Andersen faces insurance blow

Andersen faces insurance blow

Fresh doubts surrounded the future of Andersen this week after insurance industry experts warned it was unlikely to meet any Enron-related claims, if the firm is found guilty of criminal behaviour.

The firm is bracing itself for claims outside the US after talking to a leading firm of City lawyers specialising in litigation work.

Market estimates put the level of commercial insurance available to Andersen at around $500m, (£351m) though this would be supplemented by self-insurance and ‘deductibles’, where the firm paid initial costs out of its own pocket.

But this would not be available to the firm if it was successfully prosecuted by US courts.

A spokesman for the Association of British Insurers would not comment on individual cases, but told Accountancy Age ‘it was possible’ professional indemnity cover ‘could be’ invalidated in such an instance.

The view was backed by US liability insurance expert Mark Cheffers, CEO of AccountingMalpractice.com.

According to Cheffers, those involved in insuring the Big Five firm would have filed a ‘reservation of rights’, effectively refusing to pay out if it was proved the firm was involved in a fraud.

The revelation comes as Andersen admitted ‘it would make sense’ to hire long-standing lawyers Herbert Smith if it has to defend itself against any litigation outside the US.

Andersen also said it expects the US congressional committee to make a statement by the end of the week.

Insurance for the Big Five has become enormously complex in recent years, involving a number of captive insurance vehicles, some based in Bermuda, meaning the firms effectively insure themselves. Meanwhile, KPMG has been sucked into the growing scandal as it emerged the firm was the auditor of two off-balance sheet partnerships central to the Enron collapse.

The firm confirmed it was the auditor of ‘LJM 1’ and ‘LJM 2’, two partnerships set up by Andrew Fastow, Enron’s former CFO, but would not say whether it had been contacted by any investigatory body in relation to its work.

Related Articles

Patisserie Valerie rescued in management buyout backed by Causeway Capital Partners

Audit Patisserie Valerie rescued in management buyout backed by Causeway Capital Partners

6d Lucy Skoulding, Reporter
"There isn't a single answer to fixing the cyber security problem," says Rainbird CEO

Audit "There isn't a single answer to fixing the cyber security problem," says Rainbird CEO

7d Emanuela Hawker, Reporter
What do audit clients think about audit?

Audit What do audit clients think about audit?

1w Emanuela Hawker, Reporter
Time for an overhaul of public audit

Audit Time for an overhaul of public audit

2w John Tizard and David Walker
Audit reform: The devil is in the detail

Audit Audit reform: The devil is in the detail

2w Ruth Bender
Patisserie Valerie receiving multiple bids despite being shrouded in fraud

Audit Patisserie Valerie receiving multiple bids despite being shrouded in fraud

2w Lucy Skoulding, Reporter
Has the audit process improved since Carillion? No, say company secretaries

Audit Has the audit process improved since Carillion? No, say company secretaries

3w Beth McLoughlin, Managing Editor
EY to improve audits via independent panel

Audit EY to improve audits via independent panel

4w Lucy Skoulding, Reporter