The Nuts and Bolts of Accountants Liability Insurance

Most wise accountants purchase professional liability insurance to protect them against claims that may arise during the course of their professional duties.  This insurance will generally protect accountants regardless of whether the claims occur in the context of tax, planning, auditing, or other accounting work.  Nonetheless, Accountants Liability Insurance will not necessarily protect against all claims that can arise, and while insurance carriers are usually required to defend their insureds from claims that are even tangentially related to an accountants’ practice, the insurance carrier may not be required to pay any judgment or settlement that results.

Most policies exclude certain types of claims altogether.
Accountant’s professional liability policies cover only certain claims – typically described as claims for damages caused by any act, error, omission or personal injury arising out of the rendering of professional accounting services.  Should such a claim appear, consult your broker.  You may have other policies that could apply.  Your broker will tell you, though, that APL policies contain several specific exclusions from coverage.

Criminal and similar acts are excluded.
Physically or sexually assaulting a client does not constitute “professional services.”  Defrauding a client with a Ponzi scheme or lying to a client about the returns an accountant failed to file will also likely fail the test of coverage.  If the claim includes these allegations, the insurer will probably defend the case but will otherwise reserve its rights.  A final adjudication of such wrongful acts will undo your coverage.

Contractual claims are excluded.
By including allegations of breach of contract, a claimant may benefit from a longer statute of limitations.  While many APL policies exclude “contractual liability,” the caselaw increasingly blurs the distinction between the actions.  Experienced attorneys for claimants take this into account when drawing up complaints.

Claims for other types of service are excluded.
Policies typically exclude claims made for the service you give as an officer, director, partner, trustee, manager, operator or employee of any organization other than your firm.  Further, expect any claim to be reserved or denied if made by an organization in which the accountants in your firm own more than an infinitesimal percentage of equity.

Claimants, be careful what you ask for.
Claimants are tempted to include allegations of fraud and similar statutory violations to threaten multiple or punitive damages, costs and attorneys’ fees.  Such allegations provide negotiation leverage but are seldom covered.  Ironically, the claims that enhance damages may simultaneously undermine recoverability.

Don’t undermine your own coverage.
Insureds must give the insurer notice “as soon as practicable “of any claim for which coverage is sought.  Courts strictly construe notice requirements when claims-made policies are involved.  Without timely notice, insurers may be able to disclaim coverage, even without proving prejudice.


When applying for new coverage, an applicant must disclose any potential claim.  Once a claim actually comes in, the specter that an applicant “knew or should have known” about, but failed to disclose, will trigger a reservation, or possibly an outright denial.


An insured has a duty to cooperate with the insurer in defending and settling claims.  The duty includes gathering evidence and answering questions about the claim, perhaps even under oath.  Failing to cooperate may void coverage for otherwise covered claims.


For further information, please contact Kenneth E. Rubinstein at 617-226-3868 or William C. Saturley at 603-410-1557