Judge Leaves Accounting Firm Responsible for $182.9M JudgmentSep 30, 2005 | AP
Accounting giant PricewaterhouseCoopers LLC is fully responsible for paying a $182.9 million judgment stemming from a jury's finding that a predecessor company was negligent in auditing Ambassador Insurance Co., which collapsed more than 20 years ago, a federal judge ruled Friday.
The money is to go toward paying the claims of thousands of Ambassador policyholders. The company was incorporated in Vermont, but operated from North Bergen, N.J.
"If this holds up, it should make them all whole," said Richard Whitney, a lawyer for Vermont's insurance department, which seized Ambassador in 1983 after determining it was insolvent.
Whitney cautioned, however, "It's a moving target, because we continue to receive claims."
A PricewaterhouseCoopers spokesman, David L. Nestor, said the company believes "the verdict and judgment are incorrect, and we will seek appeal if the trial court does not set them aside."
In a verdict returned July 29, a jury awarded $119.9 million to Ambassador policyholders and other creditors. The jury assigned 40 percent of the liability to New York-based PricewaterhouseCoopers, successor company to Coopers & Lybrand, which Vermont accused of negligent audits of Ambassador; and 60 percent liability to the late Arnold Chait, the Ambassador president accused by Vermont of mismanagement.
Since the estate of Chait, who died about a decade ago, is believed to have few assets, Vermont asked U.S. District Judge Harold A. Ackerman to find that PricewaterhouseCoopers and the estate could each be considered fully responsible for the entire amount.
Ackerman, who presided over the nearly three-month trial, agreed. That essentially puts the total burden on the accounting firm.
PricewaterhouseCoopers argued that the request represented a new approach for Vermont and should be rejected, but Ackerman said the jury accepted that the allegations against the firm "are inextricably intertwined with the conduct" of Chait.
He noted evidence was presented that the firm and Chait should have told the public as early as 1982 that Ambassador was insolvent, but instead worked to "create the illusion of a financially sound and growing corporation."
"Accordingly, it is apparent that the torts committed by Arnold Chait and Coopers & Lybrand gave rise to a single, indivisible injury to Ambassador and its creditors, shareholders, and claimants," Ackerman wrote.
The judge also awarded creditors $63 million in interest after calculating how much the verdict amount of $119.9 million would have generated from May 21, 1985, when Vermont sued.
Vermont charged that Ambassador's financial statements concealed the company's weakness from regulators. The company was liquidated in the late 1980s after Vermont courts upheld the receivership, Whitney said.
Because Ambassador was a "surplus lines company," writing high-risk policies, it lacked guaranty fund protection - a safety net for policyholders - in case of insolvency.
As a result, the receiver has received and evaluated over 20,000 claims from policyholders, of which about 10,000 have been allowed, he said.
The Vermont lawsuit took so long to resolve because it languished, with related cases, in federal court in Brooklyn, N.Y., before being sent to Ackerman in the late 1990s, Whitney said.