BusinessCorporate FinanceLitigation fear drives up cost of PI insurance

Litigation fear drives up cost of PI insurance

Professional Indemnity insurance costs rise, as clients resort to litigation against their advisers

Firms are likely to see a rise in the cost of professional indemnity
insurance this year, as clients resort to litigation against their advisers.

Victor Knope, a partner of insurance broker First City and an adviser to the
ICAEW and ACCA, said: ‘We’re now in a recession and because of the higher threat
of litigation in these times, clients turn on their accountants, questioning the
advice they were given on deals.’

‘Insolvencies are also shooting up and inevitably people are going to start
looking for people to blame. This leads to insurers starting to increase
premiums as claims go up.’ Knope added.

Jane Howard, of law firm Reynolds Porter Chamberlain, agreed that PI cover
was likely to become more expensive with insurers willing to take less risk.

‘There is a definite hardening in the market,’ she said.

The change in the PI market comes as some of the large firms face legal
challenges that could threaten their global networks.

Last month a court in the US ruled that the Deloitte network could be liable
for the actions of its Italian division over its audit of dairy giant Parmalat.

Such cases could leave global firms increasingly vulnerable to future
lawsuits.

The New York District Court dismissed an attempt by Deloitte to have a class
action against it thrown out. Shareholders claim that the global network should
be held responsible for Deloitte Italy’s alleged fraudulent activities as
auditor of the collapsed Italian multinational.

Meanwhile, BDO International is also facing the threat of a lawsuit. The case
will determine whether it will be dragged back into a $521m (£352m) negligence
claim lodged against its member firm BDO Seidman by Banco Espirito Santo. The
lawsuit is in relation to BDO Seidman’s allegedly negligent audit of the
factoring company owned by Banco Espirito Santo.

However, BDO International has gained some breathing space as Acc
ountancy Age
learned the hearing has been pushed back until May.

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