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Fundamental Coverage Deficiency – delayed notice of claims

Stressedby Rickard Jorgensen, FCII, ARM, ACIArb

WHY IS THIS IMPORTANT – if you have a multi-partner or multi-office firm and communication regarding potential claims might be delayed, then it is important to ensure that your insurer will not deny coverage if you don’t advise a potential claim until after the renewal date.

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When reviewing the CPAGold™ policy and comparing this with a competitor’s APL policy, our coverage attorneys drew my attention to a real tricky issue.

CPAGold™ provides the following coverage part in the preamble of the policy:

1.     INSURING AGREEMENTS

1.1.         Professional Liability

We will pay on your behalf all sums in excess of the applicable Deductible amount stated in the Declarations that you become legally obligated to pay as Damages and Defense Expenses resulting from a Claim first made against you during the Policy Period, or an Extended Reporting Period, if applicable, as a result of a Covered Act committed by you, provided that:

1.1.1       you report the Claim in writing to us as soon as practicable, but in no event later than the end of the Policy Period, or during an Extended Reporting Period, if applicable;

1.1.2       the Covered Act was committed on or after the Retroactive Date and before the end of the Policy Period; and

1.1.3       prior to the inception date of this Policy you did not have a basis to foresee that such Covered Act might reasonably be expected to give rise to a Claim, unless such Claim became known to you after the issuance of your first Accountants and Consultants Professional Liability Insurance Policy by us and that has been continuously renewed by us.

A copy of the CPAGold policy is here.

The competitor’s policy states the following in Form # 915-0001 02 12:

A. COVERAGE

Professional Services Coverage

We will pay on your behalf those sums which you become legally obligated to pay as damages and claim expenses because of any claim made against you arising from a wrongful act in the rendering of or failure to render professional services, provided that:

  1. The wrongful act must have first occurred on or after the applicable retroactive date(s);
  2. You had no knowledge of facts which could have reasonably caused you to foresee a claim, or any knowledge of the claim, prior to the effective date of this policy; and,
  3. The claim or potential claim must first be made and reported to us in writing during the policy period or any extended reporting period, if applicable, and must arise from any wrongful act to which this policy applies.

A copy of the competitor’s policy is here.

The issue is marked in red.

In the policy # 915-0001 02 12 the insured’s obligation in sub-clause b. is that “You had no knowledge of facts which could have reasonably caused you to foresee a claim, or any knowledge of the claim, prior to the effective date of this policywhich essentially means that the insured’s prior knowledge obligation is refreshed at each anniversary of coverage (due to the words “prior to the effective date of this policy”).

In contrast, the CPAGold™ policy states in Clause 1.1.3: “prior to the inception date of this Policy you did not have a basis to foresee that such Covered Act might reasonably be expected to give rise to a Claim, unless such Claim became known to you after the issuance of your first Accountants and Consultants Professional Liability Insurance Policy by us and that has been continuously renewed by us.”

So, in simple terms if you anticipated (or could foresee) a claim before the current policy period commenced and did not report it until after the end of the prior policy period (i.e. after the policy renewed), there is possibly no coverage.  This can be a problem if you are multi-office or mid-sized/larger CPA firm where incidents may take some time to develop into a formal claim and come to the attention of the management team.  I believe that having the confidence of a knowledge date that is the date of the first policy issued by the insurer is a superior coverage feature and mitigates the possibility of a denial of coverage.

The continuous insurance clause modification was added to the CPAGold™ program in 2003 when certain agents – who were well-versed in lawyers and A&E professional liability insurance – pointed out this weakness in the prior policy. We made the change.

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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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