New Verdict Stirs Old Memories

NJBIZ, Aug 22, 2005 by Daks, Martin C

A RECENT $120 million civil verdict by a federal District Court jury in Newark moved the state's longest-running civil suit to a new stage. The verdict, against co-defendants PricewaterhouseCoopers and the deceased president of a bankrupt firm called Ambassador Insurance, also stirred echoes of recent scandals. The July decision awarding money to a Vermont regulatory agency may yet be appealed, but still reminds some observers of the Enron saga that ultimately toppled the Big Five CPA firm Arthur Andersen. In both cases the lesson seems to be simple: Tell the truth or pay the price.

"The case of Crowley v. Chait was filed some two decades ago, and was years ahead of cases like Enron or WorldCom," says Richard Whitney, a former Westfield resident and partner in the Cleveland office of the Jones Day law firm. "But there are similarities in the principles involved."

Whitney says that "Coopers & Lybrand knew or should have known" that its client, Ambassador, was nearly bankrupt before issuing a clean audit in 1981. Coopers & Lybrand was a so-called Big Five CPA firm that later merged with fellow giant Price Waterhouse to form PricewaterhouseCoopers.

"Some 10,000 people-including doctors who had malpractice policies-lost their insurance coverage when Ambassador went under," Whitney says. A fair number of the insureds were reportedly from New Jersey.

Whitney's company is the lead counsel representing Vermont's state banking and insurance department in the civil suit against PwC and Arnold Chait, who served as Ambassador's president. Although the insurance company was chartered in Vermont, its headquarters were in North Bergen.

This case is the longest-running federal tort-a kind of civil suit-in New Jersey history, according to Robert Stickles, a shareholder in Newark's Klett Rooney Leiber Schorling law firm, who has worked with Whitney on the Ambassador matter. Part of the reason for the snail's-pace progress was the sheer number of claims-about 20,000-and a series of legal maneuvers that saw the case shifted to Brooklyn for a time, only to later be returned to New Jersey.

When it finally came to a vote, the jury took one day to make the $119.9 million award and assign 60% of the blame to codefendant Chait. But he died in 1997 and Whitney says that PwC may now be responsible for the entire judgment.

New York City-based Pricewaterhouse-Coopers is "disappointed" with the verdict, and believes it does not conform to the facts and the law, says corporals spokesman Steven Silber. "We intend to challenge the verdict," he adds.

The Vermont agency, now headed by John Crowley, took over Ambassador in November 1983 and has been trying to settle outstanding claims ever since.

Besides prompting the longest court case of its kind in New Jersey, Stickles says that the Ambassador blow-up also spurred the state legislature to create the Property-Liability Insurance Guaranty Association, which collects funds from insurance companies licensed here and uses them to pay policy claims of insolvent companies.

"Most of the New Jersey claimants have been paid about 90¢ on the dollar," Stickles, says. "If the verdict stands and the additional $120 million is paid, most of it will probably go to setting the remaining 10% payments on the claims. There's a lesson here: Accountants need to stand up to their clients and tell the truth." If Andersen had heeded that message it might still be around today.

E-mail to mdaks@njbiz.com