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Indiana Court of Appeals addresses notice in accounting malpractice case

8/3/26

By: Donald Patrick Eckler

Professional liability cases often turn on a deceptively simple question: when did the claimant know enough to start asking questions?

That issue was the issue in NMC Family Holdings, Inc. v. The Watermark Group, LLC recently decided by the Court of Appeals of Indiana where the court affirmed summary judgment for an accounting firm based on the one-year statute of limitations contained in Indiana’s Accountancy Act. Although the underlying allegations involved claimed failures to detect financial manipulation, the court focused on timing rather than liability. The opinion provides useful guidance on how Indiana courts evaluate inquiry notice and offers practical lessons for professionals facing potential malpractice allegations.

The dispute arose from the operations of Ameribridge, LLC, an airport passenger boarding bridge company in which NMC Family Holdings held a majority ownership interest. Watermark Group had been retained to review Ameribridge’s financial statements. According to NMC, Ameribridge’s general manager manipulated construction-in-progress reports and other financial data over a period of years, making the company appear profitable when it was actually experiencing significant losses. NMC later alleged that Watermark negligently failed to detect and report those irregularities during its accounting engagements.

A key event occurred in September 2019. Following his termination, Ameribridge’s controller, through counsel, sent a demand letter detailing allegations that the general manager had manipulated financial information. The letter specifically identified inflated project-completion percentages, shifted costs, manipulated receivables, and other accounting practices. The allegations were shared among the company’s principals, but management elected not to pursue them at the time after concluding they may have come from a disgruntled employee.

More than a year later, in October 2020, a new controller independently uncovered financial irregularities and confirmed that the company’s financial condition had been misstated. The general manager was subsequently terminated. NMC ultimately filed suit against Watermark in December 2021, alleging accounting malpractice and negligence arising from Watermark’s failure to detect the misconduct. Watermark moved for summary judgment, arguing that the action was untimely under Indiana Code section 25-2.1-15-2. The trial court agreed, and the Court of Appeals affirmed.

The appellate court held that NMC had information sufficient to place it on notice of a potential claim no later than September 2019 when it received the detailed allegations concerning financial manipulation. The court emphasized that Indiana’s discovery rule does not require proof that negligence occurred or confirmation that a claim will ultimately succeed. Instead, the limitations period begins when a reasonable person possesses facts suggesting that a claim might exist and would be prompted to investigate further. Because the alleged misconduct described in the 2019 letter was the same conduct NMC later contended Watermark negligently failed to detect, the court concluded that the one-year limitations period had expired before suit was filed.

The court further noted that even if October 2020, when the fraud was definitively uncovered, were used as the discovery date, NMC still failed to file suit within one year. The result therefore remained the same under either timeline advanced by the parties. The court also rejected arguments regarding fraudulent concealment, concluding that any alleged nondisclosure by Watermark did not prevent discovery of the underlying facts beyond October 2020.

For claims professionals, the decision is a reminder that early communications, whistleblower complaints, demand letters, and internal reports may become critical evidence when evaluating limitations defenses.

For accountants and other professionals, the opinion underscores the value of maintaining thorough documentation regarding the scope of services, communications with clients, and responses to concerns about financial irregularities.

And for defense lawyers, NMC Family Holdings demonstrates the continuing effectiveness of an early statute-of-limitations analysis. Before reaching questions of duty, breach, causation, or damages, practitioners should carefully examine what information was available to the claimant, when it was received, and whether it was sufficient to trigger a duty to investigate.

For more information, please contact Donald Patrick Eckler at patrick.eckler@fmglaw.com or your local FMG attorney.

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