Judge William D. Quarles Jr. denied a motion for summary judgment filed by an accounting firm in a declaratory judgment action seeking coverage for a malpractice claim. A claim against Trice, Geary & Myers alleged that the firm recommended that its clients participate in a defined benefit pension plan which caused them to unnecessarily be audited and forced to incur attorneys’ fees and tax debt. The insurance company, CAMICO Mutual, denied coverage because, well, that is what insurance companies do. CAMICO Mutual says it had no duty to defend the accounting firm because of the underlying allegations related to the insureds’ work as insurance agents and that the policy excluded claims “in connection with or arising out of any act, error or omission by any Insured in his/her capacity as an (insurance) agent or broker.” (Actually, they might have a point here, I hate to say.) I remember having a case in from of Judge Quarles when I was a defense lawyer that I thought was ripe for summary judgment. His response then was essentially, “You probably do but let discovery play itself out a bit first.” Similarly, here the court found discovery appropriate to flush out the arguments. That’s not a bad idea, but I bet that discovery will shed little light on the interpretation of what appears to be an ambiguous contract. One good piece of advice comes out of this case. Get enough coverage to cover any claims that might get filed against you. This is a $180,000 claim with only 100k in coverage even if they can get CAMICO on the hook. You can find the full opinion in Trice, Geary & Myers, LLC v. CAMICO Mutual here.
Accounting Malpractice Verdicts and Settlements
YEAR / STATE
CASE / INJURY SUMMARY
2018 – Texas
An accountant informed his businessman client that certain development project costs could be tax-deductible. Over time, he informed the man that the IRS disallowed the tax deduction. The accountant also claimed he was appealing this decision. He told the man that he owed no taxes until the appeals process finished. However, the businessman eventually learned on his own the appeals process already ended. He also discovered that his taxes and the accrued penalties and interest were many years past due. Because of this, the man sued his accountant for accounting malpractice. He claimed the accountant mislead him into thinking the appeals process was still ongoing when it already ended. The man also claimed he failed to inform him of his owed taxes. This case settled for $850,000.
$850,000 – Settlement
2017 – Iowa
Two potential investors hired an accounting firm to review and audit Country Stone Holdings, a construction materials company. The firm determined that Country Stone was financially sound enough to secure large loans. The investors used this information to purchase $4,000,000 in shares of another company, Jungle Growth. Country Stone agreed to purchase these shares a year later. However, Country Stone defaulted on this agreement and filed for bankruptcy. As a result, the investors lost $4,000,000 in potential investments. They alleged that the accounting firm misrepresented Country Stone’s financial health, causing them to lose millions. The investors claimed they improperly audited and reviewed the company. The accounting firm denied liability, arguing that the investors were comparatively negligent for failing to use due diligence. A jury determined that the accounting firm was 70 percent liable, while the investors were 30 percent liable. They awarded $4,000,000 in damages. The court reduced the investor’s net award to $2,800,000.
$4,000,000 – Verdict
2017 – Texas
An independent school district retained an accountant to audit annual reports and its bond program. It claimed he failed to finish these audits and failed to detect embezzled funds. The district sued the accountant, seeking $1,000,000 in damages. This case settled for $750,000.
$750,000 – Settlement
2016 – Montana
A masonry company alleged that an accounting firm’s failure to properly advise on travel reimbursements caused them to owe more in taxes. It claimed the firm deducted these reimbursements from its corporate tax returns, treating them as untaxable. The IRS audited the company, determining that it should include its travel reimbursements as wages. As a result, the company owed over $850,000 in taxes. The accounting firm denied liability, claiming they were not retained to handle payroll issues until the audit finished. A jury ruled in favor of the company, awarding $473,112.
$473,112 – Verdict
2015 – California
An attorney alleged that an accounting firm misrepresented his stake in his old firm. As a result, the man received a lower buyout after being terminated. He initially owned 45 percent of the firm, while his partner owned 55 percent. Several years later, both attorneys had equal ownership. He claimed the accounting firm’s records reflected this. However, the firm prepared his taxes as if he still had 45 percent equity. His termination buyout reflected this. The man sued his old law firm and the accounting firm, claiming he should have been bought out at an amount that accurately reflected his ownership in the firm. A jury awarded a $292,000 verdict.
$292,000 – Verdict
2011 – Iowa
An estate trustee retained an accounting firm to prepare his tax returns. He alleged that the firm understated his tax liability, causing him to owe over a million in taxes and penalties. The man claimed the firm improperly prepared his tax returns and failed to advise him on tax consequences. This case settled for $1,050,000.
$1,050,000 – Verdict