Pay $182.9M For Carrier Claims, PwC Told
Ambassador Insurance verdict leaves auditor fully liable for full amount awarded
PricewaterhouseCoopers has been ordered to pay $182.9 million in connection with a predecessor company’s audits for an insurance firm that collapsed more than 20 years ago.
The company–Ambassador Insurance–was a property-casualty carrier domiciled in Vermont and headquartered in New Jersey. The company was seized by Vermont’s insurance department in 1983 after the state determined it was insolvent.
Richard Whitney, a lawyer with Jones, Day in Cleveland–the lead trial lawyer for the Vermont Insurance Department–told National Underwriter the money will go predominantly to policyholders and claimants against policyholders. He said there are slightly more than 10,000 allowed claims in that class.
Mr. Whitney said the case will be appealed, but added: “I like our chances, absolutely.” Peter Young, a lawyer with the Vermont Insurance Department, said claims continue to be received.
PwC said in a statement after the judgment was signed by a federal district court judge in Newark, N.J., that it would appeal.
The trial centered on the audits that Coopers & Lybrand LLP, a predecessor to PwC, completed for Ambassador during the early 1980s.
The suit alleged that Ambassador’s insolvency was caused by gross mismanagement and fraudulent financial reports. It also alleged that Coopers knew, or should have known, by the end of its 1981 audit that Ambassador was near the point of insolvency.
The case originally had been brought in 1983 by the Vermont insurance commissioner.
U.S. District Judge Harold A. Ackerman approved the judgment. It came about two months after a federal jury awarded $119.9 million in damages to the receiver for the bankrupt insurer, following a 10-week trial.
In his opinion, Judge Ackerman ruled that PwC and the estate for Ambassador’s former president are “jointly and severally liable” for the amounts awarded.
In other words, each defendant is liable for the full amount, in the event that one of the defendants is unable to pay its proportionate share.
The judge also awarded the receiver $63 million in prejudgment interest, bringing the total to $182.9 million. The estate for Ambassador’s former president, Arnold Chait, who died several years ago, has said it has no significant assets, meaning the accounting firm might be required to pay the full amount of the judgment.
The jury assigned liability 60/40 between Mr. Chait, who was accused by Vermont insurance regulators of mismanagement, and Coopers & Lybrand.
Mr. Young said Mr. Chait’s representatives did not appear at the trial. George Bernstein of Washington, D.C. was the court-appointed receiver.
Mr. Chait died about a decade ago and his estate is believed to have few assets, so the state regulators asked Judge Ackerman to find that PwC and the estate could each be considered fully responsible for the entire amount.
In a statement, PwC said: “We respectfully believe that the verdict and judgment are incorrect and we will seek appeal if the trial court does not set them aside.” To pursue an appeal, PwC would be required to post a sizable appeal bond.
Over 10,000 claims are pending, although PricewaterhouseCoopers vows to appeal