CAMICO has been advising CPAs on fee issues for 28 years, and claims experience over that time has shown that suing clients for fees almost always prompts a cross complaint for malpractice. This in effect escalates a simple fee dispute to a professional liability lawsuit.
Further, lawsuits and counter-suits almost always result in the CPA spending far more in attorney fees and in lost billable time than is warranted for the fees owed to the CPA. More importantly, your insurance policy might not cover a counter suit to your lawsuit for fees, depending on the option your firm selected when purchasing or renewing your CAMICO policy.
The following Q&A provides some of CAMICO’s wisdom on how to manage fees issues before they become a problem.
Q: Why does CAMICO offer a five percent premium credit to policyholders who agree to exclude coverage for claims arising subsequent to suing for fees?
A: The five percent premium credit serves as an incentive for policyholders to proactively manage fee issues before unpaid fees have built up to the point where policyholders believe they can no longer walk away from them.
If the policyholder chooses the option to exclude coverage for claims subsequent to suing for fees, the policyholder’s engagement letter should include provisions that enable the proactive management of fee issues, thereby avoiding lawsuits for fees.
Q: How does the engagement letter help the firm manage fee issues?
A: The engagement letter should communicate billing and collection policies, including stop-work and/or disengagement provisions that can be enforced if a client doesn’t pay in accordance with the policies. This will enable the firm to prevent unpaid fees from building up to significant amounts.
The letter should also include provisions for Alternative Dispute Resolution (ADR), which will replace litigation as an option for resolving fee disputes. CAMICO recommends mediation as a first step for all disputes, including fee disputes; and arbitration—for fee disputes only—as a second step. Note that some states do not permit arbitration clauses.
The engagement letter needs to be signed by the client. By signing the letter, the client is agreeing that if they do not pay you, you can stop services without incurring any liability to the client for doing so. The client is also agreeing to use ADR for resolving fee disputes.
Q: What about new or slow-paying clients?
A: Consider the use of retainers and retainer replenishment before the work has started for new clients and traditionally slow-paying ones. Remind clients that retainers are not an estimate of the total cost of the engagement, do not earn interest, and must be paid before the CPA begins work.
Q: What if I want to have coverage for claims subsequent to suing for fees?
A: The standard CAMICO policy provides coverage for claims arising subsequent to suing for fees as long as the policyholder has consulted our advisory services in advance of suing for fees (consent is not required; consultation is required). Since claims statistics clearly show that suing for fees generates lawsuits in response, we believe it is important our policyholders have the benefit of our experience to help them correctly weigh the costs and benefits of suing to collect fees.
In any event, potential claims should be reported to CAMICO as early as possible. Deductible credits of 50%, up to a maximum of $50,000, may be available if a potential claim is reported prior to the claim being made.
Q: Where can I find sample engagement letter wording and other guidance?
A: Sample stop-work, ADR, retainer and other engagement letter wording can be found in the Engagement Letters Resource Center on the CAMICO Members-only Site under “Getting Started/Engagement Letter Checklist” and “Summary of Engagement Letter Components.”
More risk management guidance for avoiding fee problems can also be found on the CAMICO Members-only Site in the Knowledge Tree—>Risk Management—>Fees Billing & Collections.
Also, see War Story 102 in this issue of IMPACT. As always, CAMICO policyholders with any concerns about fee and other issues can call CAMICO at 800.652.1772 / 650.378.6800 or email email@example.com.