Professionalism: A Legal Perspective
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Transcript of Professionalism: A Legal Perspective
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Professionalism: A Legal Perspective
Lauren M. BloomGeneral Counsel
American Academy of Actuaries
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Litigation against actuaries is increasing for
several reasons: Actuaries are doing more; The weak economy has highlighted
reserve shortfalls; American society is increasingly
litigious; The plaintiffs’ bar has found the
actuarial profession.
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Claims against actuaries are usually for malpractice:
Failing to follow generally accepted practice; thereby
Injuring a plaintiff to whom the actuary has a legally-recognized duty;
Causing the injury in fact and law; and Generating compensable damages.
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Various defenses are available (e.g., plaintiff’s contributory negligence), but do not eliminate liability if the elements of malpractice are present.
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The more professional assignments an actuary undertakes, the greater his or her malpractice risk.
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Professional standards (the Code, ASOPs and Qualification Standards) are strong evidence of generally accepted practice.
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Failure to comply with the Code, Qualification
Standards and ASOPs may be considered malpractice.
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To comply: Identify and read all applicable
professional standards; Conform work to the standards or
deviate and be prepared to explain; and
Document, document, document.
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Which standards apply? The Code and Qualification
Standards apply to all professional services rendered in U.S.
The Code can also apply to practice abroad -- see draft white paper on international practice.
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Which ASOPs apply? The ASB’s ASOPs apply to U.S.-
based practice. Not all ASOPs apply to each
assignment. Use the Academy’s Applicability
Guidelines as a starting point.
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Applicable ASOPs include:
ASOP No. 21 (recently revised) ASOP No. 23 (recently revised) ASOP No. 41 ASOPs relevant to the task at hand
(e.g., ASOP 9, 36)
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Communications can be particularly important in mitigating litigation risk – poor communications can
be seriously misconstrued.
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Keep the ASOPs close at hand when working, and
follow recommended processes.
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If you deviate: Describe the nature, rationale and
effect of the deviation in an appropriate actuarial communication; and
Be prepared to defend it. Deviations can cause special
problems in litigation.
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Documentation can be critical to successful malpractice defense.
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Documentation should (usually) include:
A description of what was done and why; Sufficiently detailed work papers for
another qualified actuary to review the work for reasonableness;
A record of what the principal was told and when;
Proof that open questions were asked and answered.
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Documentation should (usually) not include:
Rough drafts of finished documents; “Back of the envelope” calculations; Evidence that outstanding questions
were never asked or answered.
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Documentation: Can be maintained as part of an
ongoing document retention policy - do not destroy evidence!
Will be reviewed with the benefit of hindsight.
Helps you if it shows you complied with applicable law and standards.
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In litigation, standards help defendants who complied, but can hurt defendants
who didn’t.
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The absence of published standards does not prevent
litigation.
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The profession can mitigate its litigation risk through active participation in the standard-setting process.
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Actuaries can mitigate their risk of liability through:
E&O Insurance Establishment of appropriate
business relationships Recognition and adjustment for
high-risk assignments Quality assurance
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Establishing appropriate business relationships
Use of engagement letters and contracts: Arbitration clauses/waiver of jury trial Third party indemnification Limitation on use/ distribution of work product Limitations on liability Ownership of intellectual capital Billing and payment terms What happens when the relationship ends?
Principal signoff on key assumptions, methods and conclusions
Maintaining records of communications
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Recognition and adjustment for high-risk assignments Identify high-risk circumstances Consider how to address:
Additional review Reliance on other professionals Appropriate disclosures in work
product:• Intended audience and use(s)• Limitations on distribution• “Caveat emptor”
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Quality Assurance Confirm scope of assignment:
client approval of assumptions; documentation of client instructions and
decisions regarding work. Checking requirements:
work gets checked after it is done. “Peer Review” requirements:
work and/or processes are reviewed by another practitioner with appropriate skill;
Academy white paper on Peer Review.
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Government Oversight U.S. government has several
ongoing investigations; U.K. government is separately
investigating the U.K. profession; The international financial
community is watching with particular interest.
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Morris Review Began with single company’s failure
to pay as promised on annuities; Expanded to review of entire
profession, in U.K. and worldwide; Has shifted focus to U.K. problems
with retirement savings – not dissimilar to U.S. situation.
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The U.K. is likely to see: Increased outside oversight of
profession; New standards prepared with lay
involvement; A lay-lead discipline process. Is this what would serve the U.S.
profession best?
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U.S. leadership is considering:
Stricter continuing education requirements
Enhanced independence for ASB and ABCD, with possible lay involvement
Encouraging, or even lobbying for regulatory requirement of, peer review
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The profession can help by avoiding the conduct that
set off the Morris Review in the U.K. and the Arthur Anderson inquiry here.
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Enron and related cases have triggered:
Adverse media attention for the accounting profession
Shareholder anxiety Immediate and strong Congressional
action Lessened respect for professions
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Actuaries can expect: More questions from auditors and
management Ethical requirements in addition to
the Code Additional documentation
requirements (Maybe) more pressure to keep
reserves low
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Actuaries will need to: Comply with applicable ASOPs Document work products and retain
the documentation as required by law
Be prepared to respond to questions
Anticipate uncertainty until the new rules are sorted out
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Sources of Support Your corporate counsel and standards
compliance officer; ABCD; Academy:
Committee on Qualifications; Practice Notes and Applicability Guidelines; Discussion papers; Legal Department; Seminars.
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Questions?