A state lawsuit that alleged that Deloitte & Touche LLP was negligent in its auditing of the now-bankrupt carrier Reliance Insurance Company has been settled for $40 million, a Pennsylvania official said.
Insurance Commissioner Joel Ario, the statutory liquidator for Reliance Insurance Company, announced yesterday that the Insurance Department had completed a $40 million settlement with Deloitte & Touche LLP in connection with the firm's auditing services for Reliance.
"We have fought long and hard in this case, and we are pleased with this settlement," Commissioner Ario said in a statement, adding that the goal in this, and prior actions, has been to maximize recovery for Reliance policyholders from its parent companies, management and outside professionals.
"This $40 million settlement will directly benefit Reliance's policyholders. When combined with the $45 million previously recovered from the Reliance parent companies, as well as the approximately $60 million recovered from the settlement of actions against the company's former officers and directors, the grand total of recoveries in the Reliance estate total nearly $145 million from litigation brought by the department," Mr. Ario said.
The settlement is the latest development in an explosion of legal action against the company which the state took into liquidation in 2001.
In 2004, a class action against Reliance Savings Incentive Plan was settled, and in 2005 the department settled a suit against Reliance directors and officers for $85 million. That action against former Reliance Chief Executive Officer Saul Steinberg and others accused management of fiscal misconduct.
The department's suit against outside auditor Deloitte & Touche LLP, and its appointed actuary, Jan Lommele was filed Oct. 15, 2002. It alleged among other things, claims for breach of fiduciary duties, professional negligence and the recovery of preferential transfers.
Based in Pennsylvania, Reliance was licensed to write insurance in all 50 states. The states with the largest number of policyholders included California, New York, Florida, Pennsylvania, Illinois and Texas. Reliance Insurance Company's insurance business consisted primarily of workers' compensation, commercial auto, commercial liability and personal auto coverage.
According to the department, in addition to the $40 million recovery, insurance regulation now provides additional protections to minimize the risks associated with the auditing of insurance companies.
The department said it has been working through the National Association of Insurance Commissioners on new requirements related to auditors.
These deal with auditor independence, corporate governance and internal control over financial reporting and are designed to promote the accuracy and reliability of financial statements filed by insurance companies, the department said.
Other key developments in financial regulation the department mentioned include strengthening risk-based capital requirements and adopting more stringent standards for actuarial opinions on the adequacy of insurance company reserves.
The department said it will continue working to develop and implement new tools for state regulation of insurance company financial solvency and to minimize the number and impact of insurance company insolvencies.
A copy of the settlement agreement can be found at the Reliance Documents Web site: www.reliancedocuments.com.
Policyholders with questions in the Reliance liquidation estate can call (215) 864-4500.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.