Ernst & Young, L.L.P. v. Pacific Mutual Life Insurance Co.

In this case, we must decide the scope of an accounting firm’s liability for making fraudulent misrepresentations in an audit report. Specifically, we consider whether the intent-to-induce-reliance element of a fraud claim requires a direct relationship between the-alleged fraudfeasor and a specific known person — commonly referred to in this context as “privity.” The court of appeals followed the Restatement (Second) of Torts section 531, which does not require privity and recognizes liability when an alleged fraudfeasor “has reason to expect” a person’s or class of persons’ reliance on the…