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IAI Actuarial Core Principles · Business Management · Professional negligence

A consulting actuary's engagement letter with a Chennai insurer says her liability for any claim will not exceed the fees paid. The insurer later claims for losses from her careless calculation. Which view is most consistent with Indian contract principles taught at this level?

A liability cap can work if it was properly agreed as a contract term and is clear and reasonable, but courts construe it strictly against the actuary relying on it. It cannot excuse fraud and does not bind strangers to the contract.

  1. AThe clause is void in every circumstance because liability can never be limited
  2. BThe clause can be effective if it was agreed as a term of the contract and is reasonable and clear, though it will be read strictly against herCorrect
  3. CThe clause is effective only if the actuary is a member of the Institute for over ten years
  4. DThe clause automatically removes liability for fraud as well
  5. The clause binds only third parties who never saw the letter

Explanation

Parties may agree to limit liability if the term forms part of the contract and is clearly worded; courts interpret such clauses strictly against the party relying on them. They cannot shield fraud, so the fourth option is wrong, and third parties are not bound by terms they did not agree.

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