Professionalism: A
Legal Perspective
Lauren M. Bloom
General Counsel
American Academy of Actuaries
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.

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.

Various defenses are available
(e.g., plaintiff’s contributory
negligence), but do not
eliminate liability if the
elements of malpractice are
present.
The more professional
assignments an actuary
undertakes, the greater his
or her malpractice risk.
Professional standards (the
Code, ASOPs and Qualification
Standards) are strong
evidence of generally
accepted practice.
Failure to comply with the
Code, Qualification
Standards and ASOPs may
be considered malpractice.
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.

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.

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.

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)

Communications can be
particularly important in
mitigating litigation risk –
poor communications can
be seriously misconstrued.
Keep the ASOPs close at
hand when working, and
follow recommended
processes.
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.

Documentation can be
critical to successful
malpractice defense.
Documentation should
(usually) include:

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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.
Documentation should
(usually) not include:
Rough drafts of finished documents;
 “Back of the envelope” calculations;
 Evidence that outstanding questions
were never asked or answered.

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.

In litigation, standards help
defendants who complied,
but can hurt defendants
who didn’t.
The absence of published
standards does not prevent
litigation.
The profession can mitigate
its litigation risk through
active participation in the
standard-setting process.
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

Establishing appropriate
business relationships

Use of engagement letters and contracts:

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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
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”
Quality Assurance

Confirm scope of assignment:

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Checking requirements:

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client approval of assumptions;
documentation of client instructions and
decisions regarding work.
work gets checked after it is done.
“Peer Review” requirements:

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work and/or processes are reviewed by
another practitioner with appropriate skill;
Academy white paper on Peer Review.
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.

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.

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?

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

The profession can help by
avoiding the conduct that
set off the Morris Review in
the U.K. and the Arthur
Anderson inquiry here.
Enron and related cases
have triggered:
Adverse media attention for the
accounting profession
 Shareholder anxiety
 Immediate and strong Congressional
action
 Lessened respect for professions

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

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

Sources of Support
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Your corporate counsel and standards
compliance officer;
ABCD;
Academy:
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Committee on Qualifications;
Practice Notes and Applicability Guidelines;
Discussion papers;
Legal Department;
Seminars.
Questions?