ACCOUNTANT'S DEFENSE REQUIRED WHEN SOME OF ALLEGED ACTS WERE WITHIN POLICY PERIOD

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ACCOUNTANT'S DEFENSE REQUIRED WHEN SOME OF ALLEGED ACTS WERE WITHIN POLICY PERIOD

A claims-made accountant's professional liability policy provided coverage for "....those claims that are first made against the insured and reported to the company while the policy is in force...." It granted retroactive coverage back to "....the first date that continuous claims-made coverage has been carried...." with specified minimum limits. It made clear that there was no coverage for acts, errors or omissions occurring prior to that date.

A major client sued the insured for alleged negligence in the preparation of financial statements between 1986 and the spring of 1990. The insurer stressed that the retroactive date for coverage was February 1, 1989. It denied defense of the lawsuit when the insured produced prior policies that did not provide continuous coverage. The insured sought a declaration that the insurer had a defense duty. Trial court judgment in his favor was appealed by the insurer,

The insurer argued that the acts alleged in the complaint against the insured were not within the scope of the policy and that he did not provide proof of continuous "claims-made" coverage, dating from the time he began to perform accounting services for the client who sued him.

The appeal court said that, if the underlying lawsuit alleged any negligent act, error or omission after the date that the parties conceded to be the retroactive date (February 1, 1989) and before February 1, 1993, the insurer had a defense duty.

The court found that the underlying complaint did, indeed, "contain some allegations of acts within this period." They included an opinion on the value of the business and advice to its sole shareholder not to sell it. The court concluded that the insurer was required to provide defense for its insured.

The judgment of the trial court was affirmed, on the issue of defense, in favor of the insured and against the insurer.

(WAITZMAN, Plaintiff-Appellee v. CLASSIC SYNDICATE, INC. ET AL, Defendant-Appellants. Illinois Appellate Court. No. 1-93-3178. January 6, 1995. CCH 1995 Fire and Casualty Cases, Paragraph 5152.)