Do Accountants Need Professional Liability Insurance In The U.S.?
As the owner of an accounting firm, you ensure that your clients are protected from financial risks. What about the risks that your own business faces?
You may understand your firm should be covered by a general liability plan. This takes care of any claims from third parties alleging that they have suffered some financial damage or bodily injury caused by your business.
You may also be aware of other insurance plans, such as worker’s compensation insurance, vehicle insurance, commercial property insurance, and so on. All of these protect your accounting firm from different kinds of risks. But, is your firm protected from professional liability claims? Here is why an accountant’s firm needs Professional Liability Insurance or Errors and Omissions Insurance.
The risks faced by an accountant
Accountants perform a crucial service for clients. You are in possession of clients’ sensitive financial data. You are also privy to the clients’ information and data that no other third parties are aware of. This places you in a unique position, which involves a great deal of risk as well. In the course of your job as an accountant, you may also be tasked with giving very critical advice that could affect the clients’ personal or business finances drastically.
For example, let’s assume you are hired as an accountant for a firm where some misappropriation of funds has taken place. If you fail to spot this misappropriation, you could be held liable by the client for failing in your professional duties.
The same scenario could unfold if you fail to include a specific expense head when calculating tax payment, which leads to the client paying more than necessary. Despite the fact that the client can get a refund from the IRS, you may still be facing a lawsuit for negligence. In short, accountants are in a position of great responsibility. Even one tiny wrong step can result in a major loss to your client.
Despite your best efforts, there are some situations where the client may suffer such a loss. If such a situation does crop up, irrespective of whether or not you are to blame, the client may file a lawsuit against you. Keep in mind that even a baseless allegation can cost you dearly; apart from monetary loss, it can ruin your business reputation as well if they take the form of a formal lawsuit.
What kind of client lawsuits could you face?
The role of an accountant is diverse. This means that there are several potential risk areas that you should safeguard your business from. Here are a few examples of when a client may file a lawsuit against you:
The client claims
You did not display the reasonable standard of care expected from professionals.
You failed in your fiduciary duty to the client.
Youmissed a payment deadline.
You failed to uncover the misappropriation of funds at the client’s firm.
You made an accounting error that resulted in a financial loss for the client.
Professional liability cover protects you from risks like these and more. Remember that a minor error or oversight on your part can end with huge damage claims by clients that may drain your business of its finances.
What happens when you do not have professional liability insurance?
When the business is facing a lawsuit, the financial implications are one of the first things that business owners begin to worry about. This is a valid fear because the cash outflow involved in a legal battle is immense. In fact, if the business is a new one or has limited capital, a lawsuit may cause an irreversible financial drain to the firm. Court fees, legal fees, lawyer fees, and damages can all total to become a very substantial amount. This fact prevents many small business owners from fighting such lawsuits in court. However, failing to do does leave your brand name tarnished. If you have just started up your business, you do not want any kind of negative feedback to spread in the marketplace. This can be very detrimental to your ability to attract new clients.
To take the battle on and present your defense in court, you should have the reassurance that the financial impact of a lawsuit is addressed. This is exactly what professional liability insurance does. With this insurance covering your business, you can have all your court costs, attorney fees, and other costs taken care of by your insurer. In addition, if the judgment goes against you and you do end up having to pay damages, the plan covers that too.
With a professional general liability insurance plan covering your business, you can put up a good defense to protect your reputation. A situation where you may face this kind of lawsuit is very common for service providers who work in sensitive areas like accounting. Hence, professional liability insurance or Errors and Omission insurance is critical insurance for your accounting business.
The protection of comprehensive professional liability insurance ensures that you do not have to back down when your expertise is questioned or doubted. With the insurance covering the financial impact, you can hire the best lawyer to fight your case and re-establish your tarnished reputation.
Professional liability insurance is one ‘expense’ head that you should not skimp on. Visit bizinsure.com for more information.