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IAI Actuarial Core Principles · Business Management · Professional negligence

An actuary in Chennai negligently miscalculates a gratuity liability for a small firm. The firm suffers the expected extra funding cost, but, through an extraordinary and unforeseeable chain of events involving a cyber attack on its bank, also loses a major contract. Under the remoteness principle, what is the most likely position?

The actuary is liable only for losses of a type reasonably foreseeable when the breach occurred. The extra funding cost qualifies, but the contract loss arising from an extraordinary, unforeseeable cyber attack is too remote to be recovered.

  1. AThe actuary is liable for all losses that factually followed
  2. BThe actuary is liable only for losses of a type reasonably foreseeable at the time of breachCorrect
  3. CThe actuary is liable for no loss because the chain was broken by the cyber attack
  4. DThe actuary is liable only for losses that were intended
  5. The actuary is liable for the contract loss but not the funding cost

Explanation

Damage too remote is not recoverable; liability extends to loss of a kind reasonably foreseeable when the breach occurred. The funding cost is foreseeable, while the contract loss from an unforeseeable event is too remote. Option 2 overstates the effect, since the funding cost remains recoverable.

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