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Bruce R. Swicker

CPA's

While it is true that most of the headline-grabbing news about accounting malpractice involves major national firms, the truth is that accounting firms of all sizes can find themselves at the wrong end of a claim.

As our economy continues its shift from the manufacturing base of the past 100 years, to the service/technology base of the next 100 years, accounting professionals are scrambling to adapt.

The frequency and severity of malpractice claims against CPA's has risen dramatically over the past 10 years. Even a small or midsize firm, which might handle only compilation, review or non-audit services, or tax or business management issues for businesses or individuals, is facing a significantly increased risk of a professional liability claim.

A common misconception we hear from CPA’s is, “We don’t handle audits, so we have no need for malpractice insurance.” Reality check time . . . Most reputable statistics show that tax matters resulting in 50% to 60% of all accounting malpractice claims! Audits – both public and private companies – can result in greater exposure in terms of the amount claimed by the plaintiff, but make no mistake about it, tax engagements are the real exposure for most small to midsize accounting firm.

Even if it is ultimately determined that the accountant has done nothing wrong, the cost of defending such a claim can be crushing. Remember that malpractice defense attorneys get paid regardless of the circumstances, and regardless of the outcome. Are you prepared to deal with the many otherwise billable hours you must now devote to your defense?

Prudent CPA's and accounting firms of all sizes know the value of a properly underwritten policy of accountants' professional liability insurance. More and more accounting firms are turning to an experienced, knowledgeable, independent insurance broker for their coverage. After all, when you deal only with an association-endorsed "program" for your coverage you are given no other options. While it is true that some programs offer reasonably good coverage, they are generally "slot underwritten"; meaning that there is only very limited flexibility for customizing the coverage terms - and the pricing - to match the practice profile of each individual firm or professional.

As independent insurance agents and brokers, Earhart Leigh Associates’ first priority is to represent you! We work on your behalf to put together the most appropriate coverage terms for the nature of your firm’s practice.

Even if you, or your firm, has had your professional liability insurance cancelled or non-renewed due to claims experience, regulatory or disciplinary actions, or any other adverse situation, we can help!

Whatever the size of your firm, whether it’s a general practice or one highly focused on one particular practice specialty, we have the expertise, market access, and underwriting relationships to provide you with the broadest possible coverage . . . at the most competitive pricing possible!

At Earhart Leigh Associates, we believe that every accountant and each and every accounting firm is special, and as we like to say, “When your insurance needs are special, your insurance broker should be, too!”

Give us a call today – let’s talk.

Latest updates; random thoughts . . .

AUGUST, 2010

What’s up in New York State? Is there something in the water? Why are so many insurance companies so anxious to write New York lawyers professional liability (“LPL”) insurance? No kidding, just this year – so far – about a half dozen carriers have either entered the New York market, or have filings awaiting approval by the NYS Insurance Dept.

To my knowledge, only a single, small, non-admitted carrier has withdrawn a program from the state, though that same carrier is in the process of acquiring another, licensed and admitted carrier which have an active LPL program.

In fairness, I should also point out that a couple of major insurers have instituted significant rate increases, which can only indicate that they have not found New York to be terribly profitable. Of course, there is an old saying in the insurance industry, “There’s no such thing as a bad risk; only insufficient premium!” One of these national carriers has been underpriced for years, and while this makes it easy to grow top-line revenues, it inevitably leads to bottom-line losses.

So, back to my original question: What is it about New York State that makes it appear to be the Holy Grail for legal malpractice insurers? True, there are a lot of attorneys throughout the state, which means that there are plenty of opportunities to write business. However, I am not aware that the overall number of attorneys is growing, so each opportunity to write new business means that it is probably taking that business away from another insurer. Also, while New York’s litigation environment for legal malpractice defendants is far better than, say, New Jersey, it’s no cakewalk.

Of course, the law of supply-and-demand inevitably means that with all of the market capacity competing for business, obtaining adequate pricing becomes a key issue. Indeed, it is tempting for insureds to look only at pricing, but the reality for any knowledgeable insurance buyer is that market stability is important. It is not in anyone’s benefit over the long term to have carriers come into any market, underprice a risk that they may not entirely understand, and then run-for-the-doors when the losses roll in.

The key challenge for insurance brokers – particularly those who specialize in placing legal malpractice insurance, as we do at Earhart Leigh Associates – is to assist our clients in navigating the tricky waters of a crowded market. This means doubling our efforts to stay on top of market developments, monitoring rumors (some of which turn out to be true), evaluating policy forms, and maintaining on ongoing dialogue with underwriters. This is, after all, how we demonstrate to our clients the true, long-term value of working with a specialty insurance broker!

If you have thoughts or comments, please let me know, bswicker@earhartleigh.com.

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