Liability Insurance Coverage in the Age of Innovative Services

by Jonathan S. Ziss, JD | Jun 05, 2017
Pennsylvania CPA Journal
Insightful lessons can be learned by reviewing professional liability issues. With this in mind, Arthur J. Gallagher & Co. provides this column for your review. For more information about liability issues, contact Irene Walton at

CPAs in public practice provide an ever-expanding range of services to their clients. While tax planning and compliance as well as audit and attest work still comprise the bulk of services rendered, business valuation, management consulting, and other specialty services such as information systems and big data are all flowers in the bouquet of practitioner offerings.

That’s good for business; but are your business protections keeping up? In other words, are the professional liability insurance markets keeping pace with the profession and the risks practitioners face on the frontier of evolving areas of work? Are you covered if you offer new services, or will you have to add on protections á la carte?

Take, for example, predictive data analytics. Using many techniques – such as data mining, statistics, modeling, machine learning, and artificial intelligence – to analyze current data to make predictions about future is, according to the Journal of Accountancy, “the next frontier in data analytics.” The era of big data has arrived, and in this increasingly data-driven world the client community is looking to CPAs to unlock the mystery and unleash the power of this technique. This is all well and good for those practitioners who can adapt and keep up. But is it accounting?

Suppose that a predictive data analytics engagement involving computation of a credit score were to yield a result that was substantially at odds with reality; that is to say, nonpredictive. And suppose that the client concluded that an error or omission in the analytics were to blame: professional negligence, in other words. Such an engagement was neither a matter of taxation, nor of financial statement attestation, nor business valuation, nor forensics. It was not a traditional agreed-upon procedure. It was entirely different than the traditional services; almost an entirely new kind of undertaking. But professional risk is professional risk, regardless of the nature of the work. Whatever can go right can also go wrong, which can result in a claim.

This raises a question: Is work in the area of predictive data analytics “accounting” from a malpractice insurance standpoint?

To answer this question, one must consider the wording of one’s professional liability insurance policy. While policy wordings can, and often do, vary considerably, all essentially state in these terms: coverage is provided for all sums in excess of the deductible, which the insured shall become obligated to pay as “damages” because of a “claim” first made against the insured during the “policy period” by reason of a “wrongful act” in the performance of “professional services” rendered or that should have been rendered by the insured. (Defined terms in quotations.) All such policies come with a set of definitions, and among the defined terms is “professional services.”

The definitions may vary from one insurer’s policy form to the next, but the definition of “professional services” is most often broadly worded, and as such, inclusive. For example, a policy may define professional services as those “services performed for others in the insured’s capacity as an accountant or notary public, including but not limited to performing any of the following,” then having a relatively short list that may include consulting; serving as a trustee, executor, arbitrator, or mediator; and serving as a benefit plan fiduciary. The key phrase is “in the insured’s capacity as an accountant.”

To return to our hypothetical, would predictive analytics fall under this one-size-fits-all definition of professional services so that a claim would be covered? If yes, it is certainly not expressed in the policy language. Let us assume that this project came about through normal firm channels; resulted in the formal engagement of the firm (as opposed to, say, a moonlighting venture or other “off-book” arrangement); and was performed by firm personnel or by others acting under their supervision. What we see looks a whole lot like any other management consulting engagement. And so it is, one would quite reasonably expect. It is just another undertaking of professional services provided in the insured’s capacity as an accountant, and therefore covered by a conventional professional liability insurance policy (unless otherwise the subject of an exclusion).

There are, of course, boundaries to what constitute “professional services.” For example, selling real estate, acting as a financial planner, or engaging in any other separately licensed activity would appear to depart from activity “in the capacity as an accountant.”

In addition to the policy wording generally and the policy definitions in particular, there is another aspect of professional liability insurance that deserves mention: the application. Truth and transparency ought to be one’s touchstones when completing an application, whether for a first-time policy or for a renewal. The application and the policy are, in a sense, two halves of a whole. That is, the policy will typically recite that information provided by the insured in the application constitutes a representation of material fact upon which the insurer is entitled to rely in accepting the risk. Therefore, a failure to fully and fairly respond to questions in an application can have adverse implications.

Finally, on the subject of risk management, be ready to meet the standard of care for any novel, innovative, or otherwise unfamiliar services you may offer. To be blunt, know what you’re doing before you do it. Good insurance is no substitute for good work.

Jonathan S. Ziss, JD, is a partner with Goldberg Segalla LLP in Philadelphia. He can be reached at
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