Recently a claim was made because a business deal was going bad. This could be a covered act if the lawyer or accountant were acting in their professional capacity and providing professional services. But in this case it was the insured accountant that had bought a non-accounting related business personally with nonmember partner from outside the firm. Professional Liability Insurance while broad for professional services will not cover an individual for all acts, especially if the acts are outside of the expectations for that profession.
The following is the definition of professional services from the 11-08 Travelers Accounting policy. This is a fairly typical definition for professional services. Clearly the accountant is acting outside of the scope of what the policy states are Professional Services.
“Professional Services means only services in the practice of accounting, and pro-bono services in the practice of accounting, provided that such pro-bono services are performed with the knowledge and consent of the Named Insured.
Professional Services includes services in any of the following capacities:
1. Accountant or accounting consultant.
2. Investment Adviser.
3. Bookkeeper, enrolled agent or tax preparer.
4. Personal Fiduciary
5. Notary public, provided that the Insured Person witnessed and attested to the authenticity of the signature notarized by such Insured Person.
6. Member of a formal accreditation, standards review or similar professional board or committee related only to the accounting profession.
7. Arbitrator or mediator.”
One of the issues with malpractice insurance is that even though this claim will likely be denied reporting it to the carrier could cause the firm’s rates to rise in the future. The firm will also need to disclose as a ‘reported’ claim on any new business application that the firm would complete in the near future. Normally even though the claim is close for zero dollars, the firm will have to provide loss runs and an explanation of the claim for the next 3 to 5 years on any competitor application that the firm may complete. Many malpractice carriers will likely not give this firm its ‘best’ or most competitive premium because this claim was reported.
The conundrum for the firm is that if it is truly a malpractice claim then the firm needs to report it to protect its rights under the policy.