E & O Insurance

[Snaggletooth]

Just went through NATP and got an E&O quote from Marsh and McClennon.

I've never carried professional insurance before, so don't know how good the product is.
Only $300 per year, but don't know how competitive that is for someone who prepares about 120 personal returns and 15 entities. I believe the policy issuance costs probably exceed the real risk.

My biggest heartache is that if I am sued or assessed, it won't happen until 2-3 years from the negligent event. But I will have to have coverage in place continuously before then. Also, if I retire in 8 years, I will have to continue to spend premium money for 3 years after I retire to cover errors which may have occurred while I was active.

Does any of this make sense to the rest of you??

[BP.]

Does any of this make sense to the rest of you??

Don't know if anything is making sense right now . . . but, my annual premium's about the same, and if I have to continue to pay that for a few years in my post-tax-prep epoch, I figure about $1 a day is affordable for my peace of mind. Does THAT make any sense?

[geekgirldany]

That is what I pay them is $300 per year. I prepare around 150 tax returns a year. After a little episode I had with a customer I think it is very good to have the coverage.

[Burke]

How much coverage does that buy you?

[Snaggletooth]

Only Problem

I don't see any problem with the $300 per year. What is causing me the grief is:

1) If I start now, it doesn't cover any returns I filled out in 2005, 2006, 2007. I don't blame them because I didn't purchase coverage for those years.
2) If I quit in 2017, it will not cover returns for 2014, 2015, and 2016 unless I continue to pay coverage in 2018, 2019, and 2020. It should cover for the period of coverage.
3) If I screw up bad on a return in 2008, neither me nor the insurance company will incur any loss until 2010 or 2011 when the IRS catches up with me. But they will be getting money for three years before any loss is chargeable.

Burke this is $100,000 per incident, $300,000 total annum, with $1000 deductible.

[Burke]

I am thinking about changing mine, and that is probably a good rate. When I purchased my original E&O, I had the option to buy 3 years back coverage. I did. And I guess when I finally kick it in, I will probably pay for it for 3 years afterwards to maintain the peace of mind on these "claims made" policies.

[Black Bart]

Is this right?

What is causing me the grief is...If I start now, it doesn't cover any returns I filled out in 2005, 2006, 2007. I don't blame them because I didn't purchase coverage for those years.

I read in an old E&O post that you have to be covered when the claim is made, not when the event happened. That's good for the insurance company -- makes you pay for three years after you quit. But, if that rule is true, might it not work both ways -- that is, if you buy now and are hit with an '06 error, would you not be covered now (when the claim is made) even though you were not covered back in '06?

P.S. I've got the same insurance, premium, coverage you do.

[Black Bart]

Snag

About your grief over not being covered for the back years:

I read in an old E&O post that you have to be covered when the claim is made, not when the event happened. That's good for the insurance company -- makes you pay for three years after you quit. But, if that rule is true, might it not work both ways -- that is, if you buy now and are hit with an '06 error, would you not be covered now (when the claim is made) even though you were not covered back in '06?

P.S. I've got the same insurance, premium, coverage you do.

P.S. again -- just noticed Burke's statement where he had to pay extra for three years "back" coverage, so they've already thought of that and probably my theory wouldn't fly. But I guess you could check with Marsh and see if they offer it.

Hey Burke -- what did they charge you for the back coverage?

[Snaggletooth]

Trouble goes in all directions

Bart, you've hit on it. If I understand it correctly, they have insulated themselves from risk in both directions, and that shouldn't be right.

Insure for the events covered in the policy period and be done with it.

[BP.]

Insure for the events covered in the policy period and be done with it.

Working with clients, I notice many professional liability policies are written on a "claims made" basis. An example I've seen is nurses' liability insurance.

[Black Bart]

The insurance agents must be ex-IRS agents.

...they have insulated themselves from risk in both directions...

Hey Snag, the insurance company's double standard (a claims-made policy is a must for current and future years/ a claims-made policy is irrelevant for old years) seems remarkably similar to IRS' -- if you have a gain, it's a business; if you have a loss, it's a hobby.

[Burke]

About your grief over not being covered for the back years:
P.S. again -- just noticed Burke's statement where he had to pay extra for three years "back" coverage, so they've already thought of that and probably my theory wouldn't fly. But I guess you could check with Marsh and see if they offer it. Hey Burke -- what did they charge you for the back coverage?

Well, I did not have a clue, but I actually found it -- not the original ins quote or policy, but the tax return where I deducted it. It was in 1997 and the total prem was $400. The normal prem in subsequent years was $225. (More, now). So I guess the "Prior Acts Coverage" cost was around $175. As I recall, this covered me for anything I might have done in those past 3 years -- which normally is excluded, if you read the fine print. If you get the coverage the first year you are in business, of course, you would not need it.

[Henry R]

E&O Insurance

Afternoon all,

This is my first message on this board, but I have read, with interest, the posts made here this past week. I just this week have talked with several agents about E&O insurance, friends and actual interviews to purchase such insurance. I have been told that if I had coverage when the E&O event happened, I would be covered even if that would be at a future time when I may have closed my shop. Likewise, if I did not have coverage when a past event would be claimed, there would be no coverage given. But as you think about it, that does make sense.

But my question would be for Burke, how did you find someone to cover you for any possible past "sins" of errors and omissions. Unless the agent knew you by reputation for not making mistakes in your work, it seems that coverage would be a shot in the dark for not being claimed against. But that is not a question I have not even thought about asking, but I think I will now. Thanks, Henry R.

[Snaggletooth]

Henry R

By chance this wouldn't be Henry R Block would it? Started a great company for its first several decades.

At any rate, I often welcome new people to the board. We discuss and share information on very relevant tax subjects, and occasionally have light-hearted fun.

You are welcome as a member of the tax preparation fraternity/sorority.

Snaggletooth

[Burke]

Afternoon all,

This is my first message on this board, but I have read, with interest, the posts made here this past week. I just this week have talked with several agents about E&O insurance, friends and actual interviews to purchase such insurance. I have been told that if I had coverage when the E&O event happened, I would be covered even if that would be at a future time when I may have closed my shop. Likewise, if I did not have coverage when a past event would be claimed, there would be no coverage given. But as you think about it, that does make sense.

But my question would be for Burke, how did you find someone to cover you for any possible past "sins" of errors and omissions. Unless the agent knew you by reputation for not making mistakes in your work, it seems that coverage would be a shot in the dark for not being claimed against. But that is not a question I have not even thought about asking, but I think I will now. Thanks, Henry R.

Prior Acts Coverage is often an option on "claims made" policies, which have to be in effect when a claim is made against you, not when the event actually happened. You just have to certify that you are not aware of any potential situation which may result in a claim, and pay the premium. Most E&O policies fall into this category. If agents (forget the friends) are telling you that you are covered when the event happens regardless of whether the policy is inforce or not when a claim is made, that is not a "claims made" policy. Better check the actual contract to make sure this is the actual case, because it is not usual. It's not like life insurance, or car insurance, which have to be inforce when the event happens.