Tag Archives: beneficiaries

Sorry State of Life Claims Processes

“When my mom passed away, I was aware she had a small life insurance policy. When I started the claims process, I had to keep resubmitting documents and kept getting asked to complete more documents. Finally, after four months of going back and forth, when the money was about to be reimbursed, I wanted the money transferred to my account as direct deposit, but my only option was a check. I’m lucky I didn’t need the money right away for expenses, or I wouldn’t know what would happen.”

Will you consider purchasing life insurance policy from the insurer, I asked? “Hell no,” was the answer.

I was giving a presentation a few nights ago on Benekiva and heard that story from someone in the audience. Throughout my journey with Benekiva, I have been intrigued by all the stories I’ve heard about the nightmares that beneficiaries have faced.

As a new parent and owner of a life insurance policy, I know that ensuring the well-being of our family is critical. The thought of my daughter having to go through a hellish experience to get the money makes me furious and want to act now to fix the problems.

After several years of researching and analyzing the life insurance claims processes, there are four main problems our Benekiva team has identified that have prevented life insurance companies from embracing digital transformation in their claims processes:

Outdated Processes: The life insurance industry is a 258-year-old industry, and, though claims may make it in the top 10 list of issues for the CIO, the focus for the company as a whole tends to be on generating revenue. The claims staff works overtime to come up with various duct-tape systems filled with Excel spreadsheets, Access databases or various systems to balance the needs of regulators, old processes (this is how we have always done things) and beneficiaries. Beneficiaries wind up supplying the same information in multiple documents, sending the same documentation multiple times and chasing down faxes/mails for next steps.

See also: How IOT Will Change Claims Process  

Legacy Systems: On average, the claims staff touches four to 10 systems to process one claim. The claims module is most likely attached to policy administration systems in which modules don’t get updated often. To innovate claims processes gives CIOs headaches because they have to rip apart the monolithic and old systems that run the entire business. The mentality – “If it ain’t broke, don’t fix it” — creeps in.

Unclaimed Claims: There is more than $14 billion of unclaimed life insurance policies, and the number keeps growing $1 billion a year. Why is that? Ask yourself one simple question: How many times have you been asked to update your beneficiaries? Ask yourself another simple question: Have you informed your beneficiaries about policies you have for them? One of our co-founders could have been another drop in the bucket for unclaimed claims. He was at his father’s funeral, and one of his father’s co-workers came to give Jason his condolences. The co-worker said, “If you need help with paperwork, please let me know.” Jason said, “What paperwork?” He learned that his dad had a life insurance policy.

Laws Changing: Each state and country has its own governing laws that need to be abided with when processing claims. One state may require a death certificate while another state may ask for additional documentation.

How might claims departments innovate in the face of outdated processes, legacy systems, data that needs clean-up and changing regulation?

There are three key recommendations:

Keep Learning – Insurtech is HOT! Books are being written, conferences are popping up and fresh faces (like me) are appearing. Keep reading, attending and talking to learn what is happening in the space and how to navigate change.

Keep Seeking – Insurtech is HOT! Which means, there are startups that are popping up to help solve complex problems. Benekiva is my startup with three other founders, and we are on a mission to help bridge the gap between life insurance companies and the intended beneficiaries, through beneficiary management and claims automation. What is cool about us – we can work with legacy systems, so you don’t have to pour millions into the work. There are other insurtech startups that are solving other pain points. What’s great about startups – they are small, nimble and hungry, which equates to: They will do whatever you need them to do…to a certain extent. Partnering with startups can leapfrog your innovation efforts and their startup mentality may rub-off on your staff.

Keep Trying – You eat an elephant one bite at a time. I see claims processes as a big elephant, and the only way to improve is by “bitsizing.” What is one area of claims that can be improved? Identify that and try to find or partner up on a solution. Remember: Insurtech is HOT! I’ve seen organizations want to tackle the “elephant,” and unfortunately, those projects can take two years and longer and your strong talent is burned out at the end. What you get at the end is an “old” system – two years is a long time in tech.

See also: Making Life Insurance Personal  

To innovate in claims, the C-suite needs to make claims a priority and see it as a customer-experience issue.

My five-year vision is to have the following experience when giving presentations about Benekiva:

“Bobbie, I just submitted a claim, and I instantly received notification that money is available in the account. I also received a text message from an adviser whom my dad was using and who is going to help me plan for my future.”

How Politics Drives Up Your MSA Costs

For President George W. Bush and Congress to get Medicare Part D drug coverage passed in 2003, they had to make significant concessions to big business, including the drug industry. One of the law’s provisions forbids the government from setting rules for negotiating better drug prices. The “noninterference” section says:

In order to promote competition . . . the secretary [of Health and Human Services]:
(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors; and
(2) may not require a particular formulary or institute a price structure for the reimbursement of covered Part D drugs.
42 USC 1395w-111(i)

The result, according to a new policy brief from the Carlton University School of Public Policy and Administration, is that Medicare Part D plans pay on average 73% more than Medicaid and 80% more than the Veterans Health Administration for brand-name drugs. If Part D plans could negotiate drug costs the way Medicaid and the VA do, savings could reach $16 billion a year.

The study shows that the average per capita expenditure by Americans for pharmaceuticals is more than double the average of 32 other industrialized nations. Contrary to their publicity, American drug companies do not devote the wealth gained from Part D on new research initiatives. Half of new medical research initiatives come from non-profit entities such as universities. Rather, drug companies have spent their millions in recent years on increased lobbying. If drug costs decreased, Medicare beneficiaries could expect Part D premiums to also decrease.

pills

Although private insurers pay Part D medical expenses, workers’ compensation professionals are painfully aware that anticipated Part D-covered expenses must be included in a Medicare Set-Aside. The increased use and rising cost of pharmaceuticals has torpedoed many a proposed workers’ compensation buy-out. If the purpose of an MSA is to protect Medicare, why are Part D expenses that are paid by private insurers included in the allocation anyway?

Casualty insurance companies and the American Association for Justice are big political players. With the 2016 election cycle coming up, now would seem to be the time for their lobbyists to twist some arms to modify the noninterference provision for the benefit of all Americans.

Keen Insights on Customer Experience

The need to improve customers’ experiences in interacting with insurers strikes me as so acute that I’m going to take a shot at the issue here, even though we’ve been hitting it hard in a series of articles from Capgemini and Salesforce over the past month. (The articles are here, here, here and here, and a related white paper is here.)

I want to share what I found to be some keen insights from a webinar I hosted last week with executives from the two companies and with Donna Peeples, a member of our advisory board who was the chief customer experience officer at AIG and who is currently the chief engagement officer at Motivated, a consultancy she founded to help improve experiences.

The basis argument goes like this: Customer ratings of their dealings with insurers are bad and getting worse, putting hundreds of billions of dollars of premiums at risk. Insurers need to solve the problems and even find ways to start delighting customers. Technology must play a huge role.

But a lot lies behind that straightforward argument, and a lot of art, as well as science, needs to be applied to the problem. Thus the insights from the webinar, whose panelists, in addition to Peeples, were Nigel Walsh, vice president, insurance, at CapGemini, and Jeffery To, senior director, insurance, at Salesforce.

The insights are too long to fit on bumper stickers but are still plenty pithy and deserve careful thought.

The Problem

Peeples:

“Let’s face facts. Who really gets excited about buying insurance? It’s just not that much fun.”

“We think of claims as our product, when in actuality peace of mind is really our product.”

To: 

“There’s $400 billion in premiums across P&C and life that is at stake. That’s because 70% of policyholders are making renewal decisions in the next 12 months.”

“You lose, not just the customer for that one policy, but you lose the lifetime value of that customer.… The second thing that insurers will suffer from when a customer leaves is brand erosion, because in this day and age, with social media and mobile and so forth, bad news travels fast.”

Walsh:

“Insurers get compared to every other retail product or retail approach that consumers make. More often than not, of course, those are retail purchases that you make. They’re joyful, they’re delightful, they’re exciting.”

What Customers Want

Walsh:

“GAFA — or Google, Amazon, Facebook, Apple: If I could describe the ideal experience every one of us wants, we almost want data like Google have it, supply chain like Amazon have it, a community like Facebook have and a brand like Apple….This whole concept of GAFA to me gives you the ideal framework for what a great experience would look like.”

The Key Words to Focus On 

Walsh:

Convenience: “Let me pick on Amazon and Amazon Prime, specifically. I’m still in awe that someone turns up on Sunday morning, first thing, with my package I ordered the day before, and it’s just there…. The speed at which they operate and are able to fulfill those things, we need to apply that to a claims scenario or a mid-term adjustment.”

Relevance: “We need to be relevant to customers time and time again, as opposed to approaches that we do once a year or at certain points in the year….Day in, day out. ADT and Nest is an example about how you become relevant to your customer by doing more than just insurance.”

To:

Seamlessness: “Customers are expecting the Apple-like experience….You want to provide that effortless experience to policyholders across all phases in their journey.”

Stickiness: “If you can provide agents and brokers with the latest product updates, support and expertise with the same ease as in a community like Facebook, you’re creating loyalty and stickiness.”

Integrated: “Insurers have grown through acquisitions….I’ve worked with insurers who’ve got hundreds of different legacy systems, back-office claims, policy billing systems that they have to deal with, and you can’t achieve a true single view of a customer without integrating all of these various pieces.”

The Solution 

Peeples:  

“Always start with the people. We have to stop thinking about sorting data, and we have to start thinking about beating hearts.”

“We all talk about busting silos, but silos are like cockroaches. They’re going to outlive us all.”

“How do you think about those verticals where we all take such good care of the customer and say we own them, when in fact we’re all just caregivers for a certain amount of time along that customer’s journey? The elegance, or lack thereof, of those hand-offs is where I would also focus.”

To:

“If I’m a service agent or a sales agent, regardless of what device I’m using, whether it’s a desktop or a mobile device, I want a single view of that policyholder that pulls together things like claims history, policy changes, interaction history, and add all of that in addition to policyholder profile information…. If I’m a life provider, it’s important for me to know who the spouse and the children are because they could be potential dependents or beneficiaries. Tying all these pieces together requires more than just a unified front-end user experience. You need to actually unify the underlying pieces.”

Walsh:

“[The three most important areas for focus are] connecting elegantly, engaging regularly and seeing completely.”

“Engaging regularly is actually a tough challenge for insurance organizations because ultimately, why would I want to talk to my insurance provider unless it’s a time of crisis? …There are some great examples, from the connected car, the connected home, the connected self, where we can actually regularly engage with each of our individuals that we want to market to and talk to. That’s really, really key.”

“Millennials want to connect the way that says, “We actually have no clue what we’ve bought. We’re worried about what we’ve bought. Therefore, can we speak to someone that’s going to give me the assurance and confidence and walk me through the process?”

Peeples:

“The call center folks generally, not always, are some of the lowest-compensated. Maybe some of the least-trained. But they still represent the brand every single day as surely as the senior executives when they’re speaking on analyst calls or to Wall Street. Those people are really where the rubber hits the road. If you haven’t gone out and stood in the retail locations and seen the interactions, if you haven’t sat at the caller processing centers… these are the warriors of your brand and of your company.”

“There was a study that was conducted around call centers that found that, in 2013, the average number of screens that a CSR would have to pull up to get to what you and I as a customer would think is a relatively simple answer, was five. That number jumped in 2014 to seven…. I would encourage just a very thoughtful process around connecting those systems.”

“We have to recognize that we no longer have the benefit and control of a monologue at the customers or stakeholders. It’s no longer ‘word of mouth’; it’s a ‘world of mouth’ out there.”

“We talk a lot about the customer’s journey, but there’s also equally as important an employee journey that creates this double helix that is the corporate DNA.”

Walsh:

“You can actually break the problem down into some quick hits. We’ve got some clients that launch products in 30 to 40 days. I say that to most people, and they almost fall of their chair because the usual time for these things is six, 12, 18 months….You need to tweak it, or it’s going to fail. But with modern technology at least you can try and prove it and move it into a full rollout or move on to a different thing.”

Peeples:

“We need to listen to our customers, get out of our focus group of one, out of our own head.”

To:

“It simply will not work to turn to the predefined business process maps that you’ve done in the past. Don’t turn to those. Think first about the customer and agent experience, what their goals are, and design the customer experience around those goals. Don’t pave the cow path.”

“Rationalize. Make those tough decisions about what systems that you have in your spaghetti factory of legacy systems, which ones of them are strategic and which ones are you going to sunset.”

“Unify. Before you can even take the first few steps toward actually deploying or designing, you need to get basic blocking and tackling stuff done, like governance. Like having a common data model in place so that everyone agrees on what the data is, how it’s defined and where it’s going to come from. Unify the visions across the various levels in the organization.”

“You want to be able to measure your results. At the end of the development and after we’ve let it run for a little while, have we met our objectives?”

“Before problems even arise, you want to be so in tune with where that policyholder is in their interactions with you or in their life events that you are able to actually provide value-adding services and information before it even has to be requested.”

Walsh:

“Think big, start small, act quickly.”

“The cross sale, up sale is a constant, constant challenge. Most companies that I work with right now have an average of 1 to 1.1 products per customer. Best in class will tell you that it’s probably 3 products per customer. What’s the route for 1 or 1.1 to 3?”

Final Words

Walsh:

“Believe me, it’s absolutely possible to do some crazy things out there.”

Peeples:

“Let’s be honest here, we talk about hearts and minds, but it’s really about hearts, minds and wallets.”

“By the numbers, 55% of our customers tell us that they would pay more for guaranteed better service, and 82% of our customers would buy more from us if we just made it easier for them. 89% of our customers said that they would quit doing business with us after a bad experience.”

“Stop thinking about transactions and start thinking about relationships. Whether they’re customers or they’re employees or they’re part of the bigger universe of stakeholders including the intermediaries and the legislators and the regulators, it’s about the people.”

“Always keep the people in mind. Be data-informed and technology-enabled, but always think about the people.”

To hear the full webinar, click here. To see the slides, click here. If you want the full transcript, email me at paul@insurancethoughtleadership.com.

Do Accountants Face Risk as Fiduciaries?

Outside accountants – including auditors, those providing other attestation and compilation services, tax preparers and even mere advisers – are increasingly facing allegations that they served their clients in a fiduciary capacity. These are not simply idle observations: In general, they are made by clients and third parties seeking to obtain monetary damages from the accountants as a result of, inter alia, errors in financial reporting, tax positions that are subsequently rejected by the IRS or other authorities and losses incurred by clients or third parties following advice presented by the accountants. The reason adverse parties seek to impute fiduciary obligations to the accountants is that this offers them the opportunity to seek larger settlements or court-imposed awards, if the defending accountants are found liable. Fiduciary duties pose major risk for accountants and for those writing insurance coverage for them.

Traditionally, accountants were not considered to be fiduciaries, and in some instances still cannot be held to be such, either because of the nature of the services being rendered or the character of the client organization. However, over time the threshold for finding (or, at least, being permitted to argue in litigation) that the accountants were de facto fiduciaries has been lowered by court rulings. The implications for the accountants are serious – and they warrant taking steps to mitigate, by use of appropriate engagement letter language, and by exercising greater caution in taking on clients and in performing services for them. Those underwriting accountants’ malpractice insurance should be equally concerned with how well, if at all, their insureds have dealt with this risk factor.

What makes a party a fiduciary?

Fiduciary status is not well defined under the law, and this lack of precision has led, over time, to a creeping extension that now sometimes even reaches to outside accountants. A fiduciary relationship gives rise to fiduciary duties, the primary one of which is that of loyalty. As expressed more expansively in a number of key court decisions, “[a] fiduciary relationship carries with it the duty of candor, rectitude, care, loyalty and good faith.”[1]

Fiduciaries are required to hold their beneficiaries’ (i.e., clients) interests uppermost. Generally, fiduciary relationships are characterized as involving two parties, with the one (the fiduciary) acting on behalf of another (the beneficiary). The acting party exerts control over a critical resource that belongs to the other party – for example, the fiduciary invests funds belonging to the beneficiary, or controls the official filings (e.g., financial reports or tax returns) that are the obligation of the other party. The other party must have a relevant vulnerability (lack of investing expertise, technical knowledge, etc.) that places the beneficiary in what amounts to a subservient position vis-à-vis the fiduciary regarding the object of that relationship.

A fiduciary duty arises by either of two means: by operation of law or by application of legal factors. The first of these connotes a formal relationship between the parties, whereas the latter arises from informal relationships. Furthermore, in matters that have been elevated to the domain of litigation, there have been various ad hoc determinations that fiduciary obligations have attached, beyond those set forth in established law.

Examples of formal relationships to which fiduciary obligations will be ascribed include trusts, guardianships, agency arrangements, partnerships and joint ventures, corporations (regarding the duties of directors and officers) and counseling relationships (this being the most controversial). Counseling relationships may be those of attorneys and accountants and their respective clients, medical doctors and psychiatrists and their respective patients and even clergy and their parishioners. More generally, counseling relationships may include any others where the giving of advice in confidential settings is a central defining condition.

Informal relationships may also be interpreted as requiring the duty of loyalty. To rise to this status, there must be “trust” or “confidence” reposed by one person (or entity) in another, and there must be a resulting “domination,” “superiority” or “undue influence” of or over the other party (the putative beneficiary of the fiduciary relationship). It is important to stress that neither trust nor vulnerability alone suffice – it is widely held that both must be present to successfully assert that such an informal relationship creates fiduciary obligations.

More generally, if any person solicits another to trust her in matters in which she represents herself to be expert as well as trustworthy, and the other party is not expert and accepts the offer and reposes complete trust in that person, a fiduciary relation is likely established.

However, sharing expertise with another party is not, per se, enough: It is clear that not every expert is or can be held to be a fiduciary.[2]  There is a wide range of informal relationships, not all of which will connote fiduciary obligations. As the Restatement of Trusts notes, “Although the relationship between two persons is not a fiduciary relationship, it may nevertheless be a confidential relationship. Conversely, a fiduciary relationship may exist even though the parties do not enjoy a confidential relationship.” Thus, this is a grey area in the law, and this very ambiguity is what creates risk for the unwary.

For example, a financial reporting expert may advise a client on the various ways a particular transaction or event might be reported, or even opine that only a single approach would meet professional standards, but the ultimate decision remains that of the client, who may reject such advice or seek other opinions. The accountant does not dictate how the transaction or event has to be reported in the client’s financial report (although, if serving as independent auditor, the accountant may elect to render a less-than-unqualified opinion if the client elects an improper method of accounting having material impact on those financial statements).

As already noted, determinations establishing fiduciary obligations have been sometimes made on an ad hoc basis by the courts. Of greatest relevance to the present discussion, this tendency has increasingly brought accountants under the fiduciary duty umbrella, sometimes to the accountants’ great surprise and dismay. Most commonly, in the author’s experience as a practicing accountant, this has involved tax preparers who may rather casually offer investing advice to their clients. For example, upon noting a particular client’s high tax bracket, some tax preparers will make offhand comments about the virtues of, say, municipal bonds or real estate as investment options, or wax enthusiastic about a specific bond issue or mutual fund, which is more of a concern. More recently, this logic – applying fiduciary obligations to accountants offering investment counseling – has been extended to those offering a range of non-tax services, even if tradition and professional standards clearly prohibit the accountants performing those services from also serving in a fiduciary role.

What are the duties of a fiduciary?

Being defined as a fiduciary (whether or not a formal fiduciary relationship has been documented) brings with it a range of obligations. As noted, the most significant of these is the duty of loyalty. The interest of the principal (the beneficiary, or the client) must come first – even to the exclusion of the interests of the fiduciary. For example, if our hypothetical tax preparer suggests a certain class of investment to his client, it must be believed that this is an optimal investment strategy for the client, unrelated to the accountant’s own investment interests. Touting an investment in the hopes that, e.g., an increased demand will lift prices and thus benefit the accountant’s own holding of the same asset would clearly be a breach of this obligation.

In addition to making (or seeking to make) a hidden profit from advice given to the beneficiary, competing against the beneficiary (e.g., putting in a bid for property sought by the beneficiary, or “front running” an investment in securities), or simultaneously acting on behalf of another party whose interests are adverse to the beneficiary, would constitute breaches of the loyalty obligation. Because accountants typically have a large number of clients, there is a real risk that this prohibition could inadvertently be contravened.

A fiduciary also has a duty to disclose all relevant facts to its beneficiary. Again harking to the tax preparer/adviser situation, if the accountant is positioned to benefit if the client follows this investment advice (e.g., will obtain a referral fee or commission), this must be clearly communicated to the putative beneficiary. If an accountant is placed in the role of a fiduciary, the duties to exercise reasonable care and to maintain client confidences, found in the professional technical and ethical standards, must still be observed. Additionally, the fiduciary has a duty to maintain client confidences, which might carelessly be disobeyed even in the course of casual conversations with the accountants’ other clients.

Why is being held to be a fiduciary a risk for accountants?

Being held accountable as a fiduciary has one very crucial implication. Whereas assertions of failure to exercise due care (the normal standard to which outside accountants are held) lie within the domain of tort law, assertions of failure to meet the requirements of loyalty are found within fiduciary obligations. In the instance of allegations of breach of fiduciary duty, the burden of proof shifts to the respondent accountant, who must show, inter alia, that all material facts had been provided to the beneficiary and that all other fiduciary obligations have been satisfied.

In the event of a finding of failure to exercise ordinary due care, as defined in the professional standards with which the accountant is obligated to comply, damages are limited, typically, to actual damages suffered by the plaintiff, assuming that the tripartite required demonstrations of liability, reliance and damages have been achieved by the complaining party. In contrast, a failure to meet fiduciary obligations may result in punitive damages as well as the awarding of plaintiff’s legal fees, and thus presents a significantly greater financial risk for the accountants and for their insurers. The burden of proof, coupled with the potentially greater monetary damages, makes defending against well-founded accusations of having been a fiduciary and having breached associated duties to the beneficiary a much more serious concern.

The evolution toward fiduciary obligations for accountants has accelerated over the past few decades. During the 1970s and 1980s, claims against CPAs were commonly based on fraudulent misrepresentation and negligence (i.e., professional malpractice), as well as on contractual breaches (in the case of suits by clients against their accountants, who had purportedly failed to perform the assignment for which they had contracted). The 1990s witnessed an increase in claims made against CPAs that argued that they had served as financial advisers. This led to allegations of breach of fiduciary duty and a range of other assertions, such as functioning as an unlicensed investment adviser.

In the early 2000s, courts readdressed fiduciary duty claims, as they might pertain to CPA liability matters. In a seminal case, Miller v. Harris, decided in 2013,[3] a state appellate court reversed and remanded the trial court’s dismissal of a complainant’s breach of fiduciary duty claim against the respondent accountants. It found that contracts (such as that between the accountant and his client) between litigating parties do not control a claim for breach of fiduciary duty, because the latter are not based on contract law. This distinction is a vital one, establishing an important principle. Further, the court stated that a claim for breach of fiduciary duty must allege the existence of a fiduciary relationship and a breach of duties imposed as matter of law as a result of that relationship. The net effect of the Miller v. Harris appellate decision was to set a new, lower bar for fiduciary status by operation of law (i.e., for an informal relationship).

Given this decision and others, there is an enhanced likelihood that future actions against accountants will attempt to assert as fiduciary those relationships that, in the past, were not deemed to be such. Accountants, and their insurers, thus would be wise to give increased attention to this risk, and take steps to mitigate it, where possible.

What steps should be taken in actual practice to guard against this risk?

Although the record has been mixed, there has been some expansion of fiduciary duties over past decades to include accountants. Traditionally, of course, accountants generally had not been deemed fiduciaries. Indeed, their obligations to third parties and requirement for independence historically confirmed non-fiduciary status on accountants, inasmuch as duties to third parties could not coexist with loyalty to the client entity’s management.

Whereas at one time any attempt to attribute fiduciary status to accountants, for the purpose of alleging breach of fiduciary duty by them, would have been almost automatically dispensed with, today accountant defendants are very unlikely to obtain summary dismissal of breach of fiduciary duty claims. Instead, courts are holding this matter to be a fact issue to be resolved at trial. For the accountants, one important implication is that, even if the defense ultimately prevails, they will be forced to incur costs to defend against such claims. In litigation, even when you win, you often lose.

The existence of a fiduciary relationship is now defined to be a question of fact. If the facts support the assertion that an accountant acted as a fiduciary for the client, that accountant will be exposed to liability for breach of fiduciary duty, which may result in economic harm greater than in the situation of a garden-variety failure to exercise due care in a professional negligence suit, including the possibility of punitive damages and attorney’s fees being levied. The burden of proof is essentially placed on the defending party once the existence of a fiduciary relationship has been established by the complainant. Summary dismissals of fiduciary obligation claims against accountants are now unlikely to be obtained, meaning costs of defense must be borne even when ultimate exoneration is achieved.

Engagement letter limitation of damages language will often not be effective in precluding punitive damages, so this risk element cannot easily be protected against, if a fiduciary relationship can be established by the complaining party.

Contractual language defining the assignment as not implying fiduciary duties may not be sufficient to defend the suit. Nevertheless, having a well-crafted engagement agreement with clients remains an important defensive strategy – and such letters are mandated under professional standards for most ordinary accounting and auditing services. In the author’s opinion, the role of “adviser” should be avoided or severely constrained, if later allegations of breach of a fiduciary relationship-based obligation are to be averted.[4]

If advice is provided in circumstances in which the client can later plausibly claim to have been in a subservient role – thus, where the accountant was effectively making decisions for the client – there will be risk. Obtaining “informed consent” for recommendations made to the client would be one procedure providing some reduction in such risk. All recommendations should be couched in language that requires the client to consider and then independently conclude upon the matter, by either accepting and acting upon it, or rejecting it.

Finally, for both insureds and insurers, it would be wise to consult with a qualified attorney regarding the language used or proposed for accountants’ engagement letters for the various services being offered. Only in this way will risks, including that of being held accountable for breach of fiduciary duties, be most effectively addressed and, to the extent possible under evolving legal standards, contained.



[1]  See, e.g., Miller v. Harris, 2013 IL App (2d) 120512, ¶21; In re the Estate of Abernethy, 2012 Tex. App. LEXIS 4272; and Gracey v. Eaker, 2002 Fla. LEXIS 2662.

[2]  Burdett v. Miller, 957 F. 2nd 1375, 1381 (7th Circuit, 1992).

[3]  Miller v. Harris, Appellate Court of IL, Second District, 2013

[4]  Somewhat ironically, the trade association of public accountants, the AICPA, long promoted the catch-phrase “trusted (business) adviser” as a marketing tactic for CPAs to employ. It no longer does this, but a review of recent on-line articles and firm web sites reveals that this proclamation, or a close variant, continues in wide usage. Knowingly or not, many accountants are playing a dangerous game, wanting to tout their roles as adviser while rejecting status as fiduciaries.