Academic journal article Journal of Accountancy

Court Rules on Professional Liability Insurance Policy

Academic journal article Journal of Accountancy

Court Rules on Professional Liability Insurance Policy

Article excerpt

A court of appeals in Florida ruled that notice of a potential claim, as opposed to an actual claim, was sufficient notice under the accountant's professional liability insurance policy. This case began when the accounting firm purchased primary and excess insurance policies for the period August 31, 1984, to August 31, 1985. These policies were "claims-made policies," which required that claims be reported during the policy period in order for coverage to apply for the claim. The accounting firm also purchased extended reporting coverage, extending this reporting period to October 1, 1990. In 1987, the accounting firm was sued for malpractice. These claims arose from a series of failed tax shelter investments recommended by the firm to its clients.

In January 1990, the insurer wrote to the firm and noted that its extended reporting coverage would expire on October 1, 1990. It asked the firm to furnish a list of any other clients who might sue the firm for its role in recommending the failed tax shelters. The firm responded in September 1990, listing more than 700 parties who might still sue. The firm reported these matters as claims under the policy. After the extended reporting period expired in October 1990, 3 of the 700 listed parties filed suit against the firm. …

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