Maybe you’ve had that sinking feeling before. It’s the feeling that says, “This client is not happy, and a complaint is coming.”
Mistakes happen, even to detail-oriented people like accountants. If you provide inaccurate or incomplete advice, your client might hold you liable for their losses even if it was a genuine mistake.
In essence, if a client or third party is dissatisfied with your advice they may hold you, as their accountant, legally responsible and make a claim for economic loss. Accountants can also be found liable for things such as breach of statute, such as engaging in misleading or deceptive conduct, negligence or breach of contract.
It’s critical that you’re aware of the warning signs of a Professional Indemnity (PI) insurance claim so you can act fast. In fact, notifying your PI insurer early could make the difference between resolving an issue easily versus being tied up in litigation for years.
Here are 5 warning signs that it’s time to call your PI insurer:
- You receive a phone call, letter or email of complaint from a client or their lawyer claiming a mistake has been made.
- You become aware of a mistake made by an employee or partner.
- You discover evidence of fraud in the client’s business – the client’s lawyer might try to blame you for not finding it sooner.
- You find that an accountant in your team has been advising both parties in a dispute, such as a divorcing couple.
- Your client becomes bankrupt or insolvent – their shareholders, partners and employees might try to hold you accountable.
What to do if you think an insurance claim is coming
If you have a hunch that a client might be preparing a serious complaint or lawsuit:
- Take their complaint seriously, even if you think it is frivolous.
- Start keeping detailed records of every interaction with the client.
- Call your insurer right away; your insurer is there to support you and can try to prevent the problem from escalating.
- Collect all paperwork and files relating to the client and their complaint.
- Your insurer may help you appoint a lawyer or you can contact your existing lawyer.
- Put processes in place to ensure that the issue won’t arise with any other clients.
Why PI Insurance is important
Your practice is dealing with millions of digits, thousands of transactions and hundreds of clients every year.
No matter how experienced and careful you are, errors can happen to anyone, so you need to be prepared for when they do. Not if, when. Because you never know when a small mistake is going to end up being costly.
PI insurance protects both your business and your clients from those mistakes. Plus, you’ll receive the support of the Abacus Claims Committee, should you be faced with the prospect of a claim. Your insurance provider acts on your behalf to get claims paid quickly with your full entitlements, so you can keep running your business.
Minimum required level of Professional Indemnity insurance cover for accountants
Chartered Accounts ANZ requires members to hold PI insurance for each principal of at least $2 million in cover.
PI insurance is mandatory for CPA Australia Public Practice Certificate holders, with cover of $2 million.
General policies might not cover all potential risks to your business. That’s why it’s important to tailor your insurance policy to suit your business.
If you’re dealing with high net worth individuals or large corporate clients, you may need higher cover than the standard $1-2M. For a comparatively small difference in premium you can double your cover to protect you against potential risks.
If you’re not sure whether your business is adequately covered, contact Abacus for a free policy review.