Risk Management
Professional liability can have an enormous impact on firms of all sizes. While most CPA firms purchase professional liability insurance to mitigate the impact of a liability claim, there are significant differences between the various policies currently in the marketplace. To assist CPA firms to better understand those differences, we have attached hereto a table comparing the principal provisions of the currently available policies. The members of the Vedder Price Accounting Practice Group are available to advise CPA firms not only about the terms of available policies, but also about each insurer’s underwriting and claims philosophy, which are important factors in assessing insurance coverage. Group members also are available to advise CPA firms on how to apply for insurance coverage and to respond to application questions which could significantly impact the availability and/or scope of liability coverage.
Professional liability insurance, however, is far from a complete answer to liability claims, as those claims often entail numerous costs which are not covered by insurance, such as the loss of reputation and lost time spent searching through the firm’s records and working with the firm’s defense counsel. Moreover, professional liability claims take a toll on the emotional well-being of persons involved with the claim, making them less productive even while they are working on client matters. Thus, every accounting firm should adopt a program of risk management to help prevent liability claims. The members of the Accounting Law Group have written extensively on risk management issues and regularly appear on seminars for accounting firms addressing risk management issues in all aspects of an accounting practice. Included among their writings is the chapter on “Avoiding Legal Liability” in PPC’s Guide To Managing an Accounting Practice and PPC’s Guide To Accountant’s Legal Liability and Risk Management.
Members of the Vedder Price Accounting Law Practice Group have conducted liability hot lines for the New York State Society of CPAs and certain professional liability insurers. They are available to advise accounting firms with respect to liability avoidance techniques including the drafting of engagement letters for unique engagements and the creation of client acceptance and pruning procedures. They also regularly advise accounting firms regarding measures to limit liability exposure when a potential liability claim is encountered, such as (1) when a client threatens a claim, (2) when the firm receives a subpoena or demand for inspection of its work papers, (3) when a client declares bankruptcy or becomes the subject of a regulatory or criminal proceeding, (4) when a client is victimized by an employee defalcation, and (5) when the firm discovers that it has committed an error. The Group also advises accounting firms regarding suits for unpaid fees which frequently precipitate professional liability counter claims.
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