McGowanPRO Professional Liability Blog / Resources / Articles

We frequently hear messages about the importance of maintaining a good Credit Score.  Your Credit Score impacts your ability to not only obtain credit, but how much you will ultimately pay for that credit.  Today, credit scores are used for almost everything including, credit cards, mortgages, jobs, rentals, and insurance.

But, whether your Credit Score is 560 or 790, how is it calculated?

Your Credit Score is determined by:

35% is based on your payment history

30% is based how much you owe, and how much of your available credit is being used

The remaining 35% is based on credit history

- How long each account has been opened (15%)

- How many new credit accounts (10%), and

- The types of credit card debt (10%)

Demographics such as age, gender, race and religion, marital status do not play a role in your credit score.

Under the Fair and Accurate Transaction (FACT) Act, at your request, Equifax, and each of the other 2 major credit reporting agencies, Experian and TransUnion, will provide you with one free credit report every 12 months.

However, Credit report disclosures do not include credit scores. Your credit score disclosure must be purchased separately. However, you can request to purchase your credit score disclosure when you request your free annual credit file disclosure.

https://www.annualcreditreport.com

If you act as, or provide services as, a trustee it is important to understand your potential liability and relevant insurance coverage available to you.  Some Professional Liability policies include coverage for services as a trustee.  However, how these services are provided may influence such coverage.  Some questions you should consider?

1. How are your trustee services invoiced?  By your firm? or, by you individually?  If the latter, you should discuss with your agent.
2. Are there exclusions in your policy that may impact coverage for your trustee services?  Are you a beneficiary of the trust?

The IRS has introduced new rules for taxation of business and personal use of employer-provided cell phones.  Under the new rules, effective retroactive to January 1, 2010, the cell phone must be provided for non-compensatory business reasons.  The personal use of the cell phone is then nontaxable as a working-condition fringe benefit.

In addition, if an employer requires employees to maintain and use personal cell phones for business purposes, reimbursement of their monthly charges is also tax free.

Example:  Employee pays $39.99/month for an unlimited usage cell phone plan.  Employer requires employees to use their cell phone to contact clients outside of normal office hours.  The employer can reimburse the full $39.99/month and not include this amount in the employee’s income because it is tax free.

The IRS defines non-compensatory business purposes as those that have a substantial business-related reason including, but not limited to:

• The need to contact the employee at all times for work-related emergencies;
• A requirement that an employee be available to speak with clients when the employee is away from the office; and
• The need to speak with clients located in other time zones at times outside of the employee’s normal work day.

Examples of usage that would not be tax free would include excessive charges for international calls when the company has only US based clients.

When evaluating the potential cost of a data breach we have previously referenced the direct first party costs incurred by a firm as $5 to $50 per client.

Further information provided by the Ponemon Institute estimate this cost to likely be closer to $214 per record.  The Ponemon Institute conducts independent research on privacy, data protection and information security policy. 

Their research estimates direct costs of $73 per record.  Direct costs may include forensic, notification, call center, credit monitoring, victim assistance, legal defense costs, and breach consulting.

However, they further consider the indirect costs of diminished customer trust as approximately $141 per record.  This creates a total potential cost for a data breach of approximately $214 per record, not factoring any potential Errors & Omissions claims related to to the breach. 

According to a recent report by the Georgia Tech Information Security Center, Emerging Cyber Threats Report 2012, Cyber threats against personal information [data] continues to evolve.  We will see advances in the sophistication and implementation of attacks in the near future.

As a professional who maintains personally identifiable information (PII) of your clients it is essential to be aware of these new and emerging threats, and take possible steps to safeguard your data.

Some of the areas cited in the report include:

• Mobile Phones / browsers. 

There are currently four billion mobile phones in use around the world and mobile Internet is expected to outpace desktop Internet usage by 2014 (http://www.digitalbuzzblog.com/2011-mobile-statistics-stats-facts-marketing-infographic/ ).  Characteristics of mobile browsers create a new platform to introduce threats to data, as well as, potentially bypass existing firewalls and other security measures.

•  Botnets

Botnets have been around for a long time but they continue to evolve.  PII is big business and this means increasingly sophisticated processes to access information.  Botnets have gone from targeting small pieces of data to creating complex demographic models that can potentially be sold into legitimate markets.

• Online Information

We live in the digital world and more business and personal interaction is transacted online than ever before.  Marketers continue to expand the way our personal information is utilized to “control” our online experiences.  In addition, attackers are now capitalizing on search engine optimization (SEO) to increase rankings and, therefore, credibility.

• Technology Advances

Advances in technology that enhance the way we conduct business also increase our potential exposure.  Cloud computing creates new exposures that were previously addressed through physical servers.  However, human error, education, and weak passwords continue to create the most vulnerability.

You can read the whole report here.  It is not necessarily possible to understand all of the exposures created through enhancements in technology.  However, broader education creates awareness to avoid potential disasters.

If you have not already, download NAPLIA’s recent White Paper on Information Security: Essential Steps to Protecting your Practice.

The question is often raised, what constitutes a “reportable incident” to my insurance carrier?  To answer this one should review the specific language in your professional liability (aka. errors & omissions) policy. 

Each insurance policy is different.  Only your specific policy can provide you with the conditions, definitions, and provisions relevant to your scenario.  The policy wording used here is for illustrative purposes only.

Your professional liability policy is a legal contract between you and your insurance carrier.  As such, it is essential to pay close attention to your policy definitions and conditions, and follow them closely.  Failure to follow the conditions of your specific policy could result in a denial of a claim.

Most professional liability policies have wording relevant to the reporting of a potential claim.

If, during the policy period, you become aware of a wrongful act or any facts or other circumstance that occurred on or after the retroactive date but prior to the end of the policy period which may reasonably be expected to subsequently give rise to a claim or regulatory proceeding against you, you must give  us written notice as soon as practicable of the  potential claim or  regulatory proceeding, but in any event not later than the end of the policy period or any extended reporting period, if applicable.

The wording here that is open to interpretation is “reasonably be expected”.  In general, courts will go by the “reasonable professional” rule to determine if other professionals in your situation would have acted similarly. 

When in question, contact your agent and/or carrier hotline to discuss the scenario for a second opinion.  The concern is, if a claim arises out of a situation that you were previously aware of and did not report, the carrier can potentially deny the claim for “prior knowledge”. 

The key date for determination is the expiration of your policy.  If you are aware of a potential claim, you want to make sure to report that incident prior to the expiration and renewal of your policy. 

How you report a potential incident is also very important.  Providing a vague statement to the carrier or your agent is typically not sufficient to be considered adequate reporting .  Again, read your policy on the specifics for reporting a potential incident.

Such written notice to us shall include:

1      Reasons for your decision to report this as a potential Claim; and

2      Details with dates of the alleged Covered Act; and

3      Potential amount of injuries or Damages arising from the Covered Act; and

4      The names of potential claimants; and

5      The manner in which you first became aware of the specific Covered Act.

When reporting a potential incident you should follow the specific conditions of your policy and provide all requested information, in the requested format, and reported to the appropriate contact.

This does not imply that every potential issue you face needs to be reported to your insurance carrier.  However, should a scenario arise you should discuss with your agent and ask yourself:

-          Is this directly related to the professional services covered under my policy?

-          Do I reasonably expect this to arise into a claim?

-          When does our professional liability policy come up for renewal?

And, then if reporting the incident:

-          Have I provided all of the details requested in my policy and reported in the appropriate manner?

You may also consider that some professional liability policies contain incentives in the form of deductible reduction for the early reporting and settlement of claims.  Review your policy to understand these features.

Your professional liability policy is intended to protect your practice from errors and omissions in the delivery of your professional services.  Do not miss out on the protection you purchased for failure to understand and follow the conditions of your policy.

If you receive a subpoena or summons related to a potential incident, read our White Paper on: Responding to Subpoenas & Summonses: An Accountants Guide to Understanding & Response.

NAPLIA is pleased to introduce our newest White Paper:

Responding to Subpoenas and Summonses: An Accountants Guide for Understanding & Response

A claim of malpractice is not the only exposure faced by accounting firms.  The nature of accounting services creates several scenarios where accounting firms are consistently engaged with the judicial system because of the lawsuits and investigations that confront their clients.

The intent of this White Paper is to:

• Distinguish between "simple" and "complex" subpoenas.
• Provide a framework to understand the subpoena process and create an appropriate internal process for response.
• Identify "Complicating Factors" that may impact the response process.
• Understand when to retain counsel, and when a subpoena is likely to evolve into a claim.

Download NAPLIA's White Paper on Responding to Subpoenas and Summonses Now.

Congratulations to long-time NAPLIA friend, Rita Keller, for being named to Accounting Today's 100 Most Influential People.

Rita Keller and NAPLIA Partner, Stephen Vono

Rita is a Social Media maven who brings her high energy and fresh ideas to CPA Firm Management.  She is a well respected speaker across industry conferences and we recommend keeping up with her through her blog and/or facebook page.

We commend Rita on her ideas of challenging the status-quo and bringing fresh insight to CPA Firm Management.

More from Rita:

Do your professionals know what to do when a client is unhappy?

We hate to take space to blow our own horn, but we at NAPLIA are extremely proud to be recognized for the fourth consecutive year as one of the fastest growing private companies in America.

http://www.naplia.com/Naplia/inc500.html

What does this mean for you?

You can be confident that you are working with a nationally recognized company that has been successful through our dedication and service to our clients.  We like to think we are changing the way professionals buy insurance.

NAPLIA is committed to providing you with a better buying experience for your Professional Insurance by:

• Providing Choice
• Providing Education & Resources
• Providing Experience & Expertise
• Providing Quality Service

Backed by a track record of success and national recognition.  We can confidently say that "no national agent can match our personal service, and no local agent can match our national recognition".

Contact us today for more information about your professional liability insurance, errors & omissions, or other professional insurance needs!