Actuarial Expert's Background Opinions Limited

This case arises out of a misstatement of age in the applications for two life insurance policies insuring the life of Meyer Magid. Based on the date of birth Magid listed in the applications, American General issued two identical insurance policies at an issue age of 84. In reality, however, Magid was two years older than he reported to American General, and the policies should have reflected an issue age of 86.

Both parties' proffered experts have submitted reports setting forth their opinions. American General sought to exclude the testimony of Larry N. Stern while Wilmington Trust sought to exclude the testimony of Jim Toole.

Actuarial Expert Witnesses

Larry N. Stern is the President of Canterbury Consulting, LLC, an actuarial consulting firm and licensed reinsurance intermediary in Charlotte, North Carolina. Moreover, he is a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. Stern's experience includes twenty years working for three insurance companies, nine years working at a global management and actuarial consulting firm, two years working at an international reinsurance company, and twenty-three years serving as the President of Canterbury Consulting, LLC.

Want to know more about the challenges Larry Stern has faced? Get the full details with our Challenge Study report.

Jim Toole has over 35 years of experience working as an actuary in the life insurance industry. Toole is a Fellow of the Society of Actuaries (“SOA”) and a member of the American Academy of Actuaries (“The Academy”). He has been awarded the Chartered Enterprise Risk Analyst credential (“CERA”), which recognizes contributions and educational achievement in the field of Enterprise Risk Management.

Get the full story on challenges to Jim Toole’s expert opinions and testimony with an in-depth Challenge Study.

Discussion by the Court

A. The Court Grants in Part American General's Motion to Exclude the Testimony of Larry N. Stern

Stern was retained to render his opinion concerning "calculation of the death benefits" owed under the Policies. Stern has provided three reports in this action: his Initial Report, Supplemental Report, and Reply Report.

American General sought to exclude Stern's testimony and opinions for three main reasons. American General first sought to exclude Stern from offering legal conclusions. Specifically, American General sought to exclude Stern from opining as to (1) the requirements of New Jersey law in the calculation of death benefits, or (2) the requirements of the Policies.

i. Stern should be barred from offering legal conclusions

The Court generally agreed with American General that Stern may not render a legal opinion and agreed with both parties in part regarding the admissibility of Stern's opinions and testimony.

Turning to the challenged paragraphs of the Stern Reply Report, the Court found that at least some of the paragraphs render legal conclusions regarding what New Jersey law or the Policies require in the calculation of death benefits and make legal arguments regarding what is or is not required by New Jersey law or the Policies. For example, Paragraph 5 of the Stern Reply Report stated that the MOA provision and New Jersey law "clearly and expressly require, in the event of a misstatement of age, that American General must pay the death benefits that could have been purchased at the correct age by the premiums actually paid."

In a similar manner, Paragraph 9 purports to state what the "plain language" of a New Jersey law "requires," and Paragraph 12 states that the Policy's MOA provisions are "consistent with New Jersey law."

In the manner in which they are framed within the Stern Reply Report, these statements offer legal conclusions about the governing law and how that law applies in the instant case. To allow such testimony would usurp the Court's role and allow Stern to testify as to what the law requires and the scope and meaning of contractual terms, both of which exceed the scope of proper expert testimony.

Accordingly, Stern will be precluded from testifying as to what the Policies or New Jersey law "clearly and expressly require," what New Jersey law "requires," or whether the Policies are "consistent with New Jersey law." However, Stern will be permitted to testify as to his death benefits analyses; "it is a common and acceptable method for experts to set forth their analysis within a legal framework that they are asked to assume is applicable, so long as the court has not ruled otherwise."

ii. Stern should not be allowed to render his opinion concerning "calculation of the death benefits" owed under the Policies

Next, American General sought to exclude Stern's opinions regarding his death benefit calculations. According to American General, Stern's death benefit analysis is unreliable.

The Court began with a summary of Stern's death benefit analysis. In the Stern Initial Report, Stern set forth his opinions as to the proper death benefit amount if Magid was born on August 22, 1921 and also the proper death benefit amount if Magid was born on August 22, 1919. Stern concluded that, "if August 22, 1921 is the legal Date of Birth of Magid, the Death Benefit of each Policy is $5,000,000 because Magid's Date of Death, July 21, 2020, is prior to the Maturity Date of November 7, 2021, for Policy 13L and is prior to the Maturity Date of February 21, 2022, for Policy 84L."

Stern also attempted to "approximate" the correct death benefit for both Policies using two separate forms of actuarial analysis, assuming Magid was born on August 22, 1919: first, Stern provided a "Trend Analysis of the cost of insurance for the final policy year prior to the Date of Death" (the "Trend Analysis"); and second, Stern provided a "Comparison Analysis of the cost of insurance for the final Policy Year prior to the Date of Death" (the "Comparison Analysis"). Stern utilized these two forms of analysis to extrapolate the cost of insurance rates for the last policy year prior to the Date of Death.

In the Stern Initial Report, Stern opined that the Death Benefit under the Trend Analysis was $4,545,500 for the 13L Policy and $4,446,000 for the 84L Policy. He further opined that the Death Benefit under the Comparison Analysis was $4,561,600 for the 13L Policy and $4,456,000 for the 84L Policy.

In the Stern Supplemental Report, Stern modified each of these figures. Again, in the Stern Reply Report, Stern modified each of these figures. Having thoroughly considered Stern's qualifications, opinions, and deposition testimony, the Court will not exclude his opinions or testimony concerning his death benefit analysis.

Moreover, to the extent that American General sought to exclude Stern's opinions or testimony as unreliable because Stern's death benefits opinions are, in American General's view, contrary to the language of the Policies or improperly assume that a correct cost of insurance rate exists under the Policies, the Court found that this dispute is primarily one of contractual interpretation and disagreed. For the foregoing reasons, the Court found that Stern's death benefit analysis sufficiently satisfied the Daubert reliability bar and will not preclude Stern's opinions or testimony concerning his death benefit analysis.

iii. Stern's background opinions as not being the right "fit" for the instant case

American General also sought to exclude Stern's background opinions as not being the right "fit" for the instant case. American General contended that Stern's "remaining background opinions are simply not relevant."

The background opinions specifically addressed by American General are two subsections within the Stern Initial Report's "Background" section: (A) "The General Nature of Life Insurance"; and (B) "The Definition of Life Insurance for Purposes of Federal Income Taxation Purposes Contributes to the Age 100 Problem." In the first of these background sections, Stern generally describes life insurance, life insurance companies, the function of an actuary, what a life insurance contract is, and the types of life insurance policies that have been sold over time. In the second, Stern discusses actions taken by Congress to regulate the life insurance industry, summarizes his understanding of what is required for a life insurance policy to be considered a life insurance policy for the purposes of federal income taxation, and provides a brief paragraph describing changes in the insurance industry since the 1990s, focusing on what Stern understood to be the "Age 100 Problem."

American General contended that these background opinions failed the "fit" test described above. According to American General, Stern's background opinions "do not relate to any issue in this case," discuss life insurance policies that are unlike the ones in suit, and are unlikely to help the jury. Wilmington Trust disagrees, countering that Stern "opines on background principles that relate to this case . . . ." Much of Wilmington Trust's opposition is focused on Stern's death benefit analysis or Wilmington Trust's perceived shortcomings of Toole's background opinions, as opposed to an explanation of how Stern's background opinions are the proper "fit" for this action.

The key issue remaining in this case is the proper death benefit amount owed under the MOA provisions. The Court failed to see how Stern's first two background opinions will help the trier of fact. Nor has Wilmington Trust come forth with a persuasive explanation of how Stern's first two background opinions will help the trier of fact. Instead, Wilmington Trust made conclusory statements that Stern "does opine on background principles that relate to this case—the nature of life insurance policies and particular considerations for policies involving age 100 . . . ."

Such statements do not suffice, and the Court will grant American General's motion to the extent it sought to exclude Stern's first two background opinions. Stern will be permitted to testify as to his other background opinions, to the extent that his testimony does not otherwise conflict with this Memorandum Opinion.

B. The Court Grants-in-Part and Denies-in-Part Wilmington Trust's Motion to Exclude the Testimony and Report of Jim Toole

Wilmington Trust sought to exclude Toole from offering expert testimony regarding the death benefits owed given the alleged age misstatements in the two insurance policies issued by American General.

First, Wilmington Trust asserted that Toole's opinions contradict prior findings of this Court and are beyond the scope of the remaining claims in this case. Wilmington Trust contended that Toole's opinion that American General may change the maturity dates on the Policies because they lack "Maturity Extension Riders" is inconsistent with the Court's prior ruling. According to Wilmington Trust, the Court has already determined that the maturity dates are "clearly fixed" in the Policies and that American General may not alter the dates based on the Insured's "true age." Therefore, in Wilmington Trust's view, allowing Toole's opinion will confuse, rather than assist, the trier of fact.

The Court agreed with Wilmington Trust. In paragraphs 63-70 of Toole's report, Toole sets forth an overview of Maturity Extension Riders, including their formation, purpose, and American General's general policies governing such riders. As Wilmington Trust noted, the Court has already determined that the maturity dates are "clearly fixed" in the Policies. Moreover, the Court has held "the operation of the MOA provisions in this case would result in a Death Benefit Amount that is greater than zero." Thus, any discussion about Maturity Extension Riders, which operate to extend the maturity dates beyond age 100 when such riders are selected, is no longer relevant to the issues remaining in this case. The Court's rulings establish that the Policies' maturity dates are fixed and that the application of the MOA provisions would result in a Death Benefit Amount greater than zero. Whether and under what circumstances a Maturity Extension Rider may extend a maturity date has no bearing on the interpretation or application of the Policies at issue here.

Therefore, the Court found that Toole's opinions and testimony related to Maturity Extension Riders would likely confuse or mislead the jury by obscuring the relevant issue and failing to aid the jury's understanding of the issues in dispute. Accordingly, the Court excluded the opinions and related testimony of Toole on Maturity Extension Riders.

Second, Wilmington Trust asserted that Toole sets forth opinions on life insurance topics that do not relate to the remaining claims in the case. Toole's expert report is divided into four sections: (I) Introduction; (II) Summary of Opinions; (III) Overview of Life Insurance Products and Markets; and (IV) Misstatement of Age: Consequences and Remedies. Section III, "Overview of Life Insurance Products and Markets," provides a general overview of three general types of life insurance products, as well as the determination of policy maturity dates, the tax treatment of life insurance, life settlements and STOLI, and the emergence of the older-age market. The Court acknowledged that, in some cases, it might be important "for an expert to educate the factfinder about general principles, without ever attempting to apply these principles to the specific facts of the case" such as "instructing the factfinder on the principles of thermodynamics, or bloodclotting, or on how financial markets respond to corporate reports."

In this case, the Court failed to see how Toole's discussion of term and whole life insurance, neither of which is at issue in this case, could assist the jury. While Toole's opinions may be relevant to the life insurance industry generally, the Court found that his opinions would not assist a jury in resolving the remaining issues in this case, namely: (1) the amount that American General owes Wilmington Trust under the MOA Provision; (2) Magid's age when the Policies were applied for; and (3) whether Wilmington Trust committed fraud in applying for the Policies.

The Court further found that Toole's opinions concerning life insurance policy maturity dates, the tax treatment of life insurance, life settlements, STOLI, and the emergence of the older age market are not sufficiently connected to the facts of this case. As discussed above, the Court has resolved the issue of the Policies' maturity dates. Therefore, Toole's discussion of the "treatment of the Policies at the maturity date" would not assist the jury in determining any issue remaining for its consideration.

Wilmington Trust also sought to exclude "derogatory mentions" that the Policies were assigned to third parties and changed to various life settlement companies over the years and that Wilmington Trust lacked adequate diligence when purchasing the policy. In his report, Toole stated that "the Policies were subsequently assigned to third parties and changed hands among various life settlement companies over the years." The Court found no basis for characterizing Toole's opinion as "derogatory," when the record reflects changes in ownership over the years. Experts are allowed to give opinions on facts.

The Court also found no basis for excluding Toole's opinion regarding Wilmington Trust's diligence. Toole opined that Wilmington Trust did not conduct adequate diligence in accordance with industry practices known at the time the Policies were purchased. The Court found that Toole's opinion regarding whether Wilmington Trust's diligence was consistent with industry standards is admissible and may be relevant to American General's fraud claim.

To the extent that Toole's expert testimony addresses matters already decided by the Court, such testimony is neither relevant to the remaining issues in the case nor helpful to the jury in resolving those issues.

C. The Court Grants Wilmington Trust's Motion to Exclude the Testimony of Jim Toole

Wilmington Trust again sought to exclude Toole's Initial Report and, in addition, sought to exclude Toole's Rebuttal Report.

Wilmington Trust asserted that Toole's opinions concerning the amount of death benefits owed are not based on reliable methodology. Wilmington Trust contended that Toole's opinion that no death benefits are owed are unreliable because his opinion is based on "his say-so and subjective interpretation of the calculation required under the MOA Provision" and "his unverified adoption of opposing counsel's legal theory that no correct cost of insurance rate exists for an attained age of 100."

American General responded that Toole never opined that "no death benefits are owed under the policies." Instead, Toole explained that "the amount of death benefit that can be purchased on the Policies beyond age 100 is zero." American General contended that Toole "explains why, as an actuary, his calculation of an adjusted death benefit under these policies at age 100 in the manner prescribed by the policies' misstatement-of age provisions, equal zero."

As previously discussed, the Court has held "the operation of the MOA provisions in this case would result in a Death Benefit Amount that is greater than zero." Thus, to the extent that Toole opined that the application of the Policies' MOA provisions results in an adjusted death benefit of zero, the Court excludes that opinion. Toole may offer testimony based on his opinion only to the extent that those opinions do not contradict or otherwise assume a legal determination contrary to the Court's ruling. For the foregoing reasons, the Court excluded Toole's opinion that the application of the Policies' MOA provisions results in an adjusted death benefit of zero, and granted Wilmington Trust's motion to exclude the testimony of Jim Toole.

Held

• The Court granted in part and denied in part Wilmington Trust's motion to exclude the testimony and report of Jim Toole.

• The Court granted Wilmington Trust's motion to exclude the testimony of Jim Toole.

• The Court granted in part and denied in part American General's motion to exclude the testimony of Larry N. Stern.

Key Takeaway

Experts are allowed to give opinions on facts. An expert can also testify as to whether a party's actions (irrespective of the party's state of mind) complied with or were consistent with industry standards and procedures.

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