Most professional liability insurance policies for CPAs, including CAMICO’s, are “claims made and reported” policies, which means that claims and potential claims must be made and reported to the insurance company during the policy period, or within a grace period for reporting claims, such as 60 days, after the policy period.
Occasionally, a potential claim is not reported due to an oversight, or error in judgment, or both. Sometimes the CPAs involved will attempt to handle a potential claim by themselves without reporting it. Meanwhile, the policy period may expire, thereby putting coverage for the potential claim in jeopardy.
To help address such coverage gaps, a new feature for CPAs—“Continuity of Coverage for Potential Claims”—has been designed by CAMICO specifically for CPAs. The new in force coverage further broadens protection for policyholders who continuously renew their CAMICO policies. The benefit is significant in that it maintains coverage for policyholders who became aware of a potential claim after the inception of the first of consecutive policies—no matter how many consecutive policies have been in place. (See the following chart on “Continuity of Coverage.”)
Examples of common late-reporting scenarios
- Estate tax returns. The irregular filing due date for estate tax returns—nine months after the decedent’s date of death—tends to cause return preparers to miss the due dates for filings. Depending on the size of the estate, claims for late filing penalties can range as high as $300,000 and more. If the CPA involved attempts to request a tax penalty abatement without reporting the error to the insurance company, the policy period may expire while the CPA is waiting for the IRS to respond. If the IRS denies the penalty abatement request, the claim for the penalty amount may be denied. Having a Continuity of Coverage endorsement on your policy would cover this.
- Embezzlement or fraud. The client and the CPA decide to handle the embezzled amount between themselves without reporting the loss to the insurance company. The amount may appear to be manageable, and the client or CPA wants to avoid perceived embarrassment or damage to reputation. In some cases, however, the amount turns out to be much larger than first estimated. If the policy period has expired while the client and CPA have tried to manage the loss, a later claim by the client may be denied. Having a Continuity of Coverage endorsement on your policy would cover this.
With Continuity of Coverage in place, policyholders who have continuously renewed their policies will still have full coverage provided by the in-force policy as long as they became aware of the potential claim after the inception of the first of consecutive policies with CAMICO or BAM. The 50 percent deductible reduction (up to $50,000) for early reporting would not apply after the first year.
CAMICO provides tax penalty abatement and other legal services in regard to potential claims, including subpoena services, if needed. The legal expense is absorbed by the company, does not trigger your deductible, and does not impact policy limits, nor are any surcharges imposed because a matter was reported before it became a claim, or even because of claim reporting.
About 75 percent of all potential claims reported to CAMICO never become claims. With the support of CAMICO, policyholders are able to resolve disputes effectively and get back to business as usual. In brief, there are no downsides to reporting early, while the upsides are many.
As always, CAMICO encourages policyholders to call 1.800.652.1772 with any questions or requests.
This information is provided as a general overview and is not intended to be a complete description of all applicable terms and conditions of coverage. Actual coverages and risk management services and resources may vary and are subject to policy provisions as issued. Professional Liability insurance coverage may be underwritten by CAMICO Mutual Insurance Company. Alternatively, coverage may be underwritten through CAMICO Insurance Services, a wholly owned subsidiary of CAMICO Mutual Insurance Company, by Great Divide Insurance Company or Nautilus Insurance Company; both member companies of W. R. Berkley Corporation. Each company is solely responsible for the policies it issues. © 2016 CAMICO Services, Inc. dba CAMICO Insurance Services. All Rights Reserved.