The Pennsylvania insurance commissioner, has finalized a $40 million settlement with Deloitte & Touche LLP.  The New York-based accounting firm yesterday paid the settlement in connection with its auditing service for Philadelphia-based Reliance Insurance Co., a carrier that’s now in liquidation.

The PA insurance commissioner had accused Deloitte & Touche LLP of accounting and actuarial malpractice

 According to the Allentown Morning Call:

"When state officials stepped in to liquidate the Philadelphia-based company in 2001, they estimated that Reliance’s losses were around $3 billion.

A state insurance bailout account, funded through surcharges paid by homeowners and businesses, had to cover Reliance’s losses. The company was licensed to write insurance policies in all 50 states and concentrated on workers’ compensation, commercial auto and liability and personal auto insurance.

A year after Reliance collapsed, the insurance department sued Deloitte, claiming that it contributed to Reliance’s failure by not reporting the company’s true financial condition. According to earlier news accounts, Deloitte signed off on an audit in 2000 that Reliance had sufficient cash reserves, but soon thereafter told an investment partnership that the company had a "seriously deficient" $350 million shortfall."

 A copy of the agreement can be found under recently filed documents here.

 The accounting firm admitted no wrongdoing.

The Insurance Department took statutory control of Reliance on May 29, 2001, under an Order of Rehabilitation, followed by an Order of Liquidation that October. On Oct. 15, 2002, the department, as the liquidator, filed a complaint in Commonwealth Court of Pennsylvania against Reliance’s outside auditor, Deloitte & Touche LLP, and its appointed actuary, Lommele.  Among other things, the complaint alleged claims for breach of fiduciary duties, professional negligence and the recovery of preferential transfers.

This latest settlement brings the state’s total recovery amount from the Reliance case to $145 million. Previously, $45 million was recovered from the Reliance parent companies, and about $60 million was recovered from legal actions against the carrier’s former officers and directors.