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Auditor negligent misrepresentation: Recovery rights of insurance policy holders and other third parties

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Carl J. Pacini

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In Andersen v. Superior Court (1998), a California appellate court held that the state insurance commissioner, in his capacity as liquidator of an insolvent insurer, is owed a duty by (or has the legal right to sue) the insurer's auditor for the benefit of policyholders and others having claims for damages caused by negligent misstatements in the auditor's report. The case may have left the impression that a broad theory of recovery may be expected for third-party redress from auditors. This article points out that the Andersen case may be more the exception than the rule. The California appellate court apparently broke precedent by applying a more liberal recovery standard for third-party recovery than had been established by the California Supreme Court in the Bily decision. Also, the ability of third parties to sue auditors varies from state to state and a conservative trend has emerged toward narrowing the scope of duty owed by auditors to third parties. In many instances, whether state insurance commissioners are owed a duty by auditors is still a questionable issue.


Citation only. Full-text article is available only through licensed access provided by the publisher. Published in Journal of Insurance Regulation, 19, 28-58. Members of the USF System may access the full-text of the article through the authenticated link provided.




National Association of Insurance Commissioners

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