Accounting firms must vigorously seek to protect the viability of comparative negligence defense.
In the 1980s, the savings and loan (S&L) crisis saw more than 1,000 S & L's and banks collapse and numerous suits followed. Decades later, we have stronger regulation and oversight, but we are still seeing about five to seven bank failures per year. And when they fail, it is the FDIC that picks up the pieces and the bank’s auditors are often in the hot seat (along with the directors and officers) facing lawsuits and accusations of negligence.
In 2018, we do not see the pressure letting up. In the bank failure context, the FDIC is an increasingly aggressive opponent, both in court and at the settlement table. The agency is working to strip away defenses for accounting firms such as the comparative negligence defense, which in many states is a defense that accountants can use to avoid liability or substantially reduce liability where their own client's negligence has also contributed to the damages at issue.
Through recent litigation efforts by the FDIC, case law is now mixed as to whether the FDIC, bringing a claim on behalf of a failed bank, can be subject to the comparative negligence defense. We’ll be watching how this unfolds in 2018, but in any case, accounting firms must vigorously seek to protect the viability of that defense and similar ones in the bank failure context.