Claims against accountants typically pick up in tough times, which makes professional liability insurance all the more crucial, according to observers.

"When the likelihood of claims is higher, the real question to ask is what are you going to do to get out of a claim when most likely you did nothing wrong," said Ric Rosario, CPA, chief executive of Redwood City, Calif.-based Camico. "There's a claims lag, so the work you do today may not generate a claim against you for several years."

The claims lag in the tax area is generally two to three years, and in the financial statement area it is generally four to five years, according to Rosario.

"You're shopping today for an intangible product or service that may be needed in the future," he said. "You want to make sure that the people selling it to you will actually be there if and when you need them, and ideally you want the best people possible to take care of your problem. It's a tough decision."

"So you need to pay attention to the fact that claims are picking up," he said. "It can get pretty nasty during a claim, and people forget what an unpleasant process it is to get sued. The last thing you want is to have someone who is not the best to represent you during the time you have your biggest need."

Ralph Picardi, CPA, Esq., agreed: "The first thing most people look at is the rate, of course, but if you get quotes that are fairly close, the distinguishing factor ought to be the way that the insurance company handles its claims and the way that the company or the broker, or a combination of the two, deliver risk management and early intervention services. Those are the things most insureds benefit the most from when they're at their weakest point."

Picardi, who provides risk management services to a number of accountant programs, observed that all carriers are not equal in terms of the services they provide. "When you become aware of an incident that might lead to a claim, policies require that you report it to the carrier. Some just open up a file, so you're not gaining anything that will be of any further assistance. Other companies that receive an incident report will jump all over it to find someone that understands the nature of the potential claim and whether anything can be done to mitigate the possibility of the claim, or reduce the amount of damages."

The question to ask is, "When I report a claim that isn't a lawsuit, what will happen and how will you handle it?" he said. "This will help distinguish between policies."

That's how Salim Omar, a Matawan, N.J.-based CPA who recently switched policies, proceeded. "I asked the company or broker what's available, and who would I be talking to, an insurance person or an attorney," he said. "And if it was an attorney, I asked them if the attorney would be experienced in accounting matters."

One issue to note is the disclosure requirements for tax preparers under Code Section 6694, according to Rickard Jorgensen, president and chief underwriting officer for Ridgewood, N.J.-based CPAGold.

"The majority of policies for accountants exclude fines and penalties, usually by limiting the definition of damages payable," he said. "Failure to meet this 'more likely than not' disclosure standard exposes an accountant to a fine. Insurers have responded to this slowly. It is wise for a firm to get written confirmation from the insurer that coverage will be provided, and ideally request an endorsement to the policy."

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