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A Newark jury has decided the oldest federal tort case in New Jersey, and it was worth the wait for the winner. On July 29, after two decades in litigation, the receiver for bankrupt Ambassador Insurance Co. won a $119.9 million award from the carrier’s president and accountant PricewaterhouseCoopers. The jury, finding the accounting firm breached standards of care in its audit of Ambassador’s 1981 financial statement, assigned it 40 percent of the blame and the other 60 percent on the carrier’s president. The winners were insurance regulators in Vermont, where Ambassador was domiciled, who have been its receivers. The suit was filed in New Jersey because the carrier’s home office was in North Bergen. During a nine-week trial, Vermont’s lawyers presented evidence that they would have seized the insurer in 1982 if PwC, then Coopers & Lybrand, had reported it was nearly insolvent. Instead, Ambassador kept operating and piled up losses, now worth $119.9 million, between the time of the audit and the company’s eventual seizure in November 1983, the regulators argued. The accounting firm’s evidence showed that the audit was accurate and that market conditions hurting many carriers at the time were responsible for Ambassador’s demise. The jury deliberated for a day and awarded every dollar the receivers requested. It’s another big hit against an accounting giant blamed for failure to spot or report a client’s bad news. Though the jury put 60 percent of the blame on Ambassador’s president, Arnold Chait, the accountants are in jeopardy of paying the entire award in Crowley v. Chait, 85-2441. John Crowley is Vermont’s chief insurance officer. Chait died in 1997 and his estate is incapable of paying. Indeed, it defaulted before the trial because it couldn’t pay its legal team, headed by Robert Bartkus of Morristown, N.J.’s Dillon, Bitar & Luther. Without money from the estate, PwC becomes the deep pocket target. Whether U.S. District Judge Harold Ackerman will order PwC to pay the entire award is “the question of the hour,” says Robert Stickles of Newark’s Klett Rooney Lieber & Schorling, one of Vermont’s lawyers since 1985. To do so, Ackerman must find that the joint and several tort liability principles in effect in 1985 control and that PwC was a joint tortfeasor with Chait. The accounting firm is preparing arguments that it would be responsible only for 40 percent of the award. “The worse-case scenario for us is that we get 40 percent,” Stickles says. “We are confident that when judgment is entered it will be for joint and several liability and Coopers will be responsible for all of it.” Outside lawyers who couldn’t collect their bills to Ambassador when it went bankrupt in 1983 have a stake in the outcome of the post-trial arguments. They and other vendors have the lowest priority among claimants and their yellowing bills to Ambassador and its liquidators have been unpaid since 1983. But a $119.9 million infusion might put the liquidation fund over the top and take care of those languishing bills, according to George Bernstein, a Washington, D.C., lawyer who runs the liquidation’s day-to-day operations. Right now, though some lawyer claims have been approved, they haven’t been paid because there is still money due to higher priority claimants, particularly claimants against Ambassador’s insureds, Bernstein says. A list of lawyer-creditors wasn’t available last week. A CASE OF LONG TAILS Why did the litigation take so long? Lawyers in the case say little was done at the outset because the extent of the damage was impossible to quantify, particularly because of Ambassador’s type of business. As a so-called surplus lines carrier, it wrote high-risk policies, many with long “tails” that made the company responsible for claims in future years. Ambassador also covered asbestos claims that typically aren’t filed for years after the policy is written. Suits against the company by claimants, states and shareholders and litigation against Ambassador’s officers, subsidiaries and re-insurance companies were filed in New Jersey and New York. In 1988, they were all sent to the Eastern District of New York in Brooklyn as a multidistrict litigation. Vermont’s case came back to New Jersey at Vermont’s request in 1997 when the other suits were resolved, mostly by settlement. “It was out there for eight years and there was almost no discovery,” Vermont’s lead counsel, Richard Whitney of Cleveland’s Jones Day, says of the detour in Brooklyn. Back in Newark, before Magistrate Stanley Chesler, now a district judge, and Ackerman, the case’s complexity, the need for extensive discovery and experts’ reports and scheduling delays took their toll in time, Whitney says. The complexity led Ackerman to appoint a special master, retired Superior Court Judge John Boyle of Westfield’s Lindabury, McCormick & Estabrook. “It’s an enormously complex case and there was a lot of expert discovery to do,” says co-counsel Stickles, who with Whitney and Jones Day partner Fordham Huffman has been in the case since it started. And it was costly. Vermont’s litigation costs, including payments to lawyers and experts, reached $18 million even before the trial, according to pleadings. Before trial, Vermont argued that the fees should be added to the damages, but Ackerman denied the request: Vermont has to pay its own bills. PwC spokesman Steven Silber says that because the case is continuing, the defense won’t comment beyond a corporate statement: “The verdict is inconsistent with the facts and the law. We intend to challenge the verdict both with the trial court and, if necessary, on appeal.” At the trial, PwC’s lawyers, led by Jay Kelly Wright of Arnold & Porter in Washington, D.C., presented evidence that there was nothing wrong with the audits that accepted the company’s professions of health. Losses that occurred between the 1982 audit and the seizure 19 months later were caused by decisions by Ambassador to write certain risky policies and by re-insurers, PwC argued. Wright, assisted by co-counsel Stephen Long of Florham Park, N.J.’s Drinker Biddle & Reath, took issue with the plaintiffs’ experts’ damages calculations, which they challenged as junk science. According to the plaintiffs’ damages theory, the $119.9 million represented the loss, in present value, of what Ambassador suffered over the 20 years by being taken over in November 1983 instead of April 1982. The calculation required an analysis of revenues, claims, payouts and losses over the past 20 years, which is why the case was so complex and why it took so long, lawyers in the case say. Even before the verdict, many of the 20,000 claimants against Ambassador did well, particularly in New Jersey where Ambassador had about a quarter of its business. At the time of the company’s demise, no state, including New Jersey, had an equivalent of the Property Liability Insurance Guaranty Association to fund claims against bankrupt surplus lines carriers like Ambassador. Ambassador’s fall prompted the New Jersey Legislature to create such a fund and it has paid claimants in full up to the $300,000 limit allowed by the law. With the $247 million the liquidator has amassed and built since 1983, approved claimants in New Jersey have received 90 cents on the dollar on sums above $300,000. The gathered assets also have allowed the liquidator to pay 90 cents on the dollar to all approved claimants, regardless of state, 90 cents on the dollar to New Jersey residents for sums above the $300,000 guaranty limit and the New Jersey fund a 90 percent reimbursement for the funds it dispensed in the state. Liquidation agent Bernstein says an additional $119.9 million would allow the receiver to pay the final 10 percent plus interest on the approved claims and begin paying lower priority creditors such as the lawyers and reinsurance companies. While the case was the oldest federal tort matter in New Jersey, there are two older cases, according to docket records. Still going is the constitutional rights suit before Ackerman, filed against Essex County in 1982, by state inmate advocates — a suit that provides for continuing court monitoring of jail conditions. The second oldest case is a 1983 pension rights class-action suit against Continental Can Co. that was reopened in 2004 at the request of a class member seeking additional payments from a 1992 settlement. Ackerman has that one, too.

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