Florida Jury Deliberates Deloitte Insurer Auditing Case
May 8, 2015
By Michael Rapoport, Wall Street Journal
May 8, 2015
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A dispute over whether Deloitte & Touche LLP should be held liable for Florida’s biggest-ever insurance-company collapse is headed toward its conclusion in a Tallahassee, Fla., courtroom.
The Florida Department of Financial Services is suing the Big Four accounting firm, claiming Deloitte was negligent in its audits for a trio of insurance companies that had to be taken over by the state after a string of hurricanes hit Florida a decade ago.
The state is seeking up to $850 million in damages. Deloitte denies the regulators’ allegations.A jury is now weighing the claims, after a trial lasting more than a month in Leon County Circuit Court in Tallahassee.
Judge George S. Reynolds III sent the case to the jury Wednesday, and deliberations are continuing Thursday.
The case stems from Deloitte’s audits for three insurance companies under the banner of the Poe Financial Group, which had more than 300,000 property-insurance policies in force when a wave of hurricanes hit Florida beginning in 2004. The regulator contends Deloitte wrongly gave the companies a clean bill of health when in reality the claims from the first part of that wave of hurricanes had left them insolvent-something the department says Deloitte should have known and reported to regulators.
That inaction by Deloitte allowed the companies to continue operating, according to the regulators, and their financial problems worsened when more hurricanes blasted Florida in 2005, culminating in Hurricane Wilma, the strongest Atlantic hurricane on record. Ultimately, the state put the Poe companies into receivership, and the state-created Florida Insurance Guaranty Association had to pay out about $1 billion in claims to their policyholders as a result.
If Deloitte had done its job properly, regulators say, they would have been alerted to the companies’ condition sooner and could have intervened, preventing the companies’ funds from becoming further depleted. The firm’s audits were “so superficial and perfunctory in nature that they failed to detect the precarious financial condition” of the companies, the regulators alleged in their lawsuit.
Deloitte’s “job is to sound the alarm,” Richard Lydecker, an attorney representing the department, told the jury in his closing argument. If they do, “the kitchen fire is stopped in the kitchen.” If they don’t, “the whole house burns down.”Deloitte denies any negligence and says the companies became insolvent because of the strain they faced from eight hurricanes hitting Florida in 13 months.
“An unprecedented series of storms caused this insolvency, not any accounting matter,” Deloitte said Thursday. “We stand behind the quality of our audit and have appreciated the opportunity to share the facts in court.”
Write to Michael Rapoport at Michael.Rapoport@wsj.com