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How important is E&O/Professional Liability insurance for a small consulting business?

Roger Frederick's Profile

Answers

Anonymous
(Senior Manager - Strategic Analysis) |

Can you provide more info on your situation?

I can't imagine you carry too much inventory to reserve/write off as E&O, but liability insurance will very drastically depending on what sector you consult for.

(Agent, JKS Solutions, Inc.) |

CFO services require E&O or directors insurance because as CFO consultant you are taking on the role of management and all that entails.

Industry employers usually have coverage of their executives, but if you are consulting you do not unless you purchase it.

You should also obtain insurance to protect yourself against others who may underperform where you are responsible for the referral or recommendation.

If you are a CPA, professional liability does not cover CFO consulting because it takes on the role of management.

Be sure that you opt for the coverage that will also pay for the costs of defense. The cost of defense is sometimes as great or greater than the recovery they are seeking.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

It depends on what you do. Rule of thumb - if you provide information/analysis to a decision maker for their final decision, liability is less (not completely non-existent); but if you are providing final direction and decisions, without insurance the risk is high. If you decide to obtain a policy, make sure it applies to the risk you wish to mitigate.

(Agent, JKS Solutions, Inc.) |

Sometimes when bidding on a larger job the client may want to know how much coverage you have. If the client has good vendor management practices they like to ask how large your blanket policy is and general business insurance for potential breakage of systems at the client site may be required as well. From client to client it will vary. Make sure you interview up to 5 different brokers, from each one you will hear their different risk tolerance and fears about your practice. Be prepared to provide your business plan, sometimes they ask for that. Also be prepared to provide a copy of your contract for their review. As you talk to different agents you will learn more, ask a lot of questions because its free information. Companies that are very risk averse will throw up all kinds of red flags to you. Companies that have been around for a long time and have experience with your type of offering will be knowledgable and helpful.

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

I agree with Valerie as to scope of analysis, but, if you approach large and reputable brokers, three might be enough.

Mark Woollgar
Title: Partner
Company: Adams Woollgar Financial Services LLC
(Partner, Adams Woollgar Financial Services LLC) |

This is an ongoing issue that I look at consistently as E&O is expensive and inconsistent (as to what is covered, who covers consulting businesses and the actual knowledge of the brokers).

I think that your first line of defense has got to be in the engagement letter (and be diligent about getting it in place) where you are clear on the services, risks and the dollars (number of months billing).

Then look to the actual policy wording. One of the major companies in this space eliminates "CFO services" in the fine print. Of course that means that it looks like you are covered but really are only covered for the non controversial accounting issues.

You then need to look at what coverage and numbers of events (e.g. if you cover for $1m is that one event or more). Covering legal defense costs is also important.

I did find that the coverage through the CPA society (AON) had the best coverage but is very expensive. If others have found good coverage for "Part-Time CFO & Controller Services" then please let us all know.

Anonymous
(VP-Finance, CFO) |

How expensive is the CPA Society coverage - can you provide me with a range?

(Agent, JKS Solutions, Inc.) |

Robert Albertini | Sr. Business Development Specialist
Aon Affinity | Professional Firms
159 East County Line Road | Hatboro, PA 19040
o +1.800.221.3023 x5371 | f +1.847.953.0898
Robert [dot] Albertiniataon [dot] com | cpai.com

Here is a contact at AON, he is very knowledgable and easy to talk to and is helpful in understanding the quote process.

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