innocent mistake, business insurance is a good investment. It makes sense to protect the business you’ve worked so hard to build. Learn more about business liability insurance.

Lou Casale is Head of Communications for Hiscox, America’s #1 online small business insurer. They help small business owners, freelancers and entrepreneurs grow & protect their businesses. They #EncourageCourage! Learn more at http://www.freelancersunion.org/benefits/liability.

The contents of this article and the linked materials do not offer legal, business or insurance advice related to the needs of any specific individual business.