IAI Actuarial Core Principles · Business Management · Professional negligence

Rakesh, an appointed actuary, negligently miscalculates a reserve, so an insurer pays an excess dividend. Before the error is found, a cyclone destroys the insurer's head office, and the insurer says the cyclone loss should also be recovered from Rakesh. Which principle most directly defeats recovery of the cyclone loss from Rakesh?

The cyclone is an independent intervening event that breaks the chain of causation. The cyclone loss did not result from the reserve miscalculation, so Rakesh is liable only for losses his negligent act actually caused, such as the excess dividend, not the destruction of the office.

1. AThe cyclone is a new intervening event unconnected to the negligent act, which breaks the chain of causationCorrect
2. BDamages in negligence are limited to the fee Rakesh received
3. CThe insurer must first sue its auditors
4. DAny loss after the date of the breach is too remote only if it exceeds the excess dividend
5. Contributory negligence applies automatically to natural events