Professional liability Insurance has its limitations. If you are engaged in a dubious activity, the insurance company has the power to revoke it. This is exactly what CNA Financial Corp. did with one of its clients.
The CAN unit Continental Casualty Co. issued an accountant liability insurance to Armonk, New York-based Marshall Granger &Co. L.L.P in April 2010. This entitled the firm to a limits of $2 million per claim and $4 million in the aggregate. The said firm was managed and owned by Ronald J. Mangini and Laurence M. Brown as stipulated in court papers.
However, Mr. Brown pleaded guilty when charged with security fraud, money laundering and wire fraud in 2011. This was in connection to selling activities of fake promissory notes and stocks, a scheme that has allowed him to accumulate fraudulently a profit of $2.1 million. In response to this dubious activity, Continental on the other hand immediate sought legal action, asking for the revocation of the other party’s policy, using the argument that Mr. Brown implicitly committed misinterpretations when they applied for the insurance policy.
In November 2011, however, president and CEO of Alpharetta, Georgia-based Northstar. Mr Boughton, along with his firm, came into the picture. They claimed that Mr. Magini gave them all of his rights in the said policy. In June 2016, the District court ruled in Continental’s favour.
Mr. Boughton on the other hand appealed on the basis that Continental does not have the right to rescind the policy because the insurance provider ratified the policy. He also claims that they unreasonably delayed asking for a rescission. The court on the other hand ruled once again in favor of Continental.
As seen from the illustration above, professional liability insurance is not recommended for people who have the intent to commit crimes. The insurance company now has the ability to file for a rescission if the policyholder is entangled in a grave misconduct.
If this is the case, should you forgo it altogether? Some professionals are required by law to have insurance coverage. This is especially true for professionals who are at the risk of committing mistakes that could hurt their clients. Since there is always the possibility of incurring a mistake along the way, professionals like accountants are strongly advised to get professional insurance coverage to protect themselves financially.