Actuaries Targeted More Frequently In Malpractice Lawsuits

Actuaries Targeted More Frequently In Malpractice Lawsuits

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Actuaries, who for years had a low profile that avoided the kind of malpractice actions routinely bombarding accountants, are now increasingly bigger targets for such lawsuits, according to attorneys and others familiar with the industry.

“They were below the radar screen for years,” says Joseph P. Dailey, a New York-based attorney specializing in actuarial malpractice issues.

Dailey and his partner, Loren F. Selznick, are the authors of “Navigating The Litigation Minefield: A Guide To Actuarial Malpractice Claims.”

By their calculations, as of July, more than 50 suits had been filed against actuaries, with over 70% coming in the past 10 years. This number, Dailey says, reflects only those with recorded decisions, and there are undoubtedly many more that never reach that stage. “Most of them are settled before theres a final resolution,” which makes it difficult to gauge the success rate of such actions, he says.

A quick settlement would probably be the result in cases where actuarial negligence stemmed from an obvious typographical error, Dailey suggests, adding that there were a relatively small number of cases in that category.

Recounting the history behind the increase in lawsuits, Dailey notes that “people had been going after accountants for at least 100 years, but actuaries escaped until the mid-70s–and the ironic part is they popped up because of rules and regulations the professional societies strongly pushed for.”

In his legal study, he says the lawsuits began hitting life and health actuaries in 1975, after the Employee Retirement Income Security Act required their clients to file annual statements of actuarial opinion.

In September, a National Association of Insurance Commissioners task force took up the idea of imposing limits on the indemnification of actuaries against malfeasance, but the issue has been put on the back burner since actuaries strongly objected.

In the 50 actions he examined, according to his and Selznicks breakdown, 34 were filed by actuary clients; 19 of the 34 were brought against pension actuaries by corporate sponsors, pension plans or liquidators.

Five actions were brought against life and health actuaries by client companies and liquidators.

Factors that have resulted in suits, according to his study, are reserve deficiencies, underfunded pension plans, and insurance company insolvencies.

The last cause led to an action that made headlines several weeks ago when the Pennsylvania Insurance Department sued the auditor Deloitte & Touche and its actuary, Jan A. Lommele, for misconduct related to the failure of Reliance Insurance, a Philadelphia-based property-casualty insurer.

Dailey says the vast majority of the cases are against consulting actuaries because “they are similar to large independent accounting firms and they have deep pockets.”

If a company gets into difficulties, he notes, “experience teaches us there are likely to be lawsuits and professionals of any ilk are liable to be brought into the fray.”