$1M Professional Liability (E&O) Insurance for Non-CPA Accountants

For non-CPA accountants and bookkeepers: a $1M requirement means your Professional Liability policy needs a $1M limit for one claim caused by a mistake in your work. Check the aggregate too.

What does a $1M requirement mean for non-CPA accountants?

Professional Liability (E&O, short for Errors and Omissions) covers claims that a mistake in your professional work caused a client a financial loss. A typical clause looks like this:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, $2M. A $1M/$1M policy would not meet this clause. A $1M/$2M policy would.
• Claims-made: the policy covers claims made and reported while it is active, for work done on or after the retroactive date (the earliest date of work the policy covers). See claims-made vs occurrence.
• The listed services: your policy should describe every service named in the clause. If payroll is in the contract but not on your application, that is a gap.

See Professional Liability limits explained for more.

Who asks non-CPA accountants for $1M?

A $1M request may come in a written business contract, for example from:

• Mid-sized companies outsourcing bookkeeping or part-time controller work.
• CPA firms subcontracting overflow bookkeeping or tax preparation to you during busy season.
• Nonprofits and their boards handing off bookkeeping, payroll or grant tracking.
• Property managers, franchise groups and medical practices outsourcing payables or payroll.

Larger outsourcing deals may ask for $2M. A $2M requirement may need a higher primary limit or an excess layer, while $1M is often one primary policy (see $2M Professional Liability for non-CPA accountants).

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first). Excess layers (extra policies stacked above it) are rarely needed. CPA firms usually buy Accountants Professional Liability. Non-CPA accountants, bookkeepers and tax preparers are written on either a similar accountants, bookkeeper or tax-preparer Professional Liability form or a Miscellaneous Professional Liability form (a broader form for service businesses without their own policy type), depending on the insurer and program. Confirm which form you are quoted, and that the wording lists your bookkeeping, payroll and tax services.

A commercial umbrella almost never covers Professional Liability. Clients usually cannot be added as an additional insured (a party listed on your policy for its own protection). Some clients accept a certificate of insurance (a one-page proof of coverage), but check what your contract asks for.

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage and on what terms. For a non-CPA accounting practice, they usually ask for:

• Your revenue split by service: bookkeeping, tax, payroll, controller work and advisory.
• How many returns you prepare each year.
• Staff count, and confirmation that you do not issue audit or review reports.
• Whether you pay bills, sign checks, move client money or remit payroll taxes for clients.
• Whether you use signed engagement letters and track deadlines.
• Prior claims, anything that could become a claim, and your current policy and retroactive date.

What affects the cost?

• Service mix. Payroll, outsourced controller and business tax work usually cost more than basic bookkeeping.
• Revenue and volume. More revenue and more returns usually mean a higher premium.
• Control of client funds. Paying bills or moving client money adds risk underwriters look at closely.
• Claims history. Prior claims can raise the price.
• Aggregate, retention and defense terms. $1M/$2M usually costs more than $1M/$1M. A higher retention (the amount you pay on each claim before the policy pays, similar to a deductible) usually lowers the premium.

Frequently asked questions

Do I need $1M Professional Liability as a non-CPA accountant?

Only if your contract or client requires it, though some business clients and CPA firms do. In one hypothetical case, a preparer misses a business client's filing deadline during tax season, and the client owes penalties and interest. Policies differ on penalties and interest, so Morrow can review that wording with you.

Is $1M/$1M enough if my contract says $1M/$2M?

No, a $1M/$1M policy does not meet a $1M/$2M clause. Request new quotes for a $1M/$2M policy. Morrow can request them for you and ask insurers to keep your retroactive date and prior acts coverage (coverage for past work done before the new policy starts) where the market allows. Keep your current policy in force until the new one starts, so there is no gap. Report anything that could become a claim to your current carrier before that policy ends.

Does Professional Liability cover a data breach of client records?

Usually not fully. Stolen tax files or a hacked email account are usually a Cyber insurance matter. Many accountants buy a separate Cyber policy. See Professional Liability vs Cyber.

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.