E&O: Errors & Omissions

Accountants Professional Liability

Accountants are professional organizations providing financial and consulting services including the preparation and auditing of financial reports. Accountants are either certified (Certified Public Accountants or CPAs) or non-certified.

Accountants' specific duties can include a wide range of financial services including completion and review of financial statements, tax advice and return preparation and preparation of other financial reports. Financial consulting services are a significant and growing practice area for accountants. Consulting services are extremely varied and include providing advise to management on accounting aspects of their business and the design of accounting and financial reporting systems.

The accountants professional liability segment can be a significant opportunity for new sales. Most accounting firms purchase professional liability insurance. Because many accountants have purchased professional liability coverage directly from an association program they may not have tested the insurance market recently.

Exposure

Accountants do have professional liability claims. The most significant are claims against the largest accounting firms for failure to uncover fraudulent accounting practices during an audit at public traded companies. The cost of these types of claims can run to many millions of dollars. Smaller companies, both public and private, also generate similar types of accountants' professional liability claims with lower severity.

Accountants' consulting services can also be a source of claims. If the professional services provided do not meet a client's expectations, disputes can occur. Sometimes these disputes can result in a client seeking compensation from the accountant, whether responsible or not. An area of exposure for accountants doing consulting work is consulting on financial systems.

As with many types of professional liability claims, the resulting dispute can cause:

Professional Liability Insurance

Accountants professional liability insurance, sometimes called accountant's malpractice, errors and omissions or E&O insurance, is available from a range of specialty lines insurers. Coverage and pricing varies greatly depending upon the accountant's clients, loss history and size. Some of the variations in accountant's underwriting include:

Limits and deductibles vary with the size and type of insured. Standard limits for most small to medium sized organizations start at $1.0 million. Coverage is provided on a claims-made basis. Minimum premiums and deductibles are typically $1,000, but may be lower for an accountant doing only tax preparation work. Many policy forms provide for defense costs outside the limit of liability and the deductible.

Mercator Risk Services Inc. ("Mercator" or "Mercator Risk Services") provides coverage for all types of accounting professionals. Please let us know your client's needs and we will provide you with information and assistance with your particular situation or account, and professional liability coverage.

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