Malpractice Claims: Time is of the Essence

Source: Accounting Today

For CPA firms, malpractice claims can be costly, disruptive, and harmful to a firm's reputation. Unfortunately, according to Bill Thompson, president of CPA Mutual, in the last dozen years or so “judges have been less likely to throw out cases against CPAs than they once were.”

In this article, author Roger Russell outlines the process of responding to a malpractice claim, focusing on the need to work closely with your insurance carrier. When faced with a claim or potential claim, Russell advises CPAs to:

• Review your professional obligations. If you become aware of an error or omission, provide the client with the facts needed to resolve the situation, but don't admit fault or “volunteer to ‘make things right.'” Not only can this hurt your case, but it can also put your insurance coverage at risk.
• Notify your insurance carrier – through your broker – immediately after you become aware of an actual or threatened claim (or even a disciplinary action or other event that could potentially lead to a claim).
• Familiarize yourself with your insurance policy's reporting provisions, and follow them to the letter to ensure that you don't lose coverage by missing a deadline or neglecting a procedural requirement.
• Cooperate with the carrier's claims adjusters, agents, and other representatives, and provide them with all relevant documents or other information as quickly as possible.

To avoid litigation exposure, Travelers' Second Vice President Dan Reed advises CPAs to use and update engagement letters, document critical events in an engagement, and bring in other professionals when venturing into unfamiliar territory.

For the complete article, read “When clients attack – What to do when your firm is hit with a malpractice claim.”

From Accounting Today, May 1, 2012, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809.