by Rickard Jorgensen, FCII, ARM, ACIArb.
Recently CPAGold™ added a new optional endorsement to the program which provides protection from management liability claims against the executive team of a CPA firm.
Many professional partnerships now employ a more corporate, business-like style to firm management. When a management or executive committee (or sometimes one individual) assumes ultimate responsibility for the firm’s operations, these decision-makers are exposed to many of the same liabilities faced by directors and officers of public corporations. A management Liability policy provides valuable financial protection to professional partnerships and their executive/management committee members.
Often claims against partners arise from parties outside of the firm. These can include vendors, lender and other non-client third parties.
Executive/management committee members, managing partners, directors and officers owe the same duties to the firm and its members, partners, and principals as do their counterparts at publicly and privately held companies.
There may not be a “safe harbor” defense for a firm management committee member, partner, director or officer merely “acting on behalf” of the firm. Unless provided in the partnership or shareholder agreement, or required by law, the firm does not have a responsibility to indemnify any employee, partner, member, officer, shareholder or principal of the firm. Having adequate management liability protection gives the firm to recover any indemnification and also pay for the cost to defend the management committee member in the event of a lawsuit
The Management Liability endorsement drafted by the CPAGold™ provides coverage as follows:
- Senior Manager Liability Coverage
Pays sums the senior manager (a partner, principal, manager, officer, director, trustees, in-house general counsel or in-house chief compliance officer) is legally liability for, arising from a management liability claim.
- Company reimbursement cover
The policy will reimburse the firm for any obligation to indemnify a senior manager resulting from a management liability claim.
- Entity Liability Coverage
Pays sums the firm is legally liability for, arising from a management liability claim.
Coverage is subject to a supplemental application and an additional premium is charged for the coverage. The limit of liability is included in the overall policy limit. A copy is available here.
Of course, coverage is subject to the full terms and conditions of the management liability endorsement and CPAGold™ policy. A specimen endorsement is available here. This has been filed in the majority of states. Where state department of insurance approval is outstanding coverage can be written on an excess and surplus lines basis.
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 firstname.lastname@example.org