Accounting Firms Face Liability Insurance Crisis
On May 8, 2002, Andersen announced that approximately 2,000 of its people, including almost 200 partners, will join Deloitte & Touche immediately in many offices across the U.S. The next day in Los Angeles, Deloitte CEO James Copeland reportedly told the press that the insurers of major accounting firms are refusing to provide coverage.
Reuters reports that Mr. Copeland has called for the government to cap the liability of major accounting firms. He suggests that a cap of $100 to $200 million per case would help insurance companies calculate the degree of risk and how best to cover it. This would be similar to laws that already exist in Germany.
In the past, Mr. Copeland said, most insurance companies would provide coverage, but only for up to about $100 million in liability. After Andersen's recent $217 million settlement of claims related to the collapse of the Baptist Foundation of Arizona, this amount no longer seems sufficient. "Some level of accountability in the courts is good for us," he said. "But when you start talking about ... having billions of dollars in liability on a single audit ... it just doesn't make sense."
Separately, Reuters said Mr. Copeland faulted the current system of licensing and investigation into professional misconduct, which is typically handled at the state level. He said the level of fragmentation makes it difficult for firms that do business in more than one state. "While it's great to have state regulatory bodies, I wish they would be a little more uniform," Copeland said. "If you had a uniform set of regulations that were enforced by the states, that would be fine. It's the variation that creates problems."