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Cpa professional liability errors & omissions, riskpro

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CPA Professional Liability, Errors & Omissions, RISKPRO

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Cpa professional liability errors & omissions, riskpro

  1. 1. Errors & Omissions Insurance for CPAs <ul><li>This presentation can be found online at: </li></ul><ul><li>http://www.slideshare.net/GeraldBrunker/cpa-professional-liability-errors-omissions-riskpro </li></ul>
  2. 2. Errors and Omissions Insurance <ul><li>What is it? </li></ul><ul><ul><li>E&O insurance provides insurance coverage for the negligent acts, errors and omissions of the insured in performing a service </li></ul></ul><ul><li>Who is a professional? </li></ul><ul><ul><li>Engineers, architects, accountants, lawyers, doctors, not just professionals, however – miscellaneous pros and Not For Profits </li></ul></ul><ul><ul><li>E&O policies tend to be tailored to the specific profession of the insured </li></ul></ul>
  3. 3. Duty to Client <ul><li>Standard of care: level of care that is the customary or usual practice of other members of the accounting profession </li></ul><ul><li>Example: failing to file a client’s tax return on time </li></ul><ul><li>CPA professional standards: public interest, due care and objectivity </li></ul>
  4. 4. Negligence <ul><li>Four key elements to a suit: </li></ul><ul><li>CPA had a duty to the client </li></ul><ul><li>Prove CPA breached that duty </li></ul><ul><li>Plaintiff must show was injured </li></ul><ul><li>Prove breach of duty was proximate cause of the injury (was breach sufficiently responsible so that CPA should be held accountable?) </li></ul>
  5. 5. AICPA Suit Sources 2005 <ul><li>20% Individual tax returns </li></ul><ul><li>6% Compilation </li></ul><ul><li>5% Bookkeeping </li></ul><ul><li>31% Corporate tax </li></ul><ul><li>38% Other (estate, audits, consulting, financial planning/advisory, review, tax planning, trust engagements) </li></ul>
  6. 6. Canada 1999-2008 <ul><li>9.8% Audit </li></ul><ul><li>5.6% Review </li></ul><ul><li>7.7% Non-review </li></ul><ul><li>54.3% Tax </li></ul><ul><li>3.6% Trustee in Bankruptcy </li></ul><ul><li>3.4% Fee dispute/counterclaim </li></ul><ul><li>3.4% Purchase/Sale Agreement </li></ul><ul><li>12.2% Other </li></ul>
  7. 7. Canada Incurred Claims 1999-2008 <ul><li>38.5% Tax </li></ul><ul><li>32.9% Audit </li></ul><ul><li>4.4 % Non-Review </li></ul><ul><li>3.6% Review </li></ul><ul><li>2.8% Purchase/Sale Agreement </li></ul><ul><li>2.1% Trustee in Bankruptcy </li></ul><ul><li>15.7% Other </li></ul>
  8. 8. Accounting Professional Liability Insurance <ul><li>Covers claims from rendering or failing to render professional accounting services. </li></ul><ul><li>Claims made trigger. </li></ul><ul><li>Prior acts coverage. </li></ul><ul><li>Defense and payments to third parties. </li></ul><ul><li>Endorsements and exclusions. </li></ul><ul><li>Limits/deductibles and cost. </li></ul><ul><li>Contractual liability (vicarious liability of consultants). </li></ul><ul><li>Extended Reporting Periods (Tail). </li></ul>
  9. 9. Understanding Claims Made <ul><li>Claim made during policy period. </li></ul><ul><li>Claim or circumstance reported during policy period (or if ERP activated). </li></ul><ul><li>Negligent act happened after prior acts or retroactive date. </li></ul><ul><li>Good faith statement no knowledge of negligent act on inception date of policy. </li></ul>
  10. 10. When Insurance Will Not Protect <ul><li>Assume liabilities by contract that are excluded. </li></ul><ul><li>Do or fail to do something to invalidate coverage. </li></ul><ul><li>When damages and costs exceed limits of liability. </li></ul>
  11. 11. E&O Coverage Is Typically Claims-Made Insurance, Like D&O Coverage <ul><li>Defense costs are typically “within” limits of liability ( defense costs erode the limits) </li></ul><ul><li>E&O policies fill a “gap” in coverage afforded by commercial general liability policies that include exclusions for claims arising out of rendering or failing to render professional services. </li></ul>
  12. 12. Notice to the Insurer During the Policy Period, or During the “Extended Reporting Period,” if Relevant <ul><li>What happens when the claim is made against the insured during the last week of the policy period and the insured may not have had time to report it to the insurer? </li></ul><ul><ul><li>Mini-tails of 30-60 days after policy expiration typically available </li></ul></ul><ul><ul><li>“ Extended Reporting Period” can be purchased for one year – often for a premium of 100% of original premium – not an additional year of claims made coverage – it is a reporting period. </li></ul></ul>
  13. 13. The Policies Do Not Cover “Non-Damages” <ul><li>No coverage for “fines or penalties imposed by law or other matters which may be deemed uninsurable under the law” </li></ul><ul><li>Return of fees </li></ul><ul><ul><li>The return of fees is, arguably, restitutionary in nature and cannot be considered a form of “loss” or “damages” </li></ul></ul>
  14. 14. Insurance Availability for Practice Policies <ul><li>CNA/Aon/AICPA </li></ul><ul><li>Philadelphia Insurance Cos </li></ul><ul><li>Lexington/NH (AIG)(Chartis) </li></ul><ul><li>Argonaut Ins Co </li></ul><ul><li>CPA Mutual Insurance Co </li></ul><ul><li>St. Paul/Travelers </li></ul><ul><li>Navigators Ins Co/Brown&Brown </li></ul><ul><li>National Casualty Co/Jamison </li></ul><ul><li>Gen Star/Landy </li></ul><ul><li>Admiral Ins Co </li></ul><ul><li>Hartford Ins Company/Target </li></ul><ul><li>Evanston Ins Co </li></ul><ul><li>James River Insurance Co </li></ul><ul><li>Lloyds of London </li></ul><ul><li>CAMICO Mutual Ins Co </li></ul><ul><li>Arch Insurance Group </li></ul>
  15. 15. Basic or Broad Coverage <ul><li>Basic coverage for accountants, bookkeepers and tax preparers </li></ul><ul><li>Tax engagements, planning </li></ul><ul><li>Bookkeeping </li></ul><ul><li>Reviews </li></ul><ul><li>Compilations </li></ul><ul><li>Independent contractors </li></ul><ul><li>Notary public </li></ul>
  16. 16. Broad Coverage <ul><li>Higher limits and deductible options </li></ul><ul><li>Coverage for reviews and audits </li></ul><ul><li>SEC acts/security related activities </li></ul><ul><li>Computer hardware/software sales </li></ul><ul><li>Investment advice, management advisory and financial advising </li></ul><ul><li>More ERP options (1,3,5 years) </li></ul><ul><li>Free Death or Disability ERPs </li></ul>
  17. 17. Special Endorsements <ul><li>Electronic media exposure including social media </li></ul><ul><li>Cyber liability and identity theft </li></ul><ul><li>Sarbanes Oxley </li></ul><ul><li>Gramm Leach Bliley </li></ul><ul><li>Life insurance sales </li></ul><ul><li>Services as a registered rep </li></ul><ul><li>Employment practices liability </li></ul>
  18. 18. Summary <ul><li>Risk management approach </li></ul><ul><ul><li>Identify exposure to loss </li></ul></ul><ul><ul><li>Reduce frequency of claims </li></ul></ul><ul><ul><li>Reduce severity of claims </li></ul></ul><ul><ul><li>Self fund high frequency low severity exposures </li></ul></ul><ul><ul><li>Transfer risk of low frequency high severity claims to insurers </li></ul></ul>
  19. 19. <ul><li>This presentation can be found online at: </li></ul><ul><li>http://www.slideshare.net/GeraldBrunker/cpa-professional-liability-errors-omissions-riskpro </li></ul>RISKPRO Insurance Agency, LLC Gerald P Brunker, CPCU, ARMPrincipal/Owner <ul><li>Facebook: Gerald Brunker & RISKPRO Insurance Agency, LLC </li></ul><ul><li>Twitter: RISKPROInsAgy </li></ul><ul><li>LinkedIn: Gerald Brunker </li></ul><ul><li>Blog: www.riskpro.us/blog </li></ul><ul><li>Email: [email_address] </li></ul>

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