$10M Professional Liability (E&O) Insurance for CPA Firms

For CPA firms asked by a large audit client, deal buyer or public body to carry $10M, the usual answer is a primary policy plus follow-form excess layers in Professional Liability (E&O).

What does a $10M requirement mean for CPA firms?

Professional Liability (E&O, short for Errors and Omissions) covers claims that a mistake in your work cost a client or another party money. CPA firms usually buy accountants professional liability, often through accounting-firm programs. A $10M clause might read like this:

• Per claim and aggregate: the most paid for one claim, and for all claims in a policy year.
• Claims-made: Professional Liability almost always covers claims made and reported while the policy is active, for work done after the retroactive date (the earliest date of work covered). See claims-made vs. occurrence.
• Stacking (combining policies): if your clause does not say whether layers can be combined, confirm with the client that a primary policy plus follow-form excess meets the clause.

Who asks CPA firms for $10M?

Many firms carry $1M or $2M, and some clients ask for $5M. $10M is higher than most requirements and tends to come from:

• Large private companies needing an audit that lenders or investors will rely on.
• Private equity firms and corporate buyers using your quality of earnings report (a review of a company's profits) to set a large price.
• Some very large public bodies, in some cases. Requirements vary by agency, so check the wording in yours.
• Very large companies outsourcing tax or controller work.

A $5M clause may need only a primary or one excess layer. $10M may need more, and each layer needs its own review.

A hypothetical example. A firm prepares a quality of earnings report for a buyer. After closing, the buyer finds revenue was booked too early and sues over the price paid. Defense and settlement could reach the excess layers.

How is $10M built?

The primary policy pays a claim first. Each excess layer pays only after the layers below it are used up. "$5M xs $5M" means a $5M layer sitting above the first $5M.

Each excess layer should follow form. If one layer adds its own exclusion, a claim could be paid at the bottom but not higher up. Retroactive dates and policy periods should match on every layer. Many Professional Liability policies pay defense costs inside the limit, so legal fees reduce what is left for a settlement.

What will underwriters ask for?

• Revenue by service: tax, bookkeeping, payroll, audit and attest, and due diligence.
• Your largest attest clients and who relies on the reports, such as lenders or buyers.
• Peer review results, quality control and partner sign-off.
• Tax deadline tracking, and any payroll tax deposits or client funds.
• The contract requiring $10M, including any indemnity terms (where you agree to cover certain client losses).
• Five years of loss runs (a report of past claims), any possible claims, and your current policy and retroactive date.

What affects the cost?

• Service mix. Heavy audit, attest or deal work usually costs more than tax and bookkeeping.
• Who relies on your work. Reports used by lenders or buyers can mean much larger losses.
• The primary layer. It usually costs the most per $1M because it is most likely to pay. Excess is usually priced lower per $1M.
• Claims history and firm size. Past claims can shrink the limit offered. Larger firms usually pay more.
• Retention and defense terms. A retention is what you pay on each claim before the policy pays, like a deductible. A higher one usually lowers premium.

Frequently asked questions

I carry $2M today. How can I get $10M Professional Liability as a CPA firm?

Request new quotes through Morrow for a new primary plus excess layers. Morrow can ask carriers to keep your retroactive date and prior acts coverage (cover for past work done before the new policy starts) where the market allows. Report anything that could become a claim to your current carrier before that policy ends.

Can my commercial umbrella cover a $10M Professional Liability requirement?

No, almost never. A commercial umbrella usually excludes professional services. You need excess Professional Liability layers. See umbrellas and Professional Liability.

Can my audit client be added as an additional insured on my Professional Liability?

Usually not. Professional Liability protects you against claims about your work, so a client is not usually added as an insured. Some clients may accept a certificate of insurance (a proof-of-coverage document) listing every layer. Check what your contract requires.

How long does it take to place a $10M Professional Liability tower for a CPA firm?

It varies, because each layer may need its own review. It can take longer than a single policy.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.