PracticeAuditAndersen 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.

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