IAI Actuarial Core Principles · Business Management · Professional negligence
Arjun Rao, an actuary, prepares a pricing report for Kaveri General Insurance. He knows the report will be shown to Bharat Reinsurance, which will decide on a treaty relying on it. The report contains a careless error and Bharat suffers a pure financial loss. What is the most likely legal position on duty of care?
Arjun may owe Bharat a duty of care, because he knew Bharat would rely on the report for a specific purpose. Reliance by a known third party can create liability for negligent advice, though the duty is not owed to all readers.
- AArjun may owe Bharat a duty because he knew of the specific reliance and the purpose for which it would be usedCorrect
- BArjun owes no duty because pure financial loss is never recoverable
- CArjun owes a duty only to Kaveri since only they contracted with him
- DArjun owes a duty only if Bharat paid part of his fee
- Arjun owes a duty to every reader of the report whatever its purpose
Explanation
A duty for negligent statements can extend to a known third party who is expected to rely on the advice for a known purpose, supported by an assumption of responsibility. Pure economic loss is recoverable in such cases. The duty is not unlimited to every reader, and fee payment by the third party is not required.
Did you get it right without looking?
One question tells you little. A timed set on Professional negligence shows your real accuracy, how long you take and where you lose marks.
More Professional negligence questions
- An actuary, Sana, advises a Delhi company on a capital model. The model later proves inaccurate, but it was built with proper methods, teste…
- An appointed actuary at a Bengaluru insurer signs a solvency report without checking the data supplied by the finance team. Data checks are …
- A consulting actuary's engagement letter with a Chennai insurer says her liability for any claim will not exceed the fees paid. The insurer …
- Vikram, an actuary, advises a client, Deccan Mutual, on a reinsurance structure. The assignment ends and the final invoice is paid. Six mont…
- An actuary at a Mumbai life insurer certifies the reserves of a new product. The insurer later alleges negligence. Under the general Indian …
- Kavya, an actuary, follows an approach to pricing a health product that a respectable body of her peers in India would support, though anoth…