How these policies are usually structured
Accounting malpractice insurance, often called accountants' professional liability or errors and omissions coverage, is typically written on a claims-made basis. That generally means the policy in force when a claim is first made, and reported, is the one that responds, rather than the policy in force when the work was done. A retroactive date may limit coverage for work performed before a certain point. Many policies include defense costs within the limit of liability, so money spent on lawyers reduces what remains for a settlement or judgment. Policies also commonly exclude certain activities, such as some investment advice or work outside the firm's described services, so the declarations and exclusions deserve a careful read.
Reporting a claim or potential claim
Claims-made policies usually require prompt written notice of a claim, and many also allow or require reporting of circumstances that could lead to a claim, such as a client's complaint or a known error. Late notice is one of the most common reasons coverage disputes arise. Before responding to the client on the merits, admitting fault, or offering to waive fees, check the policy, because some actions may be treated as voluntary payments or admissions the insurer did not approve. Keep the engagement letter, work papers, and correspondence intact. If the firm is changing insurers or closing, ask about extended reporting coverage, often called tail coverage, before the current policy ends.
Defense, consent to settle, and who should be involved
Once a claim is tendered, the insurer typically appoints or approves defense counsel, and you may have rights to participate in choosing them. Many policies include a consent-to-settle provision, sometimes paired with a clause that limits the insurer's obligation if you refuse a settlement it recommends. If the insurer reserves its rights or denies coverage, the firm may need its own counsel to evaluate the coverage position separately from the malpractice defense. When a firm brings us a claim, we review the policy, the claim or circumstance, and the timing of notice, and talk through how coverage and defense issues should be handled together.
