Claims Corner: Accountants, Bookkeepers and Tax Professionals

In today’s economy, there are many professionals working as freelancers and independent contractors or in a part-time capacity.  Although their businesses vary, professionals tend to share strong education credentials or licensing, financial stability, successful business management, and expertise in their fields.  Something else professional share is the fact that their professional endeavors come with legal exposure.  

In today’s litigious society, claims and lawsuits against professionals have become all too common.  As such, it is important to carefully consider procuring professional liability insurance to cover the wide range of existing professional exposures.  Professional liability insurance allows part time professionals to practice with peace of mind.

Through this series of articles, we examine claim scenarios to illustrate the exposures professionals are faced with and identify best practices.

Case Study 1

The insured tax professional was providing tax advice to her client.  The client was audited by the IRS and the audit resulted in fines and penalties.  

The client made a claim against the insured alleging that it was the insured’s negligent advice with respect to taking certain deductions that resulted in the fines and penalties from the IRS.  Counsel for the insured could not find an expert who would support the advice given by the insured to the client such that the matter could not be successfully defended in court.

Key Takeaway: Continuing education is critical for any professional to ensure you stay current with the latest developments. Furthermore, other professionals, found at an association (such as the Digital Bookkeeper Association) or even a facebook group, may offer valuable insights and guidance.

Case Study 2

The insured accountant was sued for his alleged failure to follow generally accepted auditing standards which would have uncovered a scheme that duped the bankers and the purchaser of a small manufacturing company.  With a CPA’s assurances and a clean audit opinion, the purchase was consummated. 

Unfortunately, within three months of closing, the purchaser determined that over one-half the accounts receivable were bogus and uncollectible.  The purchasers sued the insured for damages.

Key Takeaway: Ensure you carry the appropriate experience to effectively service your clients. 

Case Study 3

The insured bookkeeper provided services for several entities of a client.  The client alleged the bookkeeper made numerous mistakes including incorrectly recording transactions.  

The client stopped paying the bookkeepers fees and subsequently terminated the engagement with the bookkeeper several months later. A claim was made against the bookkeeper for the additional costs incurred as a result of the retroactive clean up.

Key Takeaway: The non-payment of fees by a client often represents a major red flag.  Actively manage your clients to ensure you understand their rationale and allow you to actively manage such a situation.

Want Further Insights?

Learn more through our Claims Corner series. While the claim examples may be profession specific, you can learn best practices insights regardless of your profession.

Disclaimer: The claim scenarios provided herein are hypothetical in nature and presented for illustrative purposes only. These scenarios are simply examples and do NOT represent a guarantee of coverage or payment. Insurance policies vary in coverage and some may not provide coverage for certain claim scenarios due to a variety of issues and facts that make each claim unique. Coverage decisions are subject to all terms and conditions of the applicable insurance policy, including specific exclusions and limitations, as well as applicable local, state and/or federal law. Absent an actual claim being presented to the company according to the provisions outlined in the policy, and a subsequent investigation occurring based on its merits, any type of a coverage determination cannot be made.

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