Far too often NY accountants professional liability insurance is overlooked and under-appreciated for the coverage it provides to an accounting firm. In most cases accountants professional liability is the largest exposure to loss an accounting firm has.
Here’s the deal, commercial general liability insurance does not protect accountants or accounting firms from losses that allege harm from an accounting-related act.
Let me write that again so that we’re clear. The actual work you do as an accountant and as an accounting firm is NOT covered under a standard business owner’s policy or business insurance package policy.
Your basic business insurance general liability coverage excludes any loss involving professional services. This creates a serious gap in coverage for any accounting firm trying to operate for the long haul as issues will always crop up. There will always be that one disgruntled customer. The customer you never wanted to begin with… If a a professional liability claim is arise the defense costs alone could cripple your business. Luckily there is a solution to this coverage known as NY Accountants Professional Liability Insurance.
NY Accountants Professional Liability Insurance policies cover losses that involve:
- negligent acts in auditing and preparing financial statements
- providing faulty tax advice
- providing poor investment and/or general business advice
The accountant professional liability insurance policy provides defense costs against these claims regardless of frivolity.
The perpetual introduction of new legislation and regulation to the accounting industry, such as the Sarbanes-Oxley Act, creates constant new professional liability exposures.
Do NOT assume you have accounts professional liability insurance just because you have an insurance policy!
NY accountants professional liability insurance policies are not standardized, so it is critical to review the coverage included in the specific policy you are purchasing. Every NY insurance carrier is going to have their own unique set of policy forms with respect to professional liability.
In general, professional liability policies have the following coverage in common:
- coverage is on a claims-made basis
- it is subject to a specific deductible
Note: Policies tend to differ on whether the deductible applies per claim or is an annual aggregate.
- coverage is available for prior acts and predecessor firms.
Accountants Professional Liability Insurance are Claims-Made Policies
In the vast majority of cases NY accountants professional liability insurance policies are a claims-made policy and which include two dates that affect coverage.
First, the Retroactive Date is usually specified in the Declarations page. The act, error or omission representing a potential claim must have taken place after the stated Retroactive Date and be prior to the expiration date of the policy.
Second, the claim itself must have been initially made (reported) during the covered policy period or its extended reporting period.
Coverage applies to the named insured and others defined as insureds. Typically the definition includes partners, directors, officers, employees, stockholders and heirs. Coverage applies worldwide, provided that a claim is made (or first made) in the United States, its territories or possessions, or Canada.
In most cases, defense costs ares are included within the specified limits of liability.
Exclusions to Accountant Professional Liability Policy
Accountants Professional Liability Policies usually exclude exposures for which are covered on other policy forms such as general liability. Losses based on allegations of fraud, dishonesty or criminal acts or those committed for personal profit are not covered. However, the cost of defense of such claims may be paid as an insurer may be obligated to provide a defense until a determination can be made about eligibility.
Other excluded items are loss due to business risks, as distinguished from those of a professional nature, as they should be covered by the insured’s general liability policy. Coverage is not available for claims resulting from noncompliance with securities laws or for those relating to the sale of stock.
Additional Endorsements to NY Accountants Professional Liability Insurance
Additional coverage is always based on the specific carrier and policy form on which the accountants professional liability insurance policy is written as well as the unique individual risk and coverage features of your business.
Extended Claims Reporting Period Endorsement
This endorsement lengthens the time during which the insured may report claims to the company. It applies when a policy has been canceled or non-renewed by the insured or the company. The term of the reporting period is indicated in the endorsement. Generally the extension lasts, at a minimum, one year.
Auditing Services Endorsement
This endorsement provides coverage for losses related to auditing commercial clients’ financial statements. This endorsement is especially handy when you have commercial clients who disagree with your assessments of their financial statements. Coverage availability may depend upon the type of industries that the firm specializes in, fees collected, client size and loss experience.
Defense Costs Outside the Limit Of Liability
Expenses associated with retaining attorneys and others who are specialists in complex accounting matters can become large quite quickly. If you do not have a Defense Outside the Limit Policy than these costs can reduce your professional liability insurance limit before you use it towards a judgement or settlement. I highly recommend that in all cases of NY accountants professional liability insurance you purchase a policy that contains defense cost outside the limit of liability.
Employment Practices Liability
Employment practices liability insurance provides coverage for claims alleging harm due to interactions with your own employees, including hiring, work environment, employee supervision, evaluations, discipline, and terminations.
Financial Consulting Services Endorsement
This endorsement extends the accountants professional liability protection to handle losses related to handling and advising clients on investments, savings and securities
Information Technology Services Endorsement
With this endorsement to your professional liability policy, insurance protection extends to activities which involve providing information technology services to clients that are outside of the normal, accounting services. Covered activities typically include:
- Data entry
- Hosting Services
- Network Consultation
- Software/Hardware Recommendations
- System Maintenance
- Web Page Development
Trustee and Estate Management Endorsement
This coverage is not always a typical endorsement to the NY Accountants Professional Liability policy but rather a cause of loss added to the original set of coverages based on your businesses particular client roster and experience working in with personal or commercial trusts and estates.
The Insurance Take-Away
NY accountants professional liability insurance is an absolute necessity for any firm in the accounting business. In most cases an accounting firms largest exposure to loss is the professional exposure not the more traditional general liability insurance exposures like slips and falls.
If you have questions about your current accountants professional liability policy or if you would like to receive a quote for accountants professional liability please call our professional lines insurance specialist, Ryan Murray at (518) 456-6688 or click here to begin the process by email.
Ryan Hanley, CIC