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What are you really covered for and why a comprehensive definition of professional services is necessary for total firm protection?

by Rickard Jorgensen, FCII, ACIArb., ARM

A recent podcast in Accounting Today highlighted the fact that CPA firms aren’t just merging with other CPA firms any more – they are looking to acquire practices in Human Resource, Information Technology, Cyber Security, Web Services, Marketing, Asset Management and financial planning.  The interesting presentation by Transition Advisors’ Bill Carlino talks about the diversification forward thinking CPA firms are seeking and the way these firms are adapting to change and to meet future client demands.

From a professional liability insurance and risk management perspective the challenge is to ensure that the policy provides a sufficiently comprehensive description of services provided.  The new services performed by the acquisitions may have specific professional liability or errors and omissions coverage, or be not encompassed or specifically excluded by your professional liability coverage.

For example, one professional liability insurer defines professional services as follows:

Professional services means the following, as long as such services are performed by you with the knowledge and consent of the named insured:

  1. Accountant and Consultant services;
  2. Investment adviser services;
  3. Bookkeeper, enrolled agent and tax preparer services;
  4. service as a personal fiduciary;
  5. service as an arbitrator, mediator or notary public;
  6. service as a member of a formal accreditation, standards review or similar professional board or committee related only to the accounting profession; and
  7. pro bono services in any of the above capacities.

The leading professional liability program for CPAs defines professional services as follows:

Professional Services means those service:

  1. performed in the practice of public accountancy by you for others for remuneration that inures to the benefit of the Named Insured, including but not limited to consulting services and investment advisory services;
  2. B. pro bono services rendered by those of you specified in paragraph A. and B. of the definition of You, if at the time such services were undertaken, a partner, officer or director of the Named Insured approved the rendering of such services without compensation; or
  3. performed by you for others:
  4. as a personal fiduciary;
  5. as a member of a formal accreditation, standards review or similar professional board or committee related only to the accounting profession; or
  6. 3.   as an arbitrator, mediator or notary public.

Although these definitions may afford adequate coverage for the conventional services delivered by a CPA, they are limited to what is listed in the policy.  If an activity falls beyond the scope of this list, there is no coverage.  Consequently, if your firm’s professional liability policy includes this type of definition of professional services, you should contact your agent before completing any acquisition of a non-conventional services entity.

At CPAGold™, and other progressive insurers, we take a more proactive approach.  The definition of professional services is not a list or schedule of activities.  The policy provides coverage for:

“Professional Services” means services performed or advice given by you to others provided that the remuneration for such services or advice, or a portion thereof, inures to your benefit (unless, with your consent and knowledge, such services or advice are provided Pro Bono). Professional Services shall include your activities performed on behalf of any professional institute or society or duly constituted standards board, and activities performed involving the process of peer review.

This means that subject to any specific policy exclusion, coverage is provided for any services and advice that you received “remuneration” for.  This carefully chosen word is used so the definition may encompass fees, commissions, wages, salary, contingency payment or any other type of compensation for the services provided.

In the event your firm seeks to acquire a non-traditional practice if you have a CPAGold™ policy you may proceed with the confidence that such activities are automatically covered by the comprehensive professional services definition.

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Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or rjorgensen@jorgensenandcompany.com

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