Frequently asked questions about mandatory professional liability insurance. Q1: Why are all CPAs required to have professional liability insurance?

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1 Notice These frequently asked questions were prepared for information purposes only and were up to date on January 21, However, their content is subject to change until the plan is implemented on April 1, 2013.All of the plan s final terms and conditions and coverage will be set out in the master policy, which all of the Order s members will be able to access in early February on the plan administrator s Web site This document contains the answers to the following questions: Background and benefits Q1: Why are all CPAs required to have professional liability insurance? Q2: What are the benefits for members in joining the group plan? Categories of insureds Q3: Who is covered by the Order s group plan? Q4: Who are the members providing professional services to the public? Q5: Who are the members NOT providing professional services to the public? Q6: Who are retired members and life members for the purposes of professional liability insurance? Q7: I had retired member status before the unification. Do I keep this status for the purposes of professional liability insurance? Q8: How is my member category determined for the purposes of insurance coverage? Q9: I am a member of another professional order or a regulated association. Am I subject to the plan? Premiums and payment terms Q10: How much will my annual premium be? Coverage Q11: I am a member who provides professional services to the public. What is covered by the group plan? Q12: I am a member who does NOT provide professional services to the public. What is covered by the group plan? Q13: Can I take out excess insurance or additional coverage as part of the group plan? Plan administrator Q14: What were the criteria for choosing the plan administrator? 1

2 Background and benefits Q1: Why are all CPAs required to have professional liability insurance? A: Since it came into force on May 16, 2012, the Chartered Professional Accountants Act (the Act) has not only established the unification of the three accounting orders, but also governed the practice of the CPA profession through the various regulations that were adopted, including those respecting professional liability coverage (professional liability insurance). Section 36 of the Act stipulates that starting on and by no later than April 1, 2013, all CPAs will have to join the Order s mandatory group professional liability insurance plan. Therefore, in accordance with the Act, during its meeting on November 29, 2012, the Order s Board of Directors set the premiums based on the various categories of insureds and decided on the plan administrator. The lawmakers' decision to make this a requirement for CPAs, regardless of whether they provide their services directly to the public (members in private practice), are employed by a company, an institution or a government or are retired, is consistent with the recommendations of the Office des professions du Québec. Accordingly, CPAs now join the other major professions, including doctors, lawyers and notaries, which have set up a mandatory group plan or a professional liability insurance fund. Q2: What are the benefits for members in joining the group plan? A: The group plan negotiated by the Order is one of the best professional liability insurance plans in Quebec and extremely beneficial for several reasons. The group plan provides all chartered professional accountants, without exception and at all times, with access to the minimum liability insurance required by the regulation at a reasonable cost thanks to the negotiating power of more than 35,000 members. The group plan provides members who do not work in public practice with a minimum level of professional liability insurance coverage for their regular professional activities and the services that they occasionally provide to their family or friends, even if they provide these services for free. The coverage provided is one of the best on the market: It has no annual limit per insured or deductible, and its price is extremely competitive. The group plan ensures the best possible protection of the public and is fair, since it factors in the risks associated with the professional activities of the various member categories defined for that purpose by the Order s Board of Directors. Members continue to be covered at no additional cost for a period of six years after they cease all professional activities. 2

3 Categories of insureds Q3: Who is covered by the Order s group plan? A: According to the provisions of the Regulation, all members in good standing of the Order, even retired members, are covered by the group professional liability insurance plan. But since the risks of professional liability vary depending on the nature of the activities they practice, members are divided up into various member categories, each with its own specific premium: members who provide professional services to the public; members who do NOT provide professional services to the public; retired members; retired life members recognized by the Order who are not active professionally. Q4: Who are the members providing professional services to the public? A: Members who provide one or more services to the public on a full or part-time basis that are included in the definition of the practice of the CPA profession under section 4 of the Chartered Professional Accountant Act, including: audit, review and compilation engagements; tax services for individuals and companies; bookkeeping, financial planning, forensic accounting, business valuation and management, financing and information technology consulting services, as well as trustee in bankruptcy services. For more information, consult section 4 of the Chartered Professional Accountants Act. Q5: Who are the members NOT providing professional services to the public? A: These are employees, officers or owners of companies and members who work in the federal, provincial or municipal public sector or in education. Q6: Who are retired members and life members for the purposes of professional liability insurance? A: Retired members are members who are at least 60 years of age as of March 31 of the year in progress, earn less than $10,000 per year in income from employment, the practice of the profession or the operation of an enterprise and have been continuously registered on the Roll of the Order during the five years preceding the year in which they request retired member status for the purposes of the annual membership dues of the Order. 3

4 Furthermore, life members recognized by the Order must have retired member status for the purposes of their annual membership dues and not be active professionally. Q7: I had retired member status before the unification. Do I keep this status for the purposes of professional liability insurance? A: CPA members who were considered retired or partially retired as of May 16, 2012 and met the conditions that were applicable to them at that time are considered retired members as concerns their annual membership dues. However, for the purposes of professional liability insurance, members have to select the category that corresponds to their professional situation, which may not be the same as their status for the purposes of membership dues. Q8: How is my member category determined for the purposes of insurance coverage? A: The information you send to the plan administrator in the application and premium selfassessment form will determine your category of insured and the premium you will have to pay as a result. You will receive this form every year in January. You should know that any false or incomplete declaration could have unfortunate consequences. Q9: I am a member of another professional order or a regulated association. Am I subject to the plan? A: CPAs who are members of other professional orders, such as the Barreau, or who practice their profession as members of regulated associations, as in the case of bankruptcy trustees, are subject to the Order's group plan and are covered by it, even if their membership in other orders or associations already subjects them to professional liability insurance requirements. Therefore, they will have to pay the premium corresponding to the nature of the activities they practice. Premiums and payment terms Q10: How much will my annual premium be? A: The premiums were negotiated by the Order and will be in force for the next two years, i.e and Considering the coverage offered, the premiums are very competitive. 4

5 1. A $1,500 premium will have to be paid by all members who practice the profession in circumstances other than those described in sections 2, 3, 4 and 5 below, including: a. members who provide professional services to the public on a selfemployed basis or within a firm as a shareholder or partner that have an estimated annual value of $10,000 or more, excluding compensation received from their other activities as directors or members of an audit committee of a corporation*; b. members who have the employee status and practice their profession for a member practicing alone or for a firm that provides the professional services included in the definition of the practice of the profession, and who have been granted signing authority for reports and the other documents set out in section 4 of the Chartered Professional Accountants Act. *The policy does not cover the activities of directors or members of an audit committee of a corporation. 2. A $50 premium will have to be paid in the following cases: a. members who practice their profession as employees of a Quebec or Canadian government department or a body to which one of these governments, the Parliament of Canada or the National Assembly of Quebec appoints the majority of the members or whose capital forms part of their domain or who practice within the Auditor General of Quebec or Canada or the auditor general of a city; b. members who practice their profession as employees of a department of a municipality, a mandatory body of a municipality or a supramunicipal body; c. members who practice their profession as employees of any employer other than one that provides services included in the definition of practice of the profession of professional chartered accountant; d. members who provide professional services to the public on a selfemployed basis or within a firm as a shareholder or partner that have an estimated annual value of less than $10,000, excluding all compensation received for their other activities as directors or members of an audit committee of a corporation*. *The policy does not cover the activities of directors or members of an audit committee of a corporation. 5

6 3. A $100 premium will have to be paid by all members who have the employee status and practice their profession for a member practicing alone or for a firm that provides professional services included in the definition of the practice of the profession and who have not been granted signing authority for reports and the other documents set out in section 4 of the Chartered Professional Accountants Act. 4. A $25 premium will have to be paid by all members who have the retired member status for the purposes of annual membership dues and whose income from employment, from the practice of the profession or from the operation of an enterprise is less than $10,000 per year. 5. No premium will be payable by life members recognized by the Order who have retired member status and are inactive professionally for the purposes of annual membership dues. The premium paid by members who provide professional services to the public was set based on the plan administrator s experience and takes into account the risk experiences of the three legacy accounting orders plans. It should be noted that the premium can be paid by the firms where the CPAs work as partners or employees. The premium for members who do NOT provide professional services to the public was calculated based on the estimated risk for members who do not provide professional services to the public. It should be noted that the premium is tax deductible. In all cases, the premium is payable every year by no later than April 1. All members who fail to pay the premium will be struck from the Roll of the Order. Coverage Q11: I am a member who provides professional services to the public. What is covered by the group plan? A: When you pay the corresponding premium for your member category as a member who provides professional services to the public, the group professional liability insurance plan covers you for the basic amount of $1 million, and a maximum of $2 million per claim if two CPAs are involved in the same lawsuit. This coverage is not subject to any deductible or annual limit per insured. All services included in the definition of the practice of the CPA profession, as described in section 4 of the Chartered Professional Accountants Act, are covered by the group plan, excluding the following: the sale, provision, installation, maintenance, failure or non-performance of hardware equipment, the programing of packaged accounting software or custom 6

7 accounting systems, Web site development and/or maintenance; however, information technology consultations are covered; property management, except for services provided as a receiver, manager, agent of secured creditors or trustee in bankruptcy/liquidator/ insolvency practitioner, executor of an estate or under a power of attorney; the activities of company officers, including the activities of chief financial officers, regardless of whether you actually hold this title or are deemed to hold this position; the activities of members of boards of directors, committees of boards of directors, advisory boards or similar oversight bodies. If you practice these types of activities, we urge you to be extremely careful and make sure that your employer covers you adequately. The group plan may provide you with limited coverage for liability as a director or officer of a non-profit organization on certain conditions. The insurance policy also includes the usual waivers for deceitful or fraudulent acts, proceedings involving a company in which insureds have a stake, proceedings between CPAs, proceedings resulting from personal bankruptcy and of course, all other claims known by insureds but not disclosed to the insurer on the date on which the group plan takes effect. Q12: I am a member who does NOT provide professional services to the public. What is covered by the group plan? A: Under the group plan, you will be covered for the amount of $1 million by paying the minimal annual premium of $50. This is new for CPA, CGAs and CPA, CMAs, who previously did not have to hold professional liability insurance. However, this requirement has its benefits, such as being covered in the following situations: your employer s liability insurance is insufficient or non-existent; you occasionally provide professional services to the public - for example, you prepare income tax returns for friends or family, review the financial statements of the daycare centre attended by your children or of hockey or soccer clubs, provide business management advice to neighbours or friends, etc. - all services that incur your professional liability, even if you provide them for free. For the modest premium of $50, which is tax deductible, you will enjoy the peace of mind that comes with being covered for almost all professional liability proceedings, including those involving your previous acts. This coverage was particularly difficult to obtain in the free liability insurance market. 7

8 Finally, it should be noted that the amount of the premium was not calculated based on the risk for firms, but rather on the estimated risk for members who do not provide professional services to the public. It should be noted that your professional liability as a member of an audit committee of a corporation is specifically excluded from the plan s coverage; in that case, we urge you to be extremely careful and make sure that the company on whose committee you sit covers you adequately. Q13: Can I take out excess insurance or additional coverage as part of the group plan? A: You can take out excess insurance in addition to the basic coverage by shopping around the free professional liability insurance market. However, the plan administrator offers you up to $10 million in total coverage, which should meet the needs of most firms, including the additional requirements of those practicing in limited liability partnerships (LLP) or joint-stock companies (JSC). The Regulation respecting practice in a partnership or joint-stock company sets out the excess insurance in addition to the basic coverage that you need to hold. Furthermore, you must hold supplemental insurance for activities that are not covered by the basic policy or the excess insurance coverage. In fact, since it is a group plan and contains exclusions, certain activities by members may not fall within the definition of the practice of the CPA profession. In that case, it is up to members to determine whether their situation requires them to take out additional coverage, which they can obtain by shopping around the free market or from the group plan administrator. Plan administrator Q14: What were the criteria for choosing the plan administrator? A: The plan administrator was chosen for its expertise in insuring accounting professionals and handling claims, as well as for its very competitive prices. The selected administrator also provides risk management services. Its in-house claims handling department is comprised of qualified accounting professionals and lawyers who are committed to helping members minimize the impact of potential claims so that they can focus on their practice. The plan administrator has agreed to: deliver a stable, high-quality profession-specific insurance plan; obtain the most comprehensive coverage at the lowest possible rate through the collective power of the plan s insureds; 8

9 ensure claims are handled quickly and knowledgably by staff who have an insurance and an accounting or legal background; develop practical risk management educational tools to support members loss prevention programs. If you did not find the answer to your question, please send an to We will answer you as soon as possible. You can also go to or call the plan administrator at or