Our expert underwriter goes over some claim examples to give you a better idea of what your insured might need to look out for when shopping for E&O insurance.
Professional Liability Claims Examples - Tax Preparer - The Allegation
A claim was filed against an Accountant by an individual that had recently purchased a local hair salon. The suit alleged that false tax returns had been prepared on behalf of the original owner with the knowledge that prospective purchasers would rely on them. The Accountant had done the salon’s tax returns since 2009 and all tax returns were prepared based solely on information that had been provided to them. The accountant was not engaged or obligated to verify the accuracy of the information provided.
In 2017, the accounting firm had received a subpoena to produce their tax files since it was determined that they had prepared both an original and an amended tax return for both 2013 and 2014. They could not locate the documentation that forced them to need to amend the returns.
The new owner operated the salon for 30 months and claimed she lost money every month. The total claim is for $467,000
The Key document is the 2014 tax return which had to be amended based on the salon’s finding of “additional documentation.” The amended 2014 return shows business income of $180,000 while the original return showed income of less than $5,000.
The accounting firm kept very little documentation so it couldn’t be proven what actual documentation was provided to cause them to file an amended tax return, nor can they prove whether they sent the amended return directly to the IRS or sent it to salon owner to file with the IRS
The insurance carrier paid $53,000 to defend and $80,000 in restitution
2nd Claim:
Professional Liability Claims Examples - Background Checking Service- The Allegation
A Background Screening firm was sued for attributing 6 criminal convictions to the plaintiff resulting in lost wages and mental anguish.
The firm used a vendors database for the background check which picked up data on another person in another state with a very similar name. Without verifying, they simply passed on the false info without noticing that the middle initial and state were different.
The Plaintiff (who had been arrested on car theft charges in 2004) applied for employment at a car dealership and on the application indicated that he had never pled guilty or no contest to a crime or been convicted of a crime. He provided inaccurate times that he had been employed at other dealerships and ultimately acknowledged that he did not read other critical language on the application
The demand is $100,000 in actual damages, $86,350 in punitive and $13,500 in fees and costs.
The Plaintiff was a car salesman and the most he had ever earned in the past was $20,000 and in this capacity was only $10,000. The top salesman at the agency earned $46,000.
Unfortunately, during discovery it was determined that the defendant was undergoing a change in management and that there were insufficient protocols in place for maximizing the accuracy of information released as a result of a background screening
The Plaintiff's counsel stated that the theft conviction did not have to be disclosed due to the states statute of limitations and attempted to discredit the entire operation and therefore exposed the defendant to a multitude of suits for faulty background checks.
The case was amicably resolved at mediation for the amount of $60,000 with an agreement that no further litigation could be brought against the defendant.
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