Education is your best defense in guarding against professional liability claims. Sign up for our Email Newsletter and receive Alerts, Articles, and White Papers on protecting and managing your practice.
When being helpful can backfire - admission of guilt
Imagine for a moment you are in ear shot of the desk of one of the professional accountants in your firm. You hear the phone ring and they answer. What you do not hear in that moment is the voice of an unhappy client. It becomes clear that something is wrong by the stammering of the professional's voice as they try to respond to an accusation that the services they performed were not up to standards and that they (the client) suffered financially.
As the conversation continues, you hear the professional apologize and as they are flipping thru the client's file, they admit that they were indeed wrong and promise to make them whole in light of the mistake made by them. (What ever the problem might be)
The scenario above is real and it does happen. I have heard of these scenarios from my clients. They have explained to me that the professional has made promises to have the firm "Cut a check" for the amount in question. The amounts communicated to me by my clients have ranged from $12,000 to $33,000. I can not imagine any partner of a firm being happy with such a promise!
Of course the professional wants to do what is right and they want to be helpful, but stop! This is when being helpful can back fire. What if there was more to the story then originally communicated by the client? The professional has now opened the firm to a larger exposure.
Another thing to consider is your professional liability policy.
Many professional liability policies have a condition that prohibits (except at your own cost) making any voluntary admission of liability, settle any claim, assume any obligation, and/or agree to any means of resolution to a dispute without carrier consent.
Violation of a policy condition may impact your rights under your policy and limit coverage.
To protect the accounting firm from this type of exposure, let's go back to the phone call and how the professional should respond to the client. The professional should simply listen to the concerns or accusations of the client and respond by acknowledging what they heard. They should then state something to the effect that they would look into the matter and get back to them. Once the phone call is over, the professional should then report the incident to a manager or partner. The firm should then contact their professional liability provider to report the incident and get counsel on how to respond to the client.
This process lowers your exposure and protects your insurance coverage by not admitting guilt up front and seeking counsel through the insurance policy.
The following is a suggested policy to put in your employee handbook that may help guide the professional on how to respond to such communication with clients.
Proposed policy for Employee Handbook:
Errors and/or Omissions
In the normal course of daily business operations, you may become aware of circumstances that a client is unhappy with our services as performed. Additionally, you may become aware of a potential error or omission related to services performed by the firm or any of its related entities. It is important that we manage these situations promptly and properly as follows:
- Do not acknowledge, apologize or attempt to negotiate a settlement. If a client verbally tells you that they are unhappy with something that the firm or any of its related entities has done, let the client know that you hear their concern and that you will look into it.
- Report your concern and/or information to the Chief Operating Officer who is responsible for notifying the Chairman of the Executive Committee and the firm's professional liability carrier.
The firm's professional liability policy includes a condition wherein the firm's coverage may be jeopardized if there is an admission or negotiation prior to a complete review of the client's stated concern or detection of an error or omission.
You should feel free to copy the above and make it available to present to all your employees in the interest of educating them on risk management. It is the duty of all professionals to conduct their business ethically and honestly. How you respond to your client in a situation discussed here can either open the firm to more risk of litigation, or control that risk while still maintaining ethical behavior.
Stephen Vono is a Senior VP & Producer at McGowanPRO and can be reached at SVono@McGowanPRO.com