Title: KPMG Peat Marwick v. National Union Fire Insurance Company of Pittsburg, PA

State: florida

Issuer: Florida Supreme Court

Document:

Supreme 
Court 
of 
Florida
  
____________
No. SC96413
____________
KPMG PEAT MARWICK, etc. ,
Petitioner,
vs.
NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PENNSYLVANIA, etc.,
Respondent.
[July 13, 2000]
CORRECTED OPINION
WELLS, C.J.
We have for review a decision on the following question certified to be of
great public importance:
[W]hether Dantzler Lumber & Export Co. v. Columbia Cas. Co., 115
Fla. 541, 156 So. 116 (1934), permits a claim of an independent
auditor’s professional malpractice to be asserted by an
insurer/assignee and/or insurer/subrogree.
National Union Fire Ins. Co. v. KPMG Peat Marwick, 742 So. 2d 328, 330 (Fla. 3d
DCA 1999).  We have jurisdiction.  Art. V, § 3(b)(4), Fla. Const.  For the reasons
stated herein, we answer the certified question in the affirmative and approve the
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decision of the district court.  However, we limit our holding specifically to the
question asked and express no opinion as to whether a claim for accountant
malpractice occurring during the performance of accounting services other than the
auditing function is assignable.
The facts as presented by the Third District are as follows:
National Union Fire Insurance Company (hereinafter National
Union) was the fidelity bond insurer of BankAtlantic from May of
1989 through May of 1992.  The contract between National Union and
BankAtlantic provided that National Union would be subrogee to any
claim it paid on BankAtlantic's behalf.  Thereafter, BankAtlantic made
a claim against National Union in reference to a portfolio of loans
BankAtlantic purchased from Sterling Resources Ltd.  National Union
and BankAtlantic settled a portion of the claim and National Union
paid BankAtlantic $18,000,000 for losses incurred.
National Union then filed a number of amended complaints
against independent auditor KPMG for professional malpractice.  The
insurer alleged that accounting firm KPMG Peat Marwick (hereinafter
KPMG) were the independent auditors of BankAtlantic, that KPMG
was negligent in the performance of three of the independent audits of
the bank in not discovering the activities leading to the losses, and that
such negligence caused all or some of the loss for which National
Union paid BankAtlantic.  As part of the National Union/BankAtlantic
settlement, BankAtlantic assigned to National Union any and all claims
it had against KPMG for negligence in the performance of the audits. 
KPMG moved for judgment on the pleadings asserting National Union
was not entitled to relief against KPMG as an assignee, contractual
subrogee, or equitable subrogee.  The trial court granted the motion
and entered judgment for KPMG.
KPMG, 742 So. 2d at 329-30.
On appeal the Third District reversed, finding that the prohibition against the
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assignment of personal claims did not bar a claim by an insurer against its insured's
independent auditor.  Id. at 330.  The district court found that Dantzler provided
authority for the proposition that National Union could be equitably subrogated to
the rights of BankAtlantic if the claim was that KPMG’s negligence contributed to
the loss paid by National Union.  Id. at 331-32.  The district court also found that
the terms of BankAtlantic’s agreement with National Union provided for
subrogation and that there was no legal bar to this agreement.  Id. at 330.  The
district court then posed the certified question for our consideration.  Id.
In Dantzler, this Court held that an insurer could be equitably subrogated to
the rights of its insured and maintain a cause of action against its insured’s auditor
for the auditor’s malpractice.  See 115 Fla. at 555, 156 So. at 121.  While agreeing
that Dantzler provides authority for this cause of action, KPMG points out that the
court in Dantzler did not address the public policy considerations discussed in
Forgione v. Dennis Pirtle Agency Inc., 701 So. 2d 557 (Fla. 1997), that prevent the
assignment of personal torts.  In urging us to answer the certified question in the
negative, KPMG argues that the public policy concerns discussed in Forgione that
prevent a claim for attorney malpractice from being assigned should apply equally
to claims of an independent auditor’s malpractice and prevent the assignment of the
cause of action in this case.  We disagree. 
1See §§ 90.502, 90.5055 Fla. Stat. (1999).
2R. Regulating Fla. Bar 4-1.3 cmt.
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In Forgione, this Court, in determining that an insured’s negligence claim
against an insurance agent was assignable to a third party, discussed the public
policy reasons that preclude the assignment of purely personal tort claims. 
Forgione, 701 So. 2d at 558.  This Court noted that legal malpractice claims are not
assignable because of the personal nature of legal services which involve a
confidential, fiduciary relationship of the very highest character, with an undivided
duty of loyalty owed to the client.  Id. at 559.  While an accountant’s duty of
confidentiality is similar to that of an attorney,1 substantial differences exist in the
type of accountant-client relationship in which the accountant is an independent
auditor hired to give an opinion on financial statements.
Unlike an attorney who is required to zealously represent a client’s position
in an adversarial setting,2 an independent auditor who is hired to give an opinion on
a client’s financial statements must do so with an independent impartiality which
contemplates reliance upon the audit by interests other than the entity upon which
the audit is performed.  See 1 American Inst. of Certified Pub. Accountants,
Professional Standards § 220.02.  Rather than acting as an advocate with an
3R. Regulating Fla. Bar 4-1.7 cmt.
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undivided duty of loyalty owed a client,3 an independent auditor performs a
different function.  As the United States Supreme Court noted in United States v.
Arthur Young & Co., 465 U.S. 805 (1984):
An independent certified public accountant performs a different role
[than that of an attorney].  By certifying the public reports that
collectively depict a corporation's financial status, the independent
auditor assumes a public responsibility transcending any employment
relationship with the client.  The independent public accountant
performing this special function owes ultimate allegiance to the
corporation's creditors and stockholders, as well as to investing
public.  This "public watchdog" function demands that the accountant
maintain total independence from the client at all times and requires
complete fidelity to the public trust.
Id. at 817-18.  Thus, the public policy reasons discussed in Forgione that require
attorney malpractice claims to be nontransferable do not require the same result in
an independent auditor malpractice claim. 
KPMG cites Peat Marwick, Mitchell & Co. v. Lane, 565 So. 2d 1323 (Fla.
1990), and Coopers & Lybrand v. Trustees of the Archdiocese of Miami/Diocese
of St. Petersburg Health & Welfare Plan, 536 So. 2d 278 (Fla. 3d DCA 1988), for
the proposition that accountant malpractice claims should be treated the same as
attorney malpractice claims.  These cases, however, deal with the statute of
limitations and issues of foreseeability and causation and do not discuss
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assignability of the claim. 
KPMG also cites Affiliated of Florida Inc., v. U-Need Sundries, Inc, 397 So.
2d 764 (Fla. 2d DCA 1981), for the proposition that the accountant-client privilege
exists so that one can consult an accountant without fearing that the
communications may become public and that allowing those claims to be
assignable would inhibit the free communication the privilege was intended to
encourage.  That case, however, did not involve an independent auditor’s
communications with a client, and our limited holding in this case does not address
the issue of the assignability of claims for accounting malpractice made in that
context.
We specifically leave for another day the issue of the assignability of
accountant malpractice claims based in situations other than those involving audits
because such a case is not before us.  Accordingly, we answer the certified question
in the affirmative and hold that a claim of an independent auditor's professional
malpractice in preparation of an audit can be asserted by an assignee or subrogee. 
The decision of the district court of appeal is approved.
It is so ordered.
SHAW, HARDING, ANSTEAD, PARIENTE, LEWIS and QUINCE, JJ., concur.
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NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND IF
FILED, DETERMINED.
Application for Review of the Decision of the District Court of Appeal - Certified Great
Public Importance
Third District - Case No. 3D98-3051 
(Dade County)
Lewis N. Brown and Dyanne E. Feinberg of Gilbride, Heller & Brown, P.A., Miami,
Florida; and David Wagner, Associate General Counsel, KPMG LLP, New York, New
York, 
for Petitioner
James F. Crowder, Jr. and Russell A. Yagel of Kimbrell & Hamann, P.A., Miami,
Florida,
for Respondent
Daniel S. Pearson of Holland & Knight, Miami, Florida,
for The Surety Association of America, Amicus Curiae