$2M Professional Liability (E&O) Insurance for Non-CPA Accountants

For non-CPA accountants, bookkeepers and payroll or tax preparers, a $2M requirement usually means $2M per claim in Professional Liability (E&O), so check that your policy limit and aggregate match the contract.

What does a $2M 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 $2M clause might read like this:

• Per claim: the most the policy pays for any one claim. Here, $2M.
• Aggregate: the most the policy pays for all claims in one policy year. A $1M/$2M policy pays only $1M per claim. See Professional Liability limits explained.
• Claims-made: the policy covers claims made and reported while it is active, for work on or after the retroactive date (the earliest date of work covered). A payroll or tax error can surface years later.
• Listed services: every service in the clause should appear on your policy.

Who asks non-CPA accountants for $2M?

Many small practices carry $1M or less (see $1M Professional Liability for non-CPA accountants). $2M usually shows up when one client hands you much of its finance work:

• Mid-sized companies outsourcing payables, payroll and month-end close.
• Lenders and investor-backed companies that rely on your monthly financials.
• CPA firms that subcontract overflow work to you and pass their own limit down.
• Multi-location groups, such as medical practices, running payroll through you.
• Government agencies, where the limit is often written into the bid. See government contract requirements.

How is $2M built?

At $2M, the limit is usually one primary policy (the policy that pays first) written at $2M/$2M. Some practices keep a $1M primary and add a $1M excess layer (a second policy that pays after the first is used up). Excess should follow form, meaning it uses the same terms as the primary. If the clause does not say limits may be combined, confirm with the client that primary plus follow-form excess meets it.

CPA firms usually buy Accountants Professional Liability. Non-CPA bookkeepers and tax preparers commonly buy a bookkeeper, tax preparer or accountants-type form, or Miscellaneous Professional Liability (a general form for professional services that do not fit a specialty form), depending on the program. Check that the form lists your services. A commercial umbrella almost never covers Professional Liability, so it usually cannot fill the gap (see does an umbrella cover Professional Liability?).

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage and on what terms. At $2M, expect closer questions, such as:

• Revenue by service: bookkeeping, tax, payroll, sales tax filings and advisory.
• Your largest clients and what share of your revenue each brings in.
• Whether you sign checks, pay bills, move client funds or remit payroll taxes on a client's behalf.
• How you track filing deadlines, and whether a second person reviews returns and payroll runs.
• Signed engagement letters, prior claims, and your current policy and retroactive date.

What affects the cost?

• Service mix. Payroll and tax usually cost more than basic bookkeeping.
• Client size. One large client can mean a bigger possible loss.
• Control of client money. Paying bills or remitting taxes for clients adds risk.
• Claims history. Prior claims can raise the price.
• Limit structure, retention and defense terms. A higher retention (the amount you pay on each claim first, similar to a deductible) usually lowers the premium.

Frequently asked questions

Do I need $2M Professional Liability as a non-CPA accountant?

Only if your contract or client requires it. $2M is less common than $1M and usually comes from a larger client or lender. Bigger contracts may ask for more (see $3M Professional Liability for non-CPA accountants).

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

Often not, because $1M/$2M pays only $1M per claim. A clause that asks only for a $2M aggregate may accept it, so check which one yours names. If you carry $1M today, Morrow can request new quotes for a $2M policy, or a $1M primary plus a follow-form excess layer. Morrow can ask carriers to keep your retroactive date where the market allows. Keep your current policy until the new one starts, and report known incidents to your current carrier first.

What kind of claim could reach $2M for a bookkeeper or payroll preparer?

A large error for one big client could. Here are two hypotheticals. First, you run payroll for a 12-location medical group, and a setup error leaves tax deposits short for several quarters. The unpaid tax is usually the client's own debt, so policies often do not cover it. Penalties and interest caused by your error may be covered, unless the policy excludes or caps client funds or tax claims. Second, a lender says miscoded financials led to a bad loan. Send Morrow your policy and Morrow can review that wording with you.

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

Usually not on Professional Liability. Some policies may allow it, often limited to liability from your services. Ask Morrow to check the wording when it reviews your policy. Many clients accept a certificate of insurance (a one-page proof of coverage), which is evidence of coverage, not extra coverage.

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.