As an auditor you make a living by providing your professional opinion. No matter what industry you audit, it is your responsibility to evaluate businesses and determine if they follow the applicable standards. Regardless of what you decide, there may be long-term consequences for the business.
Let’s outline a couple of scenarios to illustrate how some of these consequences could affect your legal liability.
Example 1: They Pass the Audit
In the first scenario, your findings indicate that the business you are auditing is compliant with the laws and industry standards you are reviewing. Great! Except, down the line, it’s discovered that the business isn’t compliant, and they get hit with fines and fees.
In this situation, the business may feel that you missed something during the audit. They may claim you were negligent in your duties, and if you had performed your duties fully, they would have had time to fix the situation before being fined.
Whether you were or were not negligent is irrelevant in this situation. If the client feels you were, they may bring a lawsuit against you. As an independent auditor, paying your legal expenses alone can cost tens of thousands of dollars.
Example 2: They Don’t Pass Your Audit
In this scenario, the business you have audited will need to fix the issues you identified—a process that will take time, money, and manpower to implement.
If the business disputes your findings, or if they spend the money to fix the issues, only to find out later that your recommendations were unnecessary or done in error, they may sue you as a way to recover costs.
Again, the lawsuit itself is expensive, even if you aren’t found liable. However, if you are found liable, then you will also have to pay damages and other settlement costs, which may include the court costs of the business. As an independent auditor, you likely don’t have this kind of money on hand. Even if you do, can your business afford that kind of loss?
Beyond Professional Liability: The Insurance Coverages You Need
The above scenarios illustrate your need for a specific type of coverage—professional liability coverage. As an auditor, this type of coverage needs to be the backbone of any insurance policy you choose. It protects you against the cost of damages and claims that occur because of errors or omissions made while providing your professional services, as well as any negligent acts in this same capacity.
Although professional liability needs to be the foundation of your policy, there are additional coverages you should have. These are outlined below.
General Liability Coverage
Next to professional liability coverage, general liability is one of the foundational coverages you need for your insurance policy. This coverage protects you in the event of bodily injury or property damage claims.
For example, while performing an audit, you spill a chemical or other liquid. If someone were to slip and become injured on that spill, you could be held liable. Or you may accidentally damage an expensive piece of equipment, and the company wants you to pay for its repair or replacement.
One accident could even result in both types of claims. If you bumped into a piece of equipment and it knocked into or fell on an employee, injuring them and damaging the item. This single mistake could lead to both medical costs and property damage.
On their own, medical care (which may last for months) and property repairs are expensive, especially if a lawsuit becomes part of the equation. Together, they could be enough to lead you to bankruptcy.
However, having an insurance policy with enough general liability coverage could save you from paying these expenses out of your own pocket.
Personal and Advertising Injury Coverage
This type of coverage is usually a subset under general liability coverage, but for many policies, the “per offense” limits are separate from general liability “per occurrence” limits. The reason for this separation is the difference in how “injury” is defined for each coverage.
Injury, under personal and advertising coverage, requires intentional acts rather than simple negligence. Personal and advertising injury coverage protects you against seven specifically defined acts, including slander, libel, defamation, right to privacy violations, false arrest, copyright infringement, etc.
Because each of the covered acts have specific legal meanings, it’s difficult to illustrate how this coverage may be applied in a claim. However, if you would like more information, including examples, this article about personal and advertising injury coverage from online insurance resource IMRI is highly informative.
Damage to Rented Premises Coverage
This coverage is a necessity if you rent office space. It protects you from the cost of property damages sustained if you accidentally cause a fire.
Although you may not think you are likely to start a fire, legal liability can apply in more situations than you might first assume.
For example, you probably own a smartphone. You’ve probably seen recent news reports about a certain model exploding and causing fires. Even if you don’t own this specific smartphone, it’s only the most recent incident to capture the media’s attention. The truth is, any smartphone could overheat and explode. If yours does so while in your rented space, as the phone’s owner, you could be held liable.
Or, maybe you smoke, and while on a break, you don’t realize your cigarette isn’t fully extinguished. Or your laptop short circuits. Or you forget to extinguish a candle you were burning.
There are a lot of ways you may unknowingly cause a fire. Because the cost of repairing a building from fire damage is expensive, you’ll want this protection.
Computer Network Security Coverage
Since much of your work is done on location for the business you are auditing, you most likely use a computer or other technology to perform your duties. While computers are useful, they are also vulnerable to cyber threats.
If your computer becomes a weak point through which the business’s network or security is compromised or infected by malicious software, this coverage is a necessity. Depending on the specific circumstances of the event, it can protect you against claims where electronic data is destroyed, deleted, corrupted, or stolen.
Don’t Spend a Fortune for the Coverage You Need
Assuming liability risk is an inherent part of your work as an auditor. However, you don’t have to risk your business to do your job. Getting the right insurance coverage, like those outlined in this article, is the first step. Getting them for an affordable price is the next.
If you’re interested in an insurance policy that offers competitive limits for all of these coverages at a price well below market value, check out the policy provided by Exemplar Global’s insurance partners:
• Australia: Envirosure at www.envirosure.com.au
• United States: Veracity Insurance Solutions at www.paceinsure.com
The post Risky Business: Why Auditors Need Liability Insurance appeared first on The Auditor.