Five Common Missteps in Managing CPA Liability Risk
Managing CPA liability risk exposures is a complex process, and it's easy to underestimate the potential for risk along the way. The following five missteps can be avoided by being aware and taking the right actions.
1. Not discussing questions about the insurance application with your underwriter or agent.
Whether it's for a new or renewal policy, the better the job you do with the application, the better your chances for avoiding missteps and problems. Take time to review the questions and determine what information and data you will need for it; if you're unsure about a question or the information being asked, give your agent or underwriter a call to have them explain it to you. State the information accurately. Applications are not opportunities to market or embellish your firm's profile. Misstatements may result in a higher premium or policy coverage issues if incorrect information is provided. CAMICO encourages CPAs to call their underwriters or agents with questions about the application and the information requested. A phone call is an easy way to correct errors before they occur.
2. Not having appropriate policy limits for your firm profile.
Excessively high insurance limits offered at bargain prices are red flags. High limits will often put a bigger bullseye on your firm and potentially lengthen the claims process. However, you also need to carry enough liability to be able to protect yourself in the event of a bad claim or to fight a frivolous claim. A specialized underwriter, agent, or account executive can discuss your firm's specific risk exposures, policy limits, and coverage options. Each accounting practice is unique—tax specialists face exposures different from those of auditors. An underwriter or agent experienced in CPA firms will work with you to create a policy that addresses your specific risk areas, with the appropriate limits and cost structure.
3. Admitting liability, assuming damages, voluntarily making any payments, or incurring claims expenses.
These are all actions a CPA firm must avoid without the insurance company's prior written consent. Such actions will likely violate policy conditions, potentially resulting in a denial of coverage. Policyholders should not take action without first receiving guidance from a risk adviser with the insurance company. Avoid agreements that include "hold harmless" or one-sided indemnification provisions that are not in the firm's favor. Firms that go along with clients in attempting to handle a problem internally without reporting it are sometimes surprised to find later that the problem is much larger than it appeared. If the problem was not reported promptly in accordance with the policy, the damage might not be covered.
4. Not reporting a potential claim as early as possible.
The sooner claims and potential claims are reported, the more effectively an insurer can achieve an early resolution. Early reporting will also help assure coverage for the potential claim. CAMICO encourages early reporting by reducing the deductible by 50 percent, up to $50,000, for a potential claim reported during the policy period in which it becomes known. Further, if it is determined that it is appropriate to retain legal counsel to assist with a pre-claim situation, CAMICO will absorb the legal expenses, help policyholders achieve a resolution with the client, prepare a tax penalty abatement request, draft talking points for communicating the facts of the situation with the client, and provide subpoena and other services if the need arises.
CPAs are often so busy that they don't recognize or acknowledge a potential claim as it develops, which can be particularly devastating when the damages claimed are significant and not covered due to late reporting. CPAS need to monitor potential issues and report them to their carriers as soon as they suspect a problem. Also, CAMICO's new "continuity of coverage for potential claims" helps eliminate coverage gaps for known potential claims that the insured fails to report promptly.
5. Not utilizing the insurance program's advisory, loss prevention, and risk management services.
The best way to avoid a claim is to manage the risks that lead to claims. Some basic risk management tools, such as client screening, engagement letters, and follow-up documentation, are crucial for managing potentially major problems into minor ones. The more tools and resources an insurance program provides its policyholders, the better those policyholders will be at avoiding or minimizing problems and disputes. A good insurance program will also advise you on how to utilize its resources to help your firm improve its practices. You can also get a good feel for a company's service and attitude toward its policyholders by using its services. If you are interested in a good partnership with your company, the company should do its best to help you minimize your losses and control your premiums.
The information provided is a general overview and not intended to be a complete description of all applicable terms and conditions of coverage. Actual coverages, risk management services, and resources may vary and are subject to policy provisions as issued. Coverage and risk management services may vary and are provided by CAMICO and/or through its partners and subsidiaries.