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Court rules on professional liability insurance policy.

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. The insurer denied coverage for these claims, saying that the firm's September 1990 letter reported only potential claims, and the policy required the reporting of actual claims. The firm sued the insurer for coverage for these claims.

Both the trial and appellate courts ruled in the firm's favor. The appellate court noted that the policy defined "claim" broadly to include potential claims. The court further stated that the firm's September 1990 letter constituted sufficient notice of potential claims. The insurer did not object to this notice at the time or request additional information. Therefore, coverage was appropriate for the insured's claims.

This case points out the need for firms to full7 report all claims and potential claims to their insurance underwriter as soon as they have enough facts to determine an action may resuLT. Failure to do this may lead to the claim's denial. (United States Fire Insurance Co. v. Fleekop, no. 95-1726, Fl. App. 10/30/96)

Editor's note: Thanks to Dennis Zaragoza for submitting the McGann case.

--Edited by Wayne Baliga, CPA, JD, CPCU, CFE, president of Aon Technical Insurance Services.
COPYRIGHT 1997 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Florida
Author:Baliga, Wayne
Publication:Journal of Accountancy
Article Type:Brief Article
Date:May 1, 1997
Words:395
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