In Michigan, an accountant may be liable to a client in tort and contract. But can an accountant be liable to a non-client in tort or contract? The answer is yes, but the circumstances are few and far between.
To date, Michigan courts haven’t had occasion to weigh in on whether a non-client may sue an accountant for malpractice. In other contexts, Michigan courts have held that a non-client may sue a professional for malpractice in certain circumstances. As an example, a non-client insurance company may sue a defense attorney under a theory of equitable subrogation, as the Supreme Court held in Atlantic International Insurance Company v Bell. And a non-client will beneficiary may sue an estate-planning attorney, as the Supreme Court held in Mieras v DeBona.
The accounting-malpractice statute, codified at MCL 600.2962, outlines three circumstances in which an accountant may face tort liability in connection with accounting services:
- Negligence involving a client;
- Negligence involving a non-client where the non-client’s intent to rely on or benefit from the accountant’s services is memorialized in writing; and
- Fraud or misrepresentation.
So under MCL 600.2962, an accountant may be liable to a non-client for negligence—but only if the identity and interest of the non-client are set forth in writing—and fraud.
While MCL 600.2962 addresses the circumstances in which an accountant may be subject to tort liability, MCL 600.2962 doesn’t address the circumstances in which an accountant may be subject to contractual liability. Ohio Farmers Insurance Company v Shamie illustrates the point. There, accountants prepared independent auditor reports and financial statements for a company. An insurance company, which relied on the reports and statements when determining eligibility for surety bonds, sued the accountants for breach of contract based on errors in the reports and statements. The trial court dismissed the breach-of-contract claim based on MCL 600.2962. The Court of Appeals reversed, holding that MCL 600.2962 didn’t apply to the breach-of-contract claim.
Shamie didn’t reach the merits of the breach-of-contract claim. Shamie did, however, suggest that a non-client may sue an accountant for breach of contract (assuming, of course, the non-client is a third-party beneficiary of the contract).
A complaint about the quality of accounting services, however, probably won’t pave the way for a breach-of-contract claim. In the legal-malpractice context, Michigan courts treat a breach-of-contract claim based on inadequate representation as a legal-malpractice claim. There’s little doubt that Michigan courts would apply the same rationale in the accounting-malpractice context.
The takeaway is that there are circumstances, albeit limited circumstances, in which a non-client may sue an accountant. If a non-client’s intent to rely on or benefit from an accountant’s services is set forth in writing, the non-client may sue the accountant for negligence. If a non-client is a third-party beneficiary of a contract between an accountant and client, the non-client may sue the accountant for breach of contract. But a breach-of-contract claim based on inadequate performance, rather than non-performance, will probably be treated as a negligence claim.