Scioto Memorial Hospital Association, Inc., planned the construction of Richmond Place, a…

Scioto Memorial Hospital Association, Inc., planned the construction of Richmond Place, a 170-unit retirement center in Lexington, Kentucky. Scioto hired Price Waterhouse to review the work of the architect, the financial underwriter, and the marketing consultant and to recommend whether Scioto should proceed with the Richmond Place investment. PW’s engagement letter represented that PW would issue a preliminary feasibility study and review a detailed financial forecast of the project. Financial forecasts represent management’s judgment of the most likely set of conditions and management’s most likely course of action. Instead of reviewing a financial forecast for Richmond Place, PW reviewed only a financial projection compiled by the underwriter of the construction. As PW explained in its letter to Scioto, a projection “represents management’s estimate of its possible, but not necessarily most probable, future course of action.” PW’s final report to Scioto assumed an occupancy rate of 98 percent. Unfortunately, construction of Richmond Place was slow and delayed by a fire. While Scioto used insurance proceeds to rebuild, sales of the units were slow, and a year after opening, only 15 residents occupied Richmond Place. Scioto sued PW for negligence and breach of contract. PW defended on the grounds that Scioto’s delays in construction and its lack of business interruption insurance caused Scioto’s damages. Was PW found liable to Scioto?

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