Professional Liability for CPAs – Understanding your coverage – Part V – Conditions – the fine print
By Rickard Jorgensen, FCII, ARM, ACIArb
The Conditions section is usually the last section of of your professional liability policy. This is the part of the policy which deals with such things as claims notification, cancellation, Extended Reporting Period rights, Other insurance and disputes with the insurer.
Careful attention should be paid to this section as it can impact your rights to coverage or if you do not agree with the insurers’ approach to a claim.
The section of the policy may include:
- This is a requirement that the insured provide timely notice to the insurer of all claims and potential claims – and also what information is required to comply with this provision.
- This relates to the coverage for claims first made after the inception of the policy, providing that the insured;
(1) had no reasonable knowledge that a wrongful act occurred and a claim might be made, and
(2) reported the suspected wrongful act to the insurer during the policy period;
- it should cover all prior acts of the firm and all members of the firm, including employees, when the insured, prior to the policy period, had not notified any previous insurer of any act and the insured had no reason to believe a breach of professional duty had occurred.
- This is a requirement that the insured assist and cooperate with the insurer (including examination and interrogation by a representative of the insurer, attendance at hearings, depositions and trials, assistance in effecting settlement, securing and giving evidence, and obtaining the attendance of witnesses.
Automatic Extended Reporting Period Options (Mini-tail):
- Claims may be reported no later than 60 days after the policy terminated.
Optional Extended Reporting Period Options:
- An optional extended reporting period (additional coverage for claims reported after the expiration of the policy for errors committed within the policy period), usually purchased within 60 days of the policy’s expiration for a specific time period and for an additional premium. Unlimited is best.
Retiree Extended Reporting Period Options:
- An optional retired or non-practicing accountant’s extended reporting period. Usually this is free.
- This is a provision that, in the event the insurer makes a payment under the policy, the insurer is entitled to any rights the insured has to recover what was paid (subrogation). The insurer will seek a recovery against other “guilty” parties.
- This states coverage is excess of other available insurance. Since all insurers claim that their coverage is in excess of other coverage, defacto “sharing” arrangements exist by which each company takes a pro rata portion of the coverage when policies overlap – make sure your coverage is coordinated properly.
- The policy includes provisions regarding the arbitration of claims in the event of a dispute with the insurer. Arbitration may be required or permitted, or it may be prohibited without the insurer’s consent.
- at least a 60-day notice of cancellation of the policy by insurer. It is best to ensure that the policy is non-cancellable by the insurer.
Every professional liability policy follows a similar pattern and intent, although there may be difference in the actual wording. You should study these clause to ensure that you fully understand what coverage the insurer is providing and your rights.
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