Skip to content

IAI Actuarial Core Principles · Business Management · Professional negligence

Rahul, an actuary employed by Suraksha Life, prepares a pricing memo for his board. A distributor, Kiran, who has no contract with Rahul, reads a circulated copy and relies on it to set commissions, losing money. Kiran sues Rahul personally. Which factor is most important in deciding whether Rahul owed Kiran a duty of care for this pure economic loss?

The key factor is whether Rahul knew or should have known that Kiran would rely on the memo for that purpose and whether such reliance was reasonable. Foreseeable, reasonable reliance supports a duty for economic loss; incidental features like letterhead or salary do not.

  1. AWhether Kiran was a member of the Institute of Actuaries of India
  2. BWhether the memo was printed on company letterhead
  3. CWhether Rahul knew, or ought to have known, that Kiran would rely on the memo for that purpose, making reliance reasonableCorrect
  4. DWhether Rahul's salary exceeded that of Kiran
  5. Whether the memo contained any mathematical formulae

Explanation

For pure economic loss from advice, a duty arises where the adviser assumed responsibility and the third party's reliance was foreseeable and reasonable for the purpose. Membership, letterhead, salary or formulae do not create or negate duty.

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.

Practise Professional negligenceFree diagnostic mock

More Professional negligence questions