Actuary Expert Permitted to Base Analysis on Third-Party Audit Report

Zach Barreto

Written by Zach Barreto

- Updated on January 9, 2021

Actuary Expert Permitted to Base Analysis on Third-Party Audit Report

In this class action, the basis of an actuary expert’s report was under review via a Daubert challenge. Daubert focuses on the validity of an expert’s methodology. The plaintiffs claim that a third party’s audit report constituted unsubstantiated “hearsay” and could not be used as a source for the defense expert’s methodology in compiling his report.

The court, however, found that this case, in particular, required both accounting and actuarial expertise. Thus, the actuary expert’s reliance on an audit report from a reputable source was indeed admissible methodology under Daubert.


This case was a class action lawsuit brought under the 1974 Employee Retirement Income Security Act and the 1947 National Labor-Management Relations Act. The plaintiffs were former employees or eligible dependents of the defendant who had retired between June 1, 1993, and June 30, 2006. The plaintiffs alleged that the defendant breached its promise to provide life-long retirement health benefits at no expense by starting to charge for a portion of the medical care coverage. The defendant disputed the plaintiffs’ claim that it had made such a promise, and that a cap letter attached to the back of the Collective Bargaining Agreements (CBAs) allowed them the right to reduce the plaintiffs’ benefits.

The plaintiffs’ proposed expert submitted an expert report in which he made two main assertions. Firstly, he claimed that, as an actuary, he would not consider the effect of the compensation limits defined by the defendant in the calculation of the pension benefit plan liabilities. He also claimed that the changes made to the plan after collective bargaining in 2007 resulted in a total loss of $708 million for the plaintiff class. The defendant also retained an actuary expert who disputed the plaintiff expert’s conclusions.

The Defendant’s Actuary Expert Witness

The defendant’s actuary expert owned and operated a company providing accounting, actuarial and other financial consulting services to Deloitte Consulting, LLP. He was a registered actuary and a member of the American Academy of Actuaries. He had nearly 30 years of experience as an actuary and, as part of his certification as an actuary, he invested in the continuing education standards to support his professional experience. He was the director of Deloitte’s Midwest Area Post-Retirement Health Advisory Practice and specialized in the design, implementation, assessment, and funding of healthcare and post-retirement compensation programs of government and privately-owned companies. He also reviewed postretirement benefit plans in the auditing division of Deloitte.

The defendant’s actuary expert submitted an expert report in which he disputed a number of the findings of the plaintiffs ‘ expert. Unlike the plaintiffs ‘ expert, the defendant’s expert said that if he were responsible for evaluating the defendant’s retirement health care plan as an actuary, he would have considered it to be capped. To reach this conclusion, the expert consulted the audit of the defendant completed by PricewaterhouseCoopers (PwC), including the audit paperwork completed between 2004 and 2006. The expert also opined that the plaintiffs had not suffered any loss of benefits on the basis of collective bargaining agreements. The plaintiffs filed a Daubert motion to exclude the expert’s testimony.


The plaintiffs argued that the actuary expert’s testimony should be removed as hearsay to the degree that it depends on the conclusions of the defendant’s auditors since these are unsubstantiated views of others. In fact, the plaintiffs argued that the expert’s evidence should be exempted from being used as a rebuttal of their own expert’s testimony as the defense expert did not question their expert’s findings. The defendant argued that their expert’s report did not constitute a hearing and was admissible pursuant to Rule 702 Fed. R. Evi. In addition, the defendant argued that their expert’s opinion did challenge the plaintiff expert’s finding because, contrary to his calculation of damages, the defense expert found that the plaintiffs had not suffered any damages.

The court noted that the post-retirement benefit package assessment specifically requires both advanced actuarial expertise and accounting review procedures. The court is of the view that the assessment will take into account both the future risk of loss posed by commitments to employers or other beneficiaries and that this risk analysis comes within the actuarial sciences. It noted that such valuation requires collaboration among actuaries, auditors, and accountants. The court found that the defendant’s expert had specialized knowledge, qualifications, education, and experience that would allow the trier to understand the evidence or to evaluate the facts in question.

Upon evaluating the expert’s credentials and curriculum vitae, the court found that the actuary expert was extremely qualified with significant experience in the field. The question before the court was, therefore, whether the PwC audit was the type of source relied on by actuarial experts. The court found that this was a reputable source for actuary professionals and for the expert to use to inform his own analysis.


The plaintiffs’ motion to exclude the defendant’s actuary expert was denied.

Key Takeaways for Experts

This case highlights the importance of reputable methodology. Opposing counsel will undoubtedly examine every source or citation used in an expert report, but relying on industry-accepted principles and knowledge will help ensure your testimony is admitted.

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