Many small accounting firms forego buying professional liability insurance for accountants, due to their belief that their firm isn’t exposed to any real risks as they only perform simple tax work and therefore insurance isn’t necessary. The truth of the matter is that anyone providing their services, including accountants, can truly benefit from having professional liability coverage on hand as it can be a critical component to managing inherent risks associated with this line of work.
With tax preparation representing a large percentage of the claims brought against accountants, why risk losing everything as a result of a costly lawsuit? For example, clients not happy with the outcome of the services they’ve been provided with, may cite errors in judgment, make claims of late and improper filings, or even say that they received poor tax advice. Cost certainly shouldn’t be a factor, because professional liability insurance premiums generally average below one percent of a small firm’s annual revenues.
Defending a claim can be costly
Whenever a claim is brought against an accountant, it’s usually couched as a demand to correct an error or perceived one, or it may actually come in the form of a lawsuit filed against the firm. The fact is that, when claims are made, legal expenses can quickly add up. Even in cases where a judge deems there is no merit for a claim, it can still result in significant legal expenses. Regardless of the validity of a claim or its final disposition, having an expert helping you when fighting a claim is a very valuable asset to have.
Prior acts coverage
Policies are written on a “claims made and reported basis”, meaning that your insurance for accountants must already be in place at the time a valid claim is made. This differs from “occurrence policies,” which are triggered by the date of a loss. Professional liability policies are triggered by the date the claim is made and reported to the insurance company. A policy in force today would cover an allegation evolving out of a tax return that may have been completed over a year ago.