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How Professional Liability Insurance Helps Protect CPA Firms

What is professional liability insurance? 


Professional liability insurance is a form of liability insurance that helps protect professionals and their business from negligence claims related to their professional services. It is also called professional indemnity or more commonly errors & omissions insurance. 
Professional liability insurance also includes special forms for medical professionals, known as medical malpractice, and for legal professionals, also called legal malpractice or lawyers professional liability insurance. It is an important coverage for many types of professionals, especially CPA firms. 


Who needs professional liability insurance? 


Individuals who work in occupations where they provide professional advice should carry professional liability insurance. This includes accountants, consultants, insurance agents and brokers, engineers, financial service providers, and general contractors. Other occupations may also benefit from this type of cover depending on the products or services they provide. 
Some employers may require their professional employees to carry this insurance to protect both the employer and the individual. Additionally, some states require professionals to meet minimal capitalization requirements to obtain and maintain their license, which can be satisfied by purchasing professional liability coverage. 


Why is professional liability insurance important for CPA firms? 


Professional liability insurance is designed to cover claims of negligence, misrepresentation, or erroneous advice arising out of the professional’s services or advice. Professional liability insurance policies for CPAs can help protect against lawsuits that have merit and those that are frivolous. Even frivolous lawsuits can be expensive and time-consuming to defend, so maintaining coverage to assist with the defense and related expenses is important. 
Mistakes happen, and having professional liability insurance helps provide protection. Missing a tax filing deadline or accounting errors can cost your clients money, leading to a claim against you. While you likely have other business insurance policies such as commercial general liability or cyber, those policies do not extend coverage to professional liability claims. 


What are the important things to look for in a professional liability policy? 


When shopping for a professional liability policy, it is important to understand the nuances of the policy. Knowing the coverage limits, terms, and deductibles and how they apply is vital. You will also want to consider the exclusions and conditions of coverage, so you know what is covered and what you need to do for coverage to apply. Finally, consider the premium cost of the policy, which may vary depending on the endorsements you choose for your policy and how the claims are handled.   


How are claims handled under professional liability insurance policies? 


Professional liability insurance is most commonly written on a claims-made basis, meaning the carrier will only cover claims that are made – or filed – during the policy period (when you first purchase insurance, your premium will experience step increases with this type of policy). Retroactive dates can be included, which is a date in the policy after which alleged errors or omissions will be covered. Extended reporting periods are common in professional liability policies, which extends the time frame after the policy period when claims may be reported – generally, this is one to two months post-term. 


What is covered under a professional liability policy? 


Although each policy differs, you can expect to find help with defense costs arising from a lawsuit as well as payments of damages, up to the policy limit. Any deductible on your policy generally applies first before the carrier makes payment. You should consider your firm’s specific needs when deciding on coverage limits and deductibles. 
At AICPA Member Insurance Programs, we offer professional liability policies for CPA firms with liability limits ranging from $100,000 to $2 million with deductibles starting at $0. We offer subpoena assistance and regulatory inquiry coverage up to $25,000 for attorney fees and other reasonable expenses associated with covered regulatory proceedings. 


How do I learn more? 


To learn more about professional liability insurance for CPA firms and why you need it, contact the experts at AICPA Member Insurance Programs. Our licensed professionals would be happy to answer any questions you have.