Insurance obligations on regulated professions
When sitting down with clients, people working in regulated professions have a duty to advise and inform their clients carefully and completely. Disputes that arise from any failure to discharge this duty often prove complicated. Professional liability insurance is available to legal, accounting and real estate professionals to protect them from certain risks in their trade. Stéphanie LAROCHE, a financial risks loss adjuster at Stelliant Loss Adjusting, lays out her perspective to us.
The varied work of the regulated professions
The regulated professions are broken down into four major groups. While they may seem very different to one another, they are all under similar regulatory restrictions. They are:
- Real estate professionals: estate agents, asset managers, joint-ownership property managers, surveyors and others.
- Accounting professionals: chartered accountants and auditors.
- Financial and insurance consultants: estate planners, investment consultants, bank transaction intermediaries, insurance agents, brokers, traders and many others.
- Legal professionals: notaries, lawyers, court bailiffs, judicial representatives, etc.
For these professionals, working with professional liability insurance is a must. This insurance type differs from an individual’s public liability which usually takes the form of home insurance. Public liability is based on a legal rule enacted in Article 1240 of the French Civil Code, relating to contractual liability, and Article 1382, relating to tortious liability. The rule is “whosoever causes injury to another must make amends for that wrong”.
Professional public liability covers damage caused to a third party in the course of a professional activity or from the performance of a service. It protects the policyholder from the financial consequences of such damage caused from the service provided. It encompasses tangible damage, financial damage and bodily injury. In essence, if a policyholder were to lose a client’s computer data, their professional public liability would come into play. On the other hand, general public liability applies to where a customer slips on the floor of a business or a supplier is burnt by a hot beverage on the premises.
Considering the impacts
The risk for the regulated profession extends beyond tangible damage to even financial loss, especially in the case of consultancy services. In fact, bad counsel can be the source of significant financial consequences. In some cases, it can quickly bring about a crisis situation for both the adviser and the client. Let’s take the example of a chartered accountant who carries out some tax planning for a client, but that planning fails to obtain the desired tax benefits. The potentially aggrieved client could seek redress against that accountant following a tax audit that found the client had underpaid income tax and social security.
In the case of consulting and tax optimisation in particular, there is often no single solution. The professional could end up giving advice that does not achieve the best result. From this perspective, an accountant could see a claim against them for advice that did not allow the client to obtain the envisaged tax savings. The work of the loss adjuster will be to determine whether any other advice
would have led to lower payments or would have even avoided any taxes at all. This type of claim is generally understood from a loss of opportunity perspective, and the financial gains obtained from the advised tax plan has to be closely scrutinised.
Loss adjuster’s role and value
In such cases, someone holding professional public liability insurance could report the claim to the insurance company and be assisted in clearing up the tricky situation.
In this way, those working in regulated professions can take advantage of access to unbiased specialists who will investigate the claim. The role of the loss adjuster is above all else to analyse the documents in the case to figure out whether the policyholder could be held liable. The loss adjuster uses all their technical knowledge and understanding of the tax system to advise the policyholder and determine if the matter is a one-off or a recurring problem. The idea is to put something complicated into layman’s terms so the alleged fault and damage can be properly understood. The loss adjuster becomes a mediator between the policyholder and the client in order to ensure any amicable arrangement can be found before things go too far down the legal path. The loss adjuster watches out for latest case-law developments to help analyse the financial risks involved in a possible court case.
The regulated professions are being greatly challenged to reinvent themselves due to a case-law that is constantly changing and an economy that is increasingly digital. The uberisation of services, through the development of digital platforms on which individuals and companies can find people with the skills they need, could have a highly positive impact on regulated professions. Nonetheless, the services offered will always have to comply with the overriding regulations that underpin them.
Stéphanie LAROCHE – Financial risks loss adjuster
Stelliant Loss Adjusting