Pay $182.9M For Carrier Claims, PwC Told

Ambassador Insurance verdict leaves auditor fully liable forfull amount awarded

PricewaterhouseCoopers has been ordered to pay $182.9 million inconnection with a predecessor company's audits for an insurancefirm that collapsed more than 20 years ago.

The company–Ambassador Insurance–was a property-casualty carrierdomiciled in Vermont and headquartered in New Jersey. The companywas seized by Vermont's insurance department in 1983 after thestate determined it was insolvent.

Richard Whitney, a lawyer with Jones, Day in Cleveland–the leadtrial lawyer for the Vermont Insurance Department–told NationalUnderwriter the money will go predominantly to policyholders andclaimants against policyholders. He said there are slightly morethan 10,000 allowed claims in that class.

Mr. Whitney said the case will be appealed, but added: "I likeour chances, absolutely." Peter Young, a lawyer with the VermontInsurance Department, said claims continue to be received.

PwC said in a statement after the judgment was signed by afederal district court judge in Newark, N.J., that it wouldappeal.

The trial centered on the audits that Coopers & Lybrand LLP,a predecessor to PwC, completed for Ambassador during the early1980s.

The suit alleged that Ambassador's insolvency was caused bygross mismanagement and fraudulent financial reports. It alsoalleged that Coopers knew, or should have known, by the end of its1981 audit that Ambassador was near the point of insolvency.

The case originally had been brought in 1983 by the Vermontinsurance commissioner.

U.S. District Judge Harold A. Ackerman approved the judgment. Itcame about two months after a federal jury awarded $119.9 millionin damages to the receiver for the bankrupt insurer, following a10-week trial.

In his opinion, Judge Ackerman ruled that PwC and the estate forAmbassador's former president are "jointly and severally liable"for the amounts awarded.

In other words, each defendant is liable for the full amount, inthe event that one of the defendants is unable to pay itsproportionate share.

The judge also awarded the receiver $63 million in prejudgmentinterest, bringing the total to $182.9 million. The estate forAmbassador's former president, Arnold Chait, who died several yearsago, has said it has no significant assets, meaning the accountingfirm might be required to pay the full amount of the judgment.

The jury assigned liability 60/40 between Mr. Chait, who wasaccused by Vermont insurance regulators of mismanagement, andCoopers & Lybrand.

Mr. Young said Mr. Chait's representatives did not appear at thetrial. George Bernstein of Washington, D.C. was the court-appointedreceiver.

Mr. Chait died about a decade ago and his estate is believed tohave few assets, so the state regulators asked Judge Ackerman tofind that PwC and the estate could each be considered fullyresponsible for the entire amount.

In a statement, PwC said: "We respectfully believe that theverdict and judgment are incorrect and we will seek appeal if thetrial court does not set them aside." To pursue an appeal, PwCwould be required to post a sizable appeal bond.

Callout:

Over 10,000 claims are pending, although PricewaterhouseCoopersvows to appeal