Can a church-established health insurance plan that suffers huge losses sue its CPA firm for malpractice? That was the question before a Florida state appeals court in a recent case. In 1968, the Catholic Archdiocese of Miami established a health insurance plan for the clergy and lay employees of the archdiocese.
A board of trustees was created to oversee the plan, and an administrator was appointed. Each year, the trustees and administrator determined the level of premiums that had to be made to the plan in order to cover anticipated medical expenses. In 1969, the trustees purchased a "stop-loss" insurance policy from Lloyd's of London which would insure against the risk that in any year the amount of claims paid by the plan would exceed the premiums received.
Each year before issuing the stop-loss policy, Lloyd's required the trustees to submit detailed information about the types and amounts of benefits to be provided by the plan, the number of workers covered, and the amount of premiums charged. The plan was audited by a large CPA firm each year from 1969 through 1981.
The CPA firm's "audit program" required it to obtain a copy of the current stop-loss policy each year to ensure that such coverage was available. However, after 1971, the CPA firm neither obtained a copy of the stop-loss policy nor verified the existence of such insurance. Nevertheless, it repeatedly informed the trustees that the Lloyd's stop-loss policy remained in effect.
In reality, Lloyd's cancelled the policy in 1980 due to the administrator's failure to pay premiums in a timely manner. In 1980, the trustees—unaware of the loss of coverage—significantly increased benefits to the plan members. As a result, claims exceeded premiums by $320,000 for the year. When the trustees discovered that the Lloyd's policy was no longer in effect, they sued the CPA firm (that had assured the trustees of the availability of the stop-loss policy).
A jury ordered the CPA firm to pay the whole $320,000 deficit, and the firm appealed. The state appeals court agreed that the CPA firm had been negligent in advising the trustees that the stop-loss policy was still in effect for 1980, but it concluded that the firm could not be liable for the entire $320,000 deficit for the year.
The court emphasized that there was no guaranty that Lloyd's would even have renewed the stop-loss policy for 1980—the year in which the trustees greatly expanded benefits under the plan. The court observed: "The trustees presented no evidence that Lloyd's, or any other carrier, would have issued a stop-loss policy that would have covered the deficit in the fund.
It is also uncertain whether the trustees and plan participants would have agreed to increased premiums which Lloyd's was likely to demand in light of the expanded benefits offered by the trustees. [The CPA firm] was negligent [and] the trustees' plan suffered losses. However, because there is no causal link between [the CPA firm's] negligence and the deficit in the plan, the deficit was improperly charged to [the firm].
Where policy coverage is merely speculative, as here, we hold that an accounting firm which negligently fails to discover the lack of insurance cannot be charged with benefit payments which might have been covered had the policy been in force."
Coopers & Lybrand v. Archdiocese of Miami, 536 So.2d 278 (Fla. App. 1989).