Click Here for a free estimate!

25 East Spring Valley Avenue
Maywood, NJ 07607
1 (877) CPA-GOLD

Why Full Tort coverage is crucial for CPAs.

scales

The first accountants’ professional liability insurance policy was written in the late 1930s following the decision in Ultramares Corporation v. Touche, 174 N.E. 441 (1932).  Coverage was basic – limiting the risks insured to claims made by clients arising from negligence acts.  In fact, the doctrine of negligence arose from the Scottish law case of Donoghue vStevenson when in 1932 a manufacturer left a snail in a bottle of ginger beer.

Negligence claims arise from the careless acts, errors or omissions in the performance of professional services by CPAs to clients.   Since those early days, the risks faced by CPAs have expanded beyond purely negligence acts, to encompass a broad range of allegations made by aggrieved clients.

A malpractice lawsuit against a CPA often includes allegations of intentional acts, including, but not limited to, breach of contract or duty, error, misstatement, misleading statement, acts, or omissions.  Creative plaintiff attorneys bring suits against CPAs making as many allegations of wrongdoing as is reasonably possible – negligence is only one of the “heads” of damages.  Consequently, a CPA’s attorney will have to file a defense that responds to ALL the allegations made in the suit.

Examples of Intentional Torts

  • Assault.
  • Battery.
  • False imprisonment.
  • Conversion (i.e. Theft).
  • Intentional infliction of emotional distress.
  • Fraud/deceit.
  • Trespass (to land and property)
  • Defamation
  • Tortuous interference

The following flowchart illustrates the dimensions of tort liability:

torts

But what about malpractice insurance coverage?  After all, the insurer is going to be paying for the cost of defending the lawsuit.  The quality of defense provides depends upon the extent of coverage.  Claims adjusters often use a principle called “allocation” which simply means that the insurer will only pay for defense of a covered claim, but not the ancillary allegations.  This creates an uninsured exposure for the CPA.

So if you purchased a professional liability policy that limits coverage to negligent acts – or your policy includes an exclusion for intentional acts – then part of your malpractice claim may not be covered. Of course, insurers have a duty to defend policyholders – and may provide for the cost of counsel up until a final adjudication – but ultimately an insurer will send you a bill for the uninsured portion of the claim.

At the time of writing, the following is a sample of insurers that currently offer a negligent acts only policy:

Insurer: Form Number: Pertinent section of the policy wording:
Aspen  ASPCPA002 1016 Wrongful Act means any actual or alleged negligent act, error or omission, Personal Injury, Network Security Event or Advertising Injury
Great Divide (CAMICO) BDP-PL-1000-A (Ed. 0814) The Company will pay those sums that an Insured becomes legally obligated to pay as Damages because of a Claim arising out of an Insured’s negligent act, error or omission in rendering or failing to render Professional Services performed
Hanover  (CPAProOne)  915-0001 02 12 Wrongful act means any actual or alleged negligent act, error, omission, or misstatement committed in your rendering of or failure to render
Hiscox  WCLMPL P0011 CW (11/15) We will pay up to the coverage part limit for damages and claim expenses in excess of the retention for covered claims against you alleging a negligent act, error, or omission in your accounting services performed
Markel  MAC 0001 08 12 “Wrongful act” means any actual or alleged:

  1. Negligent act or error or omission;
  2. “Personal injury”; or
  3. “Advertising injury”.

 

My underline.

The following insurers currently offer a full tort policy:

Insurer: Form Number: Pertinent section of the policy wording:
AIG 99674 (08/08) Wrongful Act means any actual or alleged act, error or omission, breach of duty, or Personal Injury
Argo INAC0001-0708 Wrongful Act means any actual or alleged act, error, omission or breach of duty by any Insured in the rendering of or failure to render Professional Services.
CAMICO PL-1000-A (rev. 07/14) The Company will pay those sums that an Insured becomes legally obligated to pay as Damages because of a Claim which arises from an Insured’s act, error or omission in rendering or failing to render Professional Services
CNA G-127136-Ed. 1/08 Covered Act means any actual or alleged act, error, omission or Personal Injury
Gen Star ACC 00 000111 12 Wrongful Act(s) means:

  1. Personal Injury; or
  2. Acts, errors or omissions,

arising out of the rendering or failure to render Professional Services by any Insured.

Monitor (Lockton) APL 38400 (06-14) act or omission solely in the performance of Professional Services by the Insured or by any person for whom the Insured is legally liable,
Navigators NAVAPL arising out of any act, error or omission of the Insured in rendering or failing to render Professional Services for others
ProSight LML 00 08 0713 “Wrongful Act” means any actual or alleged act, error or omission, any non-contractual obligation, or Personal Injury committed by an Insured or by an Affiliated Firm arising out of the rendering of or failure to render Professional Services for others.
Scottsdale QWH-P-1 (3-16) WRONGFUL ACT means any actual or alleged act, error or omission in rendering or failing torender PROFESSIONAL SERVICES and shall also include PERSONAL INJURY arising out of PROFESSIONAL SERVICES.
Travelers APL-1001 Ed. 11-08 Wrongful Act means any:

  1. actual or alleged act, error, omission, or Personal Injury Offense in the rendering of, or failure to render, Professional Services;
QBE (CPAGold) QBEAPOL 01 CW [10/15]) Covered Act means any actual or alleged act, error, omission or Personal Injury committed by you in the rendering of or failure to render Professional Services after the Retroactive Date.

Of course, policies can be endorsed and modified, but it is very unusual to change the fundamental basis of coverage via endorsement.  However, if available, request an endorsement to change the policy to full tort coverage.

Check your policy.  You will find the clause relating to whether your policy is limited to negligent acts in the preamble of the policy or the definition of covered or wrongful acts.  Get it removed if you can.  It could save you thousands of dollars in uninsured claims.

———————————————————————————————————————

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, FCII, ARM, ACIArb is the founder and President of Jorgensen & Company, a risk management consultant and professional risk specialist.  Since 1999, Jorgensen & Company has developed and managed specialty insurance programs for CPAs, lawyers and Investment Professionals.

Contact Rickard at: rjorgensen@jorgensenandcompany.com or 201 (345) 2440.

 

 

 

 

 

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>