Payment of professional insurance claim taxable?

[arejfour]

I am a self employed sales rep. One of my suppliers never payed me. I won a judgement against him and he filed for Chapter 7. I have professional insurance and submitted the claim to them as an uncollectable acct receivable. If they pay the claim is the payment a taxable event? I was not able to deduct the nonpayment of receivables on my taxes as I use cash basis. I look forward to anyone's comments. Thanks

[Critter · Accepted solution]

Yes it is taxable ... they paid you instead of the client ... either way you still got paid. The prior uncollectible acct is now collected via the insurance payout.... they will most likely be sending a 1099-misc for that income. 

[Lisa995]

what type of insurance reimburses you for uncollectable acct receivables?  I don't remember seeing that as something my business insurance covers, is this something extra you need to add?

[arejfour]

I have Hartford professional liability ins. It has a clause that will pay for uncollectable accts receivable

[arejfour]

It was a standard clause. I did not pay extra for it. I'm waiting for Hartford to reply to my claim.

[Lisa995]

Interesting...I'll have to read my policy closer!  thank you!

[arejfour]

I rec'd a call back from the claims agent. This would not be a covered loss. The loss would have to be a result of something like a fire etc. that destroyed your records or something like that. It was worth a try. Thanks

[Lisa995]

Thank you for confirming this.