Every Certified Public Accountant (CPA) knows the vital role they play in managing the finances of the businesses and individuals they serve. But with great responsibility comes great risk. And falling short on promised services or forgetting to carry the “1” can cost your client – and you – millions.
CPAs can be considered low-risk businesses in terms of physical risks to people and property, but the liability risks you face can be pretty hefty. Accounting pros should work with an independent insurance agent to uncover all of their exposures and find the right insurance policies to help protect themselves.
What is a Business Owners Policy?
In order to protect their own livelihoods (while also looking after their clients’ finances), many accountants purchase a business owners policy (BOP) to cover the majority of their basic biz insurance needs.
A BOP is an insurance package that combines coverage for major property and liability insurance risks. It’s perfect for small- to medium-sized businesses that need comprehensive coverage at a reasonable price.
Only certain businesses are eligible for a business owners policy. The size of the property, the necessary liability limits, the type of business, and the extent of the business’s off-site activity determine your eligibility for a BOP. Premiums are also based on the business’ location, financial stability, and the building's type of construction, security features, and fire hazards.
Business owners policies include:
- Property coverage for buildings and their contents, like computers, calculators, office equipment, and furniture whether the property is owned or leased.
- Business interruption coverage helps compensate for lost business income and pays for operating expenses if you’re forced to close after a covered loss (e.g., a building fire).
- Liability coverage helps pay for third party bodily injury and property damage claims that are due to your negligence, like when a client is injured at your office or an employee damages property while visiting a client’s home.
Professional Liability Coverage
In today’s world, anybody can sue anybody. And this makes professional liability insurance often the most important coverage need for many professionals, especially accountants. Professional liability insurance helps protect them from the financial landslide that can follow a lawsuit.
You work hard to give high quality advice, service, and math, but even the best accountants make mistakes. And when you are dealing with other people’s finances, mistakes can be extremely costly for all parties involved.
Accountants professional liability (or errors and omissions) insurance provides protection if a client sues you for negligence or other wrongdoing related to your work. Your policy provides coverage for:
- Actual or alleged errors
- Professional negligence
- Breach of duty
- Misleading statements
- Claims resulting from the performance – or nonperformance, for that matter – of professional services
CPA professional liability policies may cover your defense costs, including attorney fees and court costs, and also settlements or judgments that you are required to pay. Insurance companies typically offer a number of different specialized policies that are customized for the unique risks faced by different professionals, including accountants. Of course, it goes without saying that coverage is excluded in any cases of intentional wrongdoing.
When it comes to professional liability insurance, there are two types of policies:
- An occurrence policy covers a business for harm to others caused by incidents that occurred while a policy is in force, no matter when the claim is filed. This means that even if the policy is no longer in force, it will provide coverage for a claim that is made for an incident that occurred while the policy was in force.
- A claims-made professional liability policy covers the business for claims made when the policy is in force, regardless of when the incident happens. This means that if a claim is made for an incident that occurred before the policy was in force, the policy will still provide coverage, if the policy covers prior acts.
If you’re just not sure which is right for you, talk to your independent insurance agent about how occurrence and claims-made policies might apply to your business. They’ll help you sort it all out and get you the coverage you need.
Accountants and Fiduciary Duty
First of all, a fiduciary is a person, or group, who holds assets for another party, often with the legal authority and duty to make decisions for and protect the assets of the other party. So kind of like a bank and consultant, all rolled into one. In some cases, accountants and CPAs may assume the role of a fiduciary for their clients. And if so, they are obligated to act in the client’s best interest with the good faith, loyalty, skill, and care of a reasonable person.
Accountants often purposely avoid becoming a fiduciary to avoid all the added risk that it comes with. And in many cases, it’s more important for the accountant to be completely independent from the client, rather than act on its behalf. However, accountants may assume fiduciary responsibility when they act as any of the following:
- Executor or personal representative of an estate
- Investment adviser
- Bankruptcy trustee or receiver
- ERISA employee benefit plan administrator
- Attorney in fact (one who holds power of attorney for taxes, financial matters or health care)
Now, like we said, anyone can make a mistake. And a mistake in these circumstances can expose you to lawsuits from clients or other third parties. Accountants professional liability policies may limit or entirely exclude coverage for claims related to breaches of a fiduciary duty.
CPAs and accountants should consult with an independent insurance agent about coverage for fiduciary liability exposures to make sure they’re set up securely. Customized coverage may also be purchased or added as an endorsement to your policy.
On top of all of that, any accountant who has a fiduciary responsibility for a company’s employee benefits plan in accordance with federal law can purchase fiduciary liability insurance. Just another way to keep your accounting dreams protected.
Where Else Do You Have Exposures?
An exposure in your liability policy acts just like a crack in the wall, if it’s not totally covered up, something bad can come pouring in unannounced. And when the exposure relates to your business, that could be bad news. You may need other types of insurance to make sure you have no gaps in coverage. Talk to your independent insurance agent about the following:
- Computers and media coverage (aka electronic data processing (EDP) insurance – pays for lost data and related lost income if your computers or network are damaged by theft, vandalism, viruses, or malware. It may pay for loss of data, loss of software, and physical damage to computers or hardware.
- Cyber liability insurance provides coverage in the event of a data breach involving your business, something more and more common each day. It helps pay for the costs of notifying affected clients and costs related to public relations, forensics, and more.
- Valuable papers coverage can help you reproduce damaged paper documents, move records or provide temporary storage for ledgers, financial statements, bank statements, and other confidential records if they are damaged by a covered event.
Where Can You Find Accountants Insurance?
As you know, having a trusted adviser is key to your clients. And when it comes to insurance, you need an adviser, too. Someone who knows your industry and can help you make the right decisions about protecting your business.
The Benefits of an Independent Insurance Agent
Independent insurance agents are kind of like the Google of insurance quotes. You tell them what you’re looking for, and they bring in the results. And since they aren’t tied down to one carrier, they’re free to shop around and bring multiple policy options to the table.
And it gets better, you don’t have to review the policy options alone. They’ll walk you through everything you need to know about finding the right coverage, and price, for you. But it doesn’t end with your signature. Along the way, if something bad ever happens, they’ll handle the entire claim process for you and deal with the carrier, so you can focus on your number-crunching empire. How sweet is that?