Risk Management

First Auditor Independence, Now Auditor Insurance

Carriers are refusing to provide coverage to accounting firms, Deloitte & Touche CEO asserts.
Stephen TaubMay 10, 2002

An insurance crisis is developing for the major accounting firms.

Frightened by the nightmare of unlimited liability evoked by Andersen’s role as Enron’s auditor, insurers are refusing to provide coverage to other accounting firms, insists Jim Copeland, chief executive officer of Deloitte & Touche.

As a result, Copeland says Congress must write legislation that would cap the liability of major accounting firms. “The problem is, you can’t get [insurance] for very much” liability, Copeland told reporters at an event in Los Angeles on Thursday, according to Reuters. He said most major accounting firms are essentially uninsured for liability.

In fact, insurers would not provide coverage for more than $100 million of liability even before the Enron debacle, Copeland claims.

That sum now seems woefully insufficient, given that Andersen last week agreed to pay $217 million to settle claims stemming from the collapse of the Baptist Foundation of Arizona. Most of the settlement will reportedly be paid by Andersen’s Bermuda-based insurer, Professional Services Insurance Co.

Copeland’s solution to the auditor insurance problem: Congress must cap liability exposure in individual cases. How much? About $100 million to $200 million per case, he added. This would make it easier for insurance companies to handicap their risk and price the policies.

“Some level of accountability in the courts is good for us,” he reportedly said. “But when you start talking about…having billions of dollars in liability on a single audit…it just doesn’t make sense.”