By Irene M. Walton
Insightful lessons can be learned by reviewing professional liability issues. With this in mind, Gallagher Affinity provides this column for your review. For more information about liability issues, contact Irene Walton at firstname.lastname@example.org.
Tax season is quickly approaching. It also is a time when CPAs should be especially diligent in reducing their liability risks.1
This column provides several tips for reducing your risk exposures during the demanding tax season.
Also included are suggestions as to when is the best time to review your professional liability insurance policy and what you should look for when doing so.
Tax season is a demanding and stressful time. Trying to make sure you
are meeting your professional deadlines as well as your personal commitments can leave you feeling overwhelmed. Often, this increases the risk of mistakes. Outside of making sure your professional liability insurance policy is up to date (see below),
here are a few tips to reduce risk exposure during tax season:
- Use engagement letters – Define the relationship with your client, the agreement you have, and the scope of your work, fees, and services provided.
- Stay organized – When dealing with multiple clients, it is easy to get overwhelmed. Keep meticulous records and set up a system for tracking deadlines. This will help ensure you don’t miss important details.
- Double check your work – Take the time to review your work carefully before sending it off to the client. This will help catch errors.
- Use resources – Use your insurance carrier’s risk management services. They offer tools and advice that could manage potential problems.
Business owners should review their professional liability insurance policy at least once a year. Many factors affect the amount of coverage you may need, such as the size of your business, type of clients you work with, and the services you provide.
Keep your risk adviser updated on any changes, such as new employees, expanded services, or other new endeavors. To avoid adding another responsibility to your to-do list during the height of tax season, consider scheduling an annual review with your
risk adviser a few months before your policy renewal.
CPAs should have a comprehensive professional liability policy in place to cover issues that may arise while working. Some factors to consider in a review of your policy are the
limit of liability, the deductible, and the features and options available. Limit of Liability
– There is no sure formula of what policy limit you should carry. Most firms will at least insure for one
or two times firm revenue. Protecting yourself from damages is important, but you should also consider coverage for firm assets. It boils down to what you are comfortable with.
Also review the type of policy limit you have.
You might have a per-claim limit with an aggregate limit (better known as a single-limit policy) or you might have a split-limit policy.
On the per-claim/aggregate limit policy ($1 million/$1 million) the maximum that will be
paid for a claim is $1 million. The $1 million aggregate is the limit that will be paid on all claims in a current policy period.
In the case of a split-limit policy ($1 million/$2 million), the maximum that will be paid for
one claim is $1 million, with an additional $1 million for other claims within the policy period. Defense Outside the Limit
– This option offers a separate limit for defense costs that could help preserve the
policy limit. For example, under a per-claim/aggregate limit policy of $1 million/$1 million, having a defense expense option would provide an additional limit of $1 million dedicated to defense costs. Deductible
– Your policy could also have deductible options. You might have a per-claim deductible or one that provides an aggregate for the policy period. Another is the “First Dollar Defense.” Under this option, the insurance carrier covers
your defense costs from the first dollar without charging your deductible. Cyber Liability
– It’s likely your policy includes some type of coverage for a cyberincident or data breach. In most cases, the
policy limits and exposures covered are restricted. Consider obtaining a separate cyber liability insurance policy.
By taking a proactive approach to risk management, you can rest assured knowing you’re doing everything possible
to safeguard yourself against mishaps. 1 www.investopedia.com/terms/a/accountant-liability.asp