Limiting Accountants' Liability for Malpractice, in Selected Papers, Am. Bus. L. Ass'n. Nat'l Proc. (1986).
(n351) The amount of PLI or PII (professional indemnity insurance) to be considered adequate could be a significant issue in a regime of uncertain and virtually open-ended auditor liability. Were damages to be statutorily capped, the statutory coverage could be tied to the cap amounts. See, e.g., LIKIERMAN REPORT, supra note 99, at 29, describing the proposed Australian scheme of statutory capping in which "an accountant should be required to have non-cancellable PII on a scale which would enable him to meet a claim for the largest amount for which he could be liable under the capping system...." The proposed coverage requirement contains numerous other provisions. Id. The Report observes, however, that "[n]o insurance policy for accountants will ever cover the cost of compensating for the gross liabilities of a large bank or the takeover value of a large public company." Id. at 37.
(n352) See, e.g., Neil Barsky & Susan Pulliam, Life Insurers' Loans On Real Estate Cause Ever- Rising Worries, WALL ST. J., Jan. 31, 1992, at 1 (noting that the poorly performing real estate loan portfolios of life and life & casualty insurers is threatening the very existence of these companies, a fact, the dimensions of which are obscured by lax accounting rules); Ellen Joan Pollock & Jonathan M. Moses, Insurers Backed on Supplemental Coverage, WAIL ST. J. Feb. 14, 1992, at B2 (reporting that issue of whether supplementary insurers are liable for claims against bankrupt primary insurers is being litigated repeatedly "because of the recent spate of insurance company bankruptcies.").
There is also no guarantee that large claims will be paid by insurers without dispute over coverage and exclusions. See Milo Geyelin & William Power, Insurers Get Lift From Court in S & L Case, WALL ST. J., Sept. 24, 1991, at B5, reporting that recently, the FDIC sought to reach funds reserved in policies protecting directors and officers of a failed bank. The FDIC sought to assert its "public policy interest in recovering assets wherever possible," and asked that the clause in the insurance contract excluding coverage for "liability stemming from lawsuits by federal regulators" be voided. A federal court of appeals declined to do so, although "some lower courts have held that when private contractual rights of insurance companies conflict with strong public interest ... the public's interest prevailed." The insurance industry cited congressional intent that the exclusionary power of the insurers be recognized. In response, the FDIC, in a report to Congress, asked for "corrective legislation."' Id.
(n353) Interestingly, the original rationale for limited liability was somewhat different. In England, the grant of the corporate charter meant the creation of a separate person. The separate person theory was found useful to protect the assets of the corporation from being reached by the creditors of individual owners. To prevent this, corporate charters were redrafted by lawyers, which had the effect of creating, by contract, limited liability for the corporation's owners with respect to the corporation's obligations. By the end of the 17th century the limited liability of shareholders principle, at least with respect to trading companies, was embodied in English law. See MICHAEL B. METZGER ET AL., BUSINESS LAW AND THE REGULATORY ENVIRONMENT 898 (8th ed. 1992).
(n354) LIKIERMAN REPORT, supra note 99, at 27.