Although professional advisers such as accountants and lawyers
take their responsibilities and potential liability seriously,
increasingly high insurance premiums have led to a minority of
advisers being under insured or, in extreme cases, uninsured.
Professional indemnity insurance premiums have risen as auditors
and other professionals have been drawn into lawsuits arising from
corporate frauds, corporate governance failures, disappointing
takeovers or investments, and credit failures. The Enron and
related Arthur Andersen collapses are extreme but vivid and recent
examples of the impact of uncapped professional liability.
The Australian Federal government, concerned about these risks,
has proposed extending existing state-based liability caps embedded
in approved professional standards schemes. This raises the
possibility that there will be an end to the one remaining avenue
of unlimited liability for professionals who are entitled to use
those existing caps.
Various circumstances can create exposure for a professional
adviser, including: an engagement letter or retainer contract;