04/12/23 RISKPRO 1

Errors & Omissions Errors & Omissions Insurance Insurance for CPAsfor CPAs

This presentation can be found online at:http://www.slideshare.net/GeraldBrunker/cpa-professional-liability-errors-omissions-riskpro

04/12/23 RISKPRO 2

Errors and Omissions InsuranceErrors and Omissions Insurance

• What is it?– E&O insurance provides insurance coverage for

the negligent acts, errors and omissions of the insured in performing a service

• Who is a professional?• Engineers, architects, accountants, lawyers,

doctors, not just professionals, however – miscellaneous pros and Not For Profits

• E&O policies tend to be tailored to the specific profession of the insured

04/12/23 RISKPRO 3

Duty to ClientDuty to Client

• Standard of care: level of care that is the customary or usual practice of other members of the accounting profession

• Example: failing to file a client’s tax return on time

• CPA professional standards: public interest, due care and objectivity

04/12/23 RISKPRO 4

NegligenceNegligence

• Four key elements to a suit:

• CPA had a duty to the client• Prove CPA breached that duty• Plaintiff must show was injured• Prove breach of duty was proximate

cause of the injury (was breach sufficiently responsible so that CPA should be held accountable?)

04/12/23 RISKPRO 5

AICPA Suit Sources 2005AICPA Suit Sources 2005

• 20% Individual tax returns• 6% Compilation• 5% Bookkeeping• 31% Corporate tax• 38% Other (estate, audits, consulting,

financial planning/advisory, review, tax planning, trust engagements)

04/12/23 RISKPRO 6

Canada 1999-2008Canada 1999-2008

• 9.8% Audit• 5.6% Review• 7.7% Non-review• 54.3% Tax• 3.6% Trustee in Bankruptcy• 3.4% Fee dispute/counterclaim• 3.4% Purchase/Sale Agreement• 12.2% Other

04/12/23 RISKPRO 7

Canada Incurred Claims Canada Incurred Claims 1999-20081999-2008

• 38.5% Tax• 32.9% Audit• 4.4 % Non-Review• 3.6% Review• 2.8% Purchase/Sale Agreement• 2.1% Trustee in Bankruptcy• 15.7% Other

04/12/23 RISKPRO 8

Accounting Professional Accounting Professional Liability InsuranceLiability Insurance

• Covers claims from rendering or failing to render professional accounting services.

• Claims made trigger.• Prior acts coverage.• Defense and payments to third parties.• Endorsements and exclusions.• Limits/deductibles and cost.• Contractual liability (vicarious liability of

consultants).• Extended Reporting Periods (Tail).

04/12/23 RISKPRO 9

Understanding Claims Understanding Claims MadeMade

• Claim made during policy period.

• Claim or circumstance reported during policy period (or if ERP activated).

• Negligent act happened after prior acts or retroactive date.

• Good faith statement no knowledge of negligent act on inception date of policy.

04/12/23 RISKPRO 10

When Insurance When Insurance Will Not ProtectWill Not Protect

• Assume liabilities by contract that are excluded.

• Do or fail to do something to invalidate coverage.

• When damages and costs exceed limits of liability.

04/12/23 RISKPRO 11

E&O Coverage Is Typically Claims-Made E&O Coverage Is Typically Claims-Made

Insurance, Like D&O CoverageInsurance, Like D&O Coverage

• Defense costs are typically “within” limits of liability (defense costs erode the limits)

• 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.

04/12/23 RISKPRO 12

Notice to the Insurer During the Policy Period, or Notice to the Insurer During the Policy Period, or During the “Extended Reporting Period,” if During the “Extended Reporting Period,” if

RelevantRelevant

• 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?– Mini-tails of 30-60 days after policy expiration

typically available– “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.

04/12/23 RISKPRO 13

The Policies Do Not Cover “Non-The Policies Do Not Cover “Non-Damages” Damages”

• No coverage for “fines or penalties imposed by law or other matters which may be deemed uninsurable under the law”

• Return of fees– The return of fees is, arguably,

restitutionary in nature and cannot be considered a form of “loss” or “damages”

04/12/23 RISKPRO 14

Insurance Availability Insurance Availability for Practice Policiesfor Practice Policies

• CNA/Aon/AICPA• Philadelphia Insurance

Cos• Lexington/NH (AIG)

(Chartis)• Argonaut Ins Co• CPA Mutual Insurance

Co• St. Paul/Travelers• Navigators Ins

Co/Brown&Brown• National Casualty

Co/Jamison

• Gen Star/Landy• Admiral Ins Co• Hartford Ins

Company/Target• Evanston Ins Co• James River

Insurance Co• Lloyds of London• CAMICO Mutual Ins

Co• Arch Insurance Group

04/12/23 RISKPRO 15

Basic or Broad CoverageBasic or Broad Coverage

• Basic coverage for accountants, bookkeepers and tax preparers

• Tax engagements, planning• Bookkeeping• Reviews• Compilations• Independent contractors• Notary public

04/12/23 RISKPRO 16

Broad CoverageBroad Coverage

• Higher limits and deductible options• Coverage for reviews and audits• SEC acts/security related activities• Computer hardware/software sales• Investment advice, management

advisory and financial advising• More ERP options (1,3,5 years)• Free Death or Disability ERPs

04/12/23 RISKPRO 17

Special EndorsementsSpecial Endorsements

• Electronic media exposure including social media

• Cyber liability and identity theft• Sarbanes Oxley• Gramm Leach Bliley• Life insurance sales• Services as a registered rep• Employment practices liability

04/12/23 RISKPRO 18

SummarySummary

• Risk management approach– Identify exposure to loss– Reduce frequency of claims– Reduce severity of claims– Self fund high frequency low severity

exposures– Transfer risk of low frequency high severity

claims to insurers

04/12/23 RISKPRO 19

RISKPRO Insurance Agency, LLCRISKPRO Insurance Agency, LLCGerald P Brunker, CPCU, ARMGerald P Brunker, CPCU, ARM

Principal/OwnerPrincipal/Owner

• Facebook: Gerald Brunker & RISKPRO Insurance Agency, LLC

• Twitter: RISKPROInsAgy• LinkedIn: Gerald Brunker• Blog: www.riskpro.us/blog• Email: brunker@riskpro.us

This presentation can be found online at:http://www.slideshare.net/GeraldBrunker/cpa-professional-liability-errors-omissions-riskpro