New York law is full of inconsistency when it comes to the treatment of actuaries and accountants in professional negligence suits, and it's the accountants who get the better treatment. This was well illustrated in a recent decision from the New York Appellate Division, New York State Workers' Comp. Bd. v. SGRisk, LLC, 2014 NY Slip Op 2373 (N.Y. App. Div., 2014).
The SGRisk case involved an appeal from decisions on a motion to dismiss in an action brought by the New York Workers Compensation Board involving certain insolvent trusts. As the entity responsible for winding up the affairs of these insolvent workers comp trusts, the Board had brought a variety of tort and contract claims against the outside professionals utilized by the trusts, namely the accountants and the actuaries.
First, the court upheld the dismissal of claims alleging negligence by the trust accountants on the grounds the claims were barred by a three year statute of limitations applicable to professional malpractice claims. Yet the court refused to dismiss similar claims against the actuaries following earlier decisions in New York holding that actuaries are not "professionals" and therefore could not get the benefit of a shorter three year statute of limitations which applied to professional malpractice claims. Instead a longer six year statute of limitations would apply to the actuaries.
The second inconsistency involves fiduciary liability. New York courts have held that accountants are not fiduciaries for their clients. Friedman v. Anderson, 803 N.Y.S.2d 514 (N.Y. App. Div., 2005). In SGRisk, after the court reiterated that actuaries are not professionals, the court went on to hold that actuaries could be fiduciaries and could be held liable for both breach of fiduciary duty and aiding and abetting breach of fiduciary duty by others.
The appellate court in SGRisk relied on these facts alleged by the plaintiffs as sufficient to be the basis for a breach of fiduciary duty:
- The actuarial firm "held itself out as being a skilled and competent actuarial firm that adhered to accepted professional standards,"
- The actuarial firm "rendered services for the trusts' benefit, provided advice and created a relationship of trust and confidence between itself and the trusts."
- The actuarial firm agreed to determine "appropriate valuation of the trusts' future claims liability and the trusts reasonably relied on this, placing confidence in SGRisk that it would accurately produce truthful annual actuarial reports with correct estimates of future claims reserves"
These generic allegations would appear to apply to the services provided not just by actuaries, but by any other financial professional, including accountants. What professional service firm does not hold itself out as "skilled and competent" and that it will produce accurate work product which a client can place confidence in? Yet New York courts only apply the higher standard of fiduciary duty to actuaries and not to accountants and auditors.
This development in New York law should be compared with other jurisdictions which have rejected arguments that actuaries are fiduciaries. For example, in Chua v. Shippee (N.D. Ill., 2013), which we have previously discussed on this blog, the court rejected an argument that actuaries were fiduciaries, because there was no allegation that the client had ceded any discretionary authority or control over its affairs to the actuarial firm. The court expressly rejected arguments that allegations that actuaries gave advice which was relied upon by a pension plan was sufficient to create fiduciary status under ERISA.
In most jurisdictions, the legal doctrines governing the liability of accountants and actuaries are identical. New York courts, for whatever reason, have developed a body of law treating them separately and generating inconsistent results for very similar fact situations.
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