REG legal-responsibility coverage for duty of care, privilege, confidentiality, malpractice, and contract claims.
This chapter focuses on the legal exposure that can arise from professional engagements apart from tax-specific penalties. The central question is how duties to clients and third parties are created, limited, breached, and enforced.
REG questions in this area often mix professional conduct with civil liability. The exam answer depends on who owed the duty, who relied on the work, whether privilege or confidentiality applies, and whether the facts support negligence, breach of contract, or another claim.
| Legal issue | What to decide first | Common REG trap |
|---|---|---|
| Duty to client | What the engagement, law, or professional standard required. | Assuming every bad outcome creates liability. |
| Third-party exposure | Whether the claimant had a recognized basis for reliance or duty. | Treating all third parties as if they have the same rights as the client. |
| Privilege and confidentiality | Whether communication is legally privileged, confidential, or subject to disclosure exception. | Treating confidentiality and privilege as identical protections. |
| Malpractice or contract claim | Whether the claim arises from deficient professional care or an unmet contractual promise. | Answering from ethics rules when the question asks for civil liability. |
| Step | REG question to ask | Legal effect |
|---|---|---|
| 1. Identify the claimant | Is the claim brought by a client, intended third party, foreseeable third party, regulator, or other person? | Duties and reliance rules depend on who is asserting harm. |
| 2. Define the source of duty | Did the duty arise from contract, common law, statute, professional standard, or fiduciary relationship? | Liability analysis starts with a recognized obligation. |
| 3. Determine breach and causation | Did the professional fail to meet the duty, and did that failure cause damages? | A poor result alone is not enough for liability. |
| 4. Apply privilege or confidentiality rules | Is the information privileged, confidential, or subject to a disclosure exception? | Privilege and confidentiality protect different interests. |
| 5. Match remedy or exposure | Is the claim malpractice, breach of contract, negligence, fraud, or another civil theory? | REG answers often turn on the type of legal exposure, not only the conduct. |
| Checkpoint | Exam use | What to avoid |
|---|---|---|
| Duty source | Identify whether the obligation comes from engagement terms, common law, statute, professional standards, or fiduciary status. | Treating a moral or business expectation as a legally enforceable duty without support. |
| Relationship | Classify the claimant as a client, intended third party, foreseeable third party, regulator, or unrelated party. | Giving all nonclients the same standing to sue or rely on the work. |
| Standard of care | Ask what a reasonably competent professional would have done under the engagement facts. | Concluding negligence from hindsight when the work was reasonable at the time. |
| Reliance and causation | Link the alleged breach to actual reliance, damages, and proximate cause. | Finding liability because an error occurred without proving that the error caused the loss. |
| Remedy or discipline | Distinguish civil damages, contract remedies, privilege consequences, confidentiality duties, and professional discipline. | Answering a civil-liability question with only an ethics-rule conclusion. |