Fellow auditors, I've got a situation that's making me lose sleep. Completed a major audit for a manufacturing client here in Cleveland, found $47,000 in overcharges on their FirstEnergy bills going back 3 years - mostly incorrect application of Schedule GS-2 vs GS-3 rates. Client paid my fee, we submitted the claim, and FirstEnergy just flat-out denied it saying the meters were read correctly. Now my client is threatening to sue ME for the audit fee plus damages. My E&O carrier is saying this falls under 'professional negligence' not covered under my basic policy. Anyone dealt with something like this? I thought I had adequate coverage but apparently not.
E&O Insurance - FirstEnergy overcharge claim denied, need advice
Frank, that's a nightmare scenario right there. What E&O carrier are you with? I've been with Professional Liability Underwriters for 8 years and they've covered similar claims for me. The key is having 'errors and omissions' specifically listed, not just general liability. Also, did you document your methodology clearly in your report? That can make or break your defense. Tennessee Valley Authority tried to deny one of my claims last year but my carrier fought it because I had solid documentation.
I learned this lesson the hard way about 5 years ago with LG&E here in Louisville. Had what I thought was bulletproof E&O coverage through my general business policy. Wrong! When a client came after me for a disputed $23K refund claim, I found out my 'professional liability' only covered things like missed deadlines, not disputed technical findings. Had to get separate E&O coverage specifically for utility auditing. Cost me about $1,800/year for $1M coverage but it's worth every penny for peace of mind.
Frank, I feel for you brother. Georgia Power has gotten more aggressive about denying claims in the past couple years. My advice: get an attorney who specializes in utility rate cases to review your audit work. Sometimes the utility is wrong but they're banking on you not having the resources to fight. Also, for future reference, Technology Insurance Company writes excellent E&O policies specifically for our industry. They understand the unique risks we face and their coverage is comprehensive.
What was your audit fee on that job Frank? If it's under $25K, might be worth just settling with the client to avoid the legal headache. I had a similar situation with Ohio Edison about 3 years ago - client wanted their $8,000 audit fee back when the utility disputed our findings. My E&O deductible was $5,000 anyway, so I just refunded their fee and moved on. Sometimes cutting your losses is the smart play, especially if your insurance coverage has gaps.
Frank, before you panic, double-check FirstEnergy's tariff language on GS-2 vs GS-3 qualification. I've seen cases where the utility initially denied a claim but had to pay up when pressed on their own tariff requirements. CPS Energy tried that with me on a similar rate schedule issue - they eventually paid the full $31,000 refund when I provided detailed tariff citations. Document everything and don't assume their first 'no' is final.
I'm with Beazley Insurance for my E&O coverage - about $2,100/year for $2M limits. They've been solid when I've had claims. The key thing I learned is making sure your policy covers 'failure to achieve expected results' not just traditional errors and omissions. That's what saved me when Duke Energy disputed a $42,000 demand charge analysis I did for a client in Cincinnati. The utility eventually paid but my client was initially upset when the process took 8 months longer than expected.
Thanks everyone for the advice. I ended up hiring an attorney who specializes in PUC cases and we're pushing back on FirstEnergy with additional tariff analysis. Also spoke with Technology Insurance Company and they're quoting me much better E&O coverage than what I currently have. Live and learn - this business has more pitfalls than I realized when I started 15 years ago. Will keep you posted on how this turns out.