Big Five firm Andersen has told Arizona state officials and others involved in the firm's settlement relating to the bankruptcy of the Baptist Foundation of Arizona that it will not be able to meet its obligation to pay $217 million for its role in the demise of the religious organization.

Andersen's lawyers said that the firm's insurance carrier, Professional Services, is "unable to approve or pay claims at this time due to its financial position." Sources familiar with the issue indicate that the financial position of the carrier was compromised because of Andersen's failure to pay a $100 million premium. That missed premium has made the insurance carrier insolvent, and raises questions on the ability of Andersen to pay ANY legal claims - regardless of whether they are Baptist Foundation related or Enron related.

As part of the out-of-court agreement, Andersen was not required to take blame for the failure of the foundation which was discovered to be operating a Ponzi scheme in which established investors were paid from the proceeds of new investors.

The Baptist Foundation's bankruptcy was the largest non-profit bankruptcy in U.S. history.

Arizona Attorney Janet Napolitano was quoted in the Arizona Republic as saying the development is an "outrage" and that she will request that the state Board of Accountancy revoke Andersen's registration in Arizona. "Arthur Andersen lied," she said.

In a lawsuit filed by the Baptist Foundation of Arizona against Andersen, the organization claimed that Andersen's negligence while auditing the foundation led to the bankruptcy that was filed in late 1999.

Besides being sued by the Baptist Foundation, Andersen was sued by the Arizona Corporation Commission and the Arizona Accountancy Board in relation to the controversial audit. In addition to the monetary settlement that Andersen agreed to, Andersen had also agreed that two Andersen accountants who had worked on the audit would relinquish their licenses. To date, neither accountant has done so.