The firm of Towers, Perrin, Forster & Crosby served as the accountants for the Board of Trustees of the Fire and Police Retiree Health Fund for the City of San Antonio. In 2000, Towers Perrin submitted a report to the Board recommending that a pre-funding rate be set at 9.4% of the City payroll, plus an additional $20 per month for each employee. The recommended pre-funding rate of 9.4% plus $20 was adopted by the City and the police and fire unions in their 2002 collective bargaining agreement.
In 2001, the Board had a billing dispute with Towers Perrin and changed accountants. In 2002, the new accountants recommended that the pre-funding rate be increased to 13.94% of covered payroll. In 2003, the new accountants recommended that the contribution rate be increased to 19.93%.
Alleging that Towers Perrin’s inaccurate estimates of healthcare costs and inaccurate conclusions regarding the necessary pre-funding rate cost it millions of dollars of damages, the Board filed suit against Towers Perrin for professional malpractice. When a court granted summary judgment in favor of Towers Perrin, the Board appealed to the Texas Court of Appeals.
The Court upheld the dismissal of the Board’s lawsuit. The Court assumed for the sake of its decision that Towers Perrin had improperly understated the actual costs of providing health insurance in its 2000 report. Missing from the Board’s case, the Court found, was proof that any mistakes by Towers Perrin actually caused any damage. In the eyes of the Court, there was no evidence to show that “if Towers Perrin had recommended a higher pre-funding rate, it would have been adopted by the City and the unions in collective bargaining agreements.” The Court pointed to evidence that prior recommendations by Towers Perrin for funding rates had not been followed by the City and the unions, which had in fact adopted lower funding rates than those recommended by Towers Perrin. The Court ruled that there was not “even a scintilla of evidence” that had Towers Perrin recommended a higher funding rate, it would have been followed by the Board.
Board of Trustees v. Towers, Perrin, Forster & Crosby, 2005 WL 3115532 (Tex.App. 2005).
This article appears in the January 2006 issue