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Our first COVID-19 related claim against a CPA Client

Accountants Professional Liability Insurance

Our first COVID-19 related claim against a CPA Client

by Rickard Jorgensen, FCII, ARM, ACIArb.

We have been scanning the metaphorical horizon to see how the pandemic is impacting CPAs and generally, although many firms have seen a depression or shift in fees to later in the year, there have been very fee actual professional liability claims against CPAs.

However, there is always an exception to the rule and this week one of our long-standing clients was the recipient of the first COVID-19 related  liability claim notified to the CPAGold™ program.

A quick summary of the facts is as follows:

  • A Physician purchased the medical practice of a client. Subsequent to the purchase the acquirer Physician wanted to apply for a Payroll Protection Loan.
  • The Physician requested information about the purchased practice on 4/7/2020 with no time frame or explanation, which was provided by the CPA.
  • The selling physicians were responsible for filing and paying the payroll taxes though April 30th The CPA advised the selling Physicians clients that they were able to claim $15,000 of payroll tax credits from the last week of March until the end of April. This action would, however, prohibit the purchaser from making the PPP loan application.  The sellers agreed not to take the credit (the purchaser had threatened to withhold the balance of the purchase agreement if they did not allow the purchaser to apply for the PPP loan).
  • Previously the CPA had provided copies of all payroll information to the seller every(Quarter, not) month. The next return was due (April) Aril 30th, 2020.
  • The sellers waived their claim to the payroll tax credits on April 13th and instructed the CPA to sent them a copy of the past payroll returns, which was sent.
  • Once consent of the seller was secured, the CPA expedited sending the requested information to the purchaser.
  • The Physician submitted the PPP loan application on 4/17/2020 by which time the SBA had close the fund to new applicants.

The purchaser was upset that he was not approved, even though the CPA had not implied any guarantee as to the availability of funds and had worked to provide the information required for the application process.  The allegation was that the CPA did not provide the pertinent information on a timely basis and this precluded the purchaser from getting the PPL loan.  However, once client consent was obtained the CPA took every reasonable step to assist the purchaser.

Nevertheless, the purchaser threatened a lawsuit which triggered an obligation under the CPAGold™ policy to provide a defense to the CPA.

Although not strictly relevant to the foregoing from a risk management perspective the takeaway from this is:

  • Get an engagement letter from your client for PPP application assistance.  Go here  for a suggested engagement letter for assisting clients applying for PPP loans.
  • Ensure the client is aware of the deadlines
  • Reinforce with the client that the ultimate success (or failure) of this process is outside the control of the CPA and heavily dependent upon available funds.

As a postscript to the foregoing, I was informed by the CPA that the SBA PPP loan application was submitted to the bank and was approved in the second round of funding.  In fact, the CPA was able to secure a loan within 21 days of the original application which by most estimations is excellent service and the purchaser should have not grounds to complain or bring suit.

Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or rjorgensen@jorgensenandcompany.com


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