A federal judge here has ruled that a professionalliability insurer is not obligated to defend or indemnify an accounting firm inconnection with the recommendation by a firm member of a tax-sheltertransaction.In its ruling, thecourt held that the firm member was acting as an agent for the company thatmarketed the plan.

Trace, Geary & Myers LLC, a Salisbury, Md.,accounting firm, purchased a professional liability insurance policy fromCamico that contained a "Special Exclusion Endorsement," whichexcluded from coverage "any claim in connection with or arising out of anyact, error or omission by any insured in his/her capacity as an agent or brokerfor the placement or renewal of insurance products or for the sale ofannuities."

The transaction in question arose from the sale of a defined-benefitpension plan funded by Hartford life insurance policies, and was marketed byHartford as a way to obtain significant tax benefits under Section 412(i) ofthe Tax Code.In a third-partysuit against Hartford, plaintiffs alleged that a member of the firm recommendedthe plan without disclosing that he was a Hartford agent and would receive acommission from the sale.

In 2004, the IRS made several rulings about funding412(i) plans. The plaintiffs alleged that the firm member wrongly representedthat the rulings would not affect them, which induced them to pay Hartfordadditional premiums and file tax returns without the required forms for alisted transaction.As a result,the plaintiffs incurred substantial audit-related expenses and may be liablefor impermissible deductions.

In January, Trice, Geary & Mayers learned that theplaintiffs intended to pursue claims against them for the transaction unless asettlement was negotiated.Theygave notice to Camico of "potential claims" under the policy.Camico explained that any accountingand financial services provided by the firm member associated with the sale hadbeen in his capacity as an agent of Hartford, and were therefore outside thescope of "professional services" covered by the policy and within the"Special Exclusion Endorsement."

The U.S. District Court for the District of Marylandagreed with Camico, finding it had no duty to defend or to indemnify under thepolicy.

"The Maryland Federal District Court's recentlyissued ruling in TGM v. Camico affirms Camico's position that claims based onan insured's sale of life insurance policies as a licensed life insurance agentis not covered under the Camico accountants professional liabilitypolicy," said Christopher G. Piety, Esq., vice President of claims atCamico. "In this case, the court found that all of the alleged claimsoriginated out of the sale of life insurance policies, for which the insuredreceived commissions as a licensed life insurance agent.As such, the court found it did notfall within the coverage contemplated by the Camico policy. Generally, coveragefor such services is provided under insurance agents errors and omissionspolicies."






Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access