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Claims 5 – a risk management protocol

The prior knowledge limitation wording in a Claims Made professional liability policy means that if a member of your firm fails to notify an insurer of a claim or an incident that might reasonably be believed to give rise to a claim during the period of coverage, then the insurer can deny coverage.

Early detection, assessment and notification to your insurer are crucial components of the initial stages of a successful claim. However, to ensure compliance with the policy terms, conditions and exclusions, a well-managed CPA firm should have in place a risk management protocol that is known to, and followed by, all staff.

There are three types of situations that might be deemed “reportable” to an insurer:

  • An incident which is knowledge of an act, omission or other circumstance that may give rise to a claim now, or in the future.
  • A Subpoena and Subpoena duces tecum or Regulatory Complaint which involves a client or related third party and has the possibility of an allegation of negligence by the CPA firm.
  • Suit papers or a letter from a counsel that makes an allegation of negligence by the CPA firm.

 The following is a suggested risk management protocol.

 1.0    Incidents:

As noted above, these matters are usually defined in the professional liability policy as circumstances that might reasonably be believed to have the potential to develop into a claim. These are more fully described in the blog posting: http://cpagold.com/2016/09/claims-2-when-is-a-claim-a-claim/. If there is a specific situation of this nature, then the following protocol should be followed.

 1.1       Internal communications:

  • The staff member that discovers the situation should immediately notify the risk partner or person designated with the coordination of claims at the firm.
  • The staff member should also notify the department head or practice leader.
  • The risk partner should advise the managing partner and/or executive committee.
  • The risk partner should interview the staff member(s) that have knowledge of the situation that may give rise to a claim.
  • If this is a cyber attack, the risk partner should gather facts and establish the extent of the exposure.
  • Contact the insurer’s pre-claims assistance line or the Cyber insurer’s support service provider.

1.2       Evaluation of the risk potential

The risk partner should:

  • establish the scope of the incident and the reasons for anticipating a claim;
  • determine the nature and date of services;
  • assess the extent of the damages sustained;
  • should identify the parties impacted and the possible claimants; and,
  • calculate a preliminary estimate of exposure to the firm.

1.3       Contact the Insurance Carrier

The risk partner should:

  • notify insurance company and agent;
  • complete claim notification form, if appropriate; and,
  • request counsel assignment, if appropriate.

1.4       Other Communications (as appropriate)

Once the insurance adjuster and/or assigned defense counsel has been consulted, the risk partner should coordinate communications with these persons in connection with the following parties:

  • Clients.
  • Vendors.
  • Law Enforcement.
  • Vendors and service providers.
  • Other Third Parties.

2.0    Subpoena and Subpoena duces tecum or Regulatory Inquiry:

 Often professional liability policies contain a coverage extension that provides separate and additional coverage for subpoenas and/r regulatory complaints. Usually the Subpoena arises from a situation that has not been previously notified to an insurer as a claim, or may be limited to matters “arises out of a lawsuit to which you are not a party” or where a firm is providing testimony in connection with a lawsuit.

Regulatory inquiries may be commenced by the local State Board of Accounting, AICPA, PCAOB, FINRA or the SEC, and others, and require a formal response. 

2.1       Internal Communication

  • The staff member that has received the subpoena or inquiry should immediately notify the Risk Partner.
  • The staff member should notify the Department Leader, if applicable.
  • The Risk Partner should liaise with Managing Partner and Executive Committee.
  • The Risk Partner or designate to interface with staff member(s) involved:
    • There should be no attorney communication other than assigned counsel.
    • Discussion should be limited to the Risk Partner and designate(s).

 2.2       Evaluation

 The Risk Partner should determine:

  • the scope of Subpoena;
  • all parties effected; and,
  • the preliminary estimate of exposure, if any.

2.3       Insurance Carrier

 The Risk Partner should:

  • notify insurance company and agent;
  • send completed Claims Notification form;
  • complete supporting information; and,
  • request counsel assignment.

2.4       Other Communications (as appropriate)

As above, once the insurance adjuster and/or assigned defense counsel has been consulted, the risk partner should coordinate communications with the following in connection with the following parties:

  • Clients
  • Vendors and service providers
  • Other Third Parties

2.5       Document Production

The Risk Partner should review:

  • Client Files, electronic
  • Exchange Emails, electronic
  • Paper files, if any
  • Determine from counsel if documents are on “litigation hold

 2.6       Other, if applicable

  • The risk partner and staff member should work with assigned counsel to prepare for any depositions.

3.0    Lawsuit:

3.1       Internal Communication

  • The staff member that received the suit papers should immediately notify the Risk Partner.
  • The Risk Partner should immediately notify the Department Leader, if applicable.
  • Risk Partner to interface with Managing Partner and Executive Committee
  • Risk Partner or designate to with CST members involved

3.2       Insurance Carrier

The Risk Partner should:

  • notify insurance company and agent;
  • send completed Claims Notification form;
  • compile supporting information; and,
  • request counsel assignment.

3.3       Evaluation

The Risk Partner should:

  • determine the nature of Suit;
  • quantify the damages claimed;
  • identify all parties effected; and,
  • make a preliminary estimate of the cost of the claim.

3.4       Document Production

In conjunction with staff member(s) and department leader, the Risk Partner should identify and collect:

  • client Files, including electronic records and data;
  • copies of emails and other communications;
  • copies of paper files, if any; and,
  • determine from counsel if documents are on “litigation hold”.

3.5       Litigation Process

In conjunction with assigned counsel, staff member(s) and department leader, the Risk Partner should prepare:

  • a response to complaint;
  • a response to interrogatories;
  • for the deposition and attend the deposition; and,
  • for any Alternative Dispute Resolution, including Mediation or Arbitration.

3.6       Trial

 In conjunction with assigned counsel, staff member(s) and department leader, the Risk Partner should:

  • prepare for witnesses for Testimony; and,
  • attend the trial and assist witnesses to give Testimony.

Of course, any risk management protocol should be tailored to fit the needs of a specific firms and the foregoing is merely an example. The firm’s Risk Partner should work with the management team, insurance agent, risk management consultant and outside counsel to design an efficient protocol.

Finally, because CPAGoldTM provides access to a risk management hotline, a conversation with Ralph Picardi may also be of benefit in this process.  Go here for details.

 

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