Professional indemnity: topical areas of concern
Why professional indemnity providers are now paying close attention to issues surrounding tax mitigation and defamation.
We are at a point when insurance for professional indemnity is at its most competitive; accountants are used to their insurers making relatively little in the way of demands in disclosure. It may come as a surprise to some that claims are still being made and are still being paid. Two areas of insurer concern that recently came to my attention relate to tax mitigation and defamation.
Tax mitigation schemes and HMRC
A recent application to the Supreme Court against an earlier decision by the Court of Appeal concluded that legal advice given by accountants in respect of tax matters was not covered by legal privilege. HMRC had issued a notice requiring disclosure of documents relating to a tax avoidance scheme which had been resisted because they contested that the advice they received as to the operation of the scheme, although offered by KPMG, should be covered by legal privilege. It was ruled not to be the case and full disclosure was required.
We are seeing much more claims activity in the area of tax advice, consequently insurers are asking for more details of the sort of advice that is being offered. Try wherever possible to specify within your terms of business what you have been asked to advise on and if you become aware that a client has arranged a tax scheme without your advice, you might care to document that this has taken place without your involvement.
Insurers are nervous about HMRC’s stance on tax mitigation schemes; we are seeing specific questions being asked by insurers of those firms who might have clients who make use of these. If you are aware your client has taken advice elsewhere on such a facility, it may be prudent to put in writing that such arrangements have been put in place without the benefit of your advice. If you have advised clients on such arrangements, a written statement regarding expectation to your clients might also prove of assistance.
What did you say?
Another area of exposure relates to how you interact with clients: in the days of ‘immediate communication’ it can be relatively easy to say something inappropriate. Hopefully you are aware of your exposures in the media and have in place appropriate internal checks to ensure appropriate sign off of any public communication is achieved. Your PI policy covers you for any civil liability incurred which could include defence of a defamation claim.
One lawyer friend of ours recently defended an accountant who mistakenly sent a letter to his former client making potentially defamatory comments about him. In this case, the accountant had produced a draft clearance letter to new accountants saying that he knew of no reason why they should not act, other than that the former client was …. (he then went on to be extremely indiscreet about his former client). Unfortunately the accountant sent that draft to the new accountants. This matter appears to have been resolved by drafting a sensible letter of apology.
In another matter, a claim was brought by an accountant’s former client. That client alleged that a fee earner of the accountant had posted onto the insured’s website details of investment funding into the company, without the company’s consent, and alleged that the information posted onto the website was inaccurate. The website posting formed part of a publication of promotional bulletins regarding the work of the insured. Solicitors were instructed to advise on policy coverage in the first instance and the insurers have confirmed cover.
As we are seeing in the press at the moment, defamatory postings on websites and social media sites such as Twitter are being pursued and if these comments were sent on behalf of an organisation it could cause considerable damage.
As part of the renewal process, a good broker and underwriter will review the website of a prospective insured. They will not only compare what is said on the site with the disclosure on your proposal but also assess the tone and the style of any blog communication.
Karen J Brown ACII – chartered insurance broker and vice president, Lockton Companies LLP
Practitioners can help mitigate some of the issues discussed in this letter with a good engagement letter between the firm and the client. For further information see Technical Factsheet 173 (Engagement Letters for Tax Practitioners) and Technical Factsheet 174 (Enforceability of Engagement Letters) and ACCA's Engagement Letters CD.