A federal appeals court upheld a $182.9 million jury award that PricewaterhouseCoopers will have to pay to policyholders of a defunct insurance company audited by its predecessor Coopers & Lybrand.
Price Waterhouse merged with Coopers & Lybrand in 1998. A jury awarded $120 million in damages in July 2005 to the policyholders, claimants and other creditors of Ambassador Insurance. The judge upped the award to nearly $183 million, counting pre-judgment interest. The suit was originally filed in 1985 by Vermont insurance regulators and went to trial in New Jersey, as the company was incorporated in Vermont but operated from the Garden State.
Vermont officials argued that Coopers & Lybrand's unqualified audit opinions of Ambassador in 1981 and 1982 hid the company's financial problems. The insurance commissioner claimed that as a result of Coopers' audit, the firm either knew or should have known in early 1982 that Ambassador was only marginally solvent and Ambassador should not have continued writing new insurance policies before it was seized by insurance regulators.
The jury had assigned 40 percent of the liability to PricewaterhouseCoopers and the other 60 percent to Ambassador's founder, Arnold Chait, who died in 1997. But the defendants had joint and several liability under New Jersey's then-applicable law, so PwC was liable for the entire $182.9 million judgment.
The three-judge panel on the U.S. Court of Appeals for the Third Circuit rejected PwC's claim that the New Jersey courts would not authorize a "deepening insolvency" cause of action, noting there has been a trend among the state's courts toward recognizing "deepening insolvency" damages.
PwC did not have an immediate reaction to the decision.
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