Do Insurance Companies Cover you for the Wrong Advice from Non-Lawyers?

Increasingly, I am encountering cases where some accountants establish companies and trusts for their clients. They fill in forms and send them to online provides of legal documents who say they produce ‘tailored’ company and trust documents applicable to the client’s individual requirements. The truth is that this is simply not possible without a face-to-face discussion between the client, the accountant and document provider, and I am often informed that this is not made available as part of the process.

From my experience these types of legal documents frequently do not do what they should do when I come to review them, such as when:

Taking instructing instructions for the preparation of personal wills and enduring powers of attorney of the shareholders and directors;

Handling disputes and litigation on the behalf of the company and its shareholders;

Developing succession plans for the owners; and

Documenting operating agreements, including employment agreements.

The documents often require amendment.

It is pleasing that most accountants, who see their clients for tax matters a number of times a year, do not make themselves out to be a “quasi legal adviser” on all matters legal, relating to how their clients establish and run their business.

The better accountants stick to servicing their clients with advice on how to profitably operate their business; financial projections for the business; and tax minimisation strategies and, where they have a licence, financial advice on wealth creation and investment opportunities for the owners, management, and staff.

Clients should be concerned that when accountants and other service providers do not “stay in their lane,” they (the client) may not be covered by the professional indemnity insurance of the accountant. That is, if as a result of their “out of their lane advice” accountants cause clients to lose money, will the client be able to claim against the professional indemnity insurance policy of the accountant? Surely, the answer has to be “No” and that is where the risk for clients lies.

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