Eide Bailly LLP v. Humphreys

Background

Eide Bailly LLP (EB) is an accounting firm that audited Senior Health Insurance Company of Pennsylvania (SHIP), a long-term care insurer. SHIP later became insolvent and was placed into statutory rehabilitation — a court-supervised process under state insurance law in which a government official (here, the Pennsylvania Acting Insurance Commissioner, Michael Humphreys, referred to as "the Rehabilitator") takes control of a failing insurer to try to restore it to solvency or wind it down in an orderly way.

EB originally filed this lawsuit. The Rehabilitator filed a counterclaim asserting professional negligence/accounting malpractice against EB, alleging that EB issued an unqualified (i.e., clean) audit opinion on SHIP's 2015 financial statements in June 2016, when it allegedly should have issued a modified or qualified opinion flagging concerns raised by another actuarial firm, Lewis & Ellis (L&E), about the adequacy of reserves calculated by yet another firm, Milliman. The Rehabilitator argued that a different audit outcome in 2016 would have prompted the Pennsylvania Insurance Department (PID) to intervene sooner, slowing SHIP's financial deterioration.

For purposes of EB's motion for summary judgment (a pretrial motion asking the court to rule in its favor as a matter of law, without a trial, because no reasonable jury could find for the other side), EB conceded that it owed SHIP a duty of care and that it breached that duty. The disputed issues were: (1) causation — whether EB's breach actually caused SHIP's losses; (2) damages — whether SHIP's claimed losses could be established with sufficient certainty; and (3) in pari delicto — an equitable defense (a fairness-based legal defense) that bars recovery when a plaintiff participated in the same wrongdoing at issue.

Magistrate Judge Shannon G. Elkins issued a Report and Recommendation (R&R) on January 31, 2026, recommending that the court grant EB's motion for summary judgment based on insufficient causation evidence, while also finding that the damages evidence was sufficient to create a triable issue. The R&R also recommended denying all six Daubert motions (motions to exclude expert witnesses under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993)). Both sides filed objections.

Legal Standards

Summary Judgment Summary judgment is proper when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A dispute is "genuine" if a reasonable jury could return a verdict for either side; a fact is "material" if it affects the outcome of the case.

Expert Testimony (Daubert Standard) Under Federal Rule of Evidence 702 and Daubert, trial courts act as gatekeepers to ensure that expert testimony is both relevant and reliable. The court considers factors such as whether a method has been tested, peer-reviewed, has a known error rate, and is generally accepted. In Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999), the Supreme Court extended this framework to non-scientist experts. Challenges to the factual basis of an expert opinion generally go to the weight of the evidence — not its admissibility — unless the opinion is "so fundamentally unsupported that it can offer no assistance to the jury." Bonner v. ISP Tech, Inc., 259 F.3d 924, 929-30 (8th Cir. 2001).

Daubert Rulings — All Motions Denied

EB's Motion to Exclude Lisa Kuklinski (Rehabilitator's Damages Expert) Kuklinski is a practicing actuary with over 30 years of experience, a Fellow of the Society of Actuaries, and a Managing Director at FTI. She was retained to opine on SHIP's damages. EB argued she lacked experience specific to how quickly an insurer might enter and progress through rehabilitation, and that her opinions were speculative and based on mere arithmetic within the ability of a typical juror. The court rejected these arguments, finding her credentials and experience qualified her, and that her report was plainly not simple arithmetic. Objections to the factual basis of her opinions go to weight, not admissibility. Motion denied.

EB's Motion to Exclude Carl Harris (Rehabilitator's Actuarial Expert) Harris is a consulting actuary with experience since 1979 and multiple professional fellowships. He opined that a 60.8% average rate increase was actuarially justified based on SHIP's historical and projected data as of December 31, 2016, and assumed 100% of policyholders would accept the new rates. EB argued this was irrelevant and prejudicial because the negligence claim was specifically about EB's response to Lewis & Ellis's concerns about Milliman's work — not about whether all of SHIP's actuarial assumptions were flawed. The court disagreed, finding that Harris's analysis was relevant both to the accuracy of Milliman's calculations and to whether EB's response to L&E's concerns was reasonable. Disagreements about his factual assumptions go to weight, not admissibility. Motion denied.

EB's Motion to Limit James Wrynn (Rehabilitator's Regulatory Expert) Wrynn is a licensed attorney and senior managing director at FTI with extensive insurance regulatory experience, including service as Superintendent of the New York State Department of Insurance. He opined on the importance of audit opinions to regulators and what PID could have done with a different audit result in 2016. EB sought to limit his testimony, arguing (among other things) that he had never personally seen a modified audit report or placed a long-term care insurer into rehabilitation. The court, agreeing with the Magistrate Judge, found that Wrynn's broader regulatory experience — particularly overseeing insurer solvency — qualified him to testify. EB's objections go to weight, not admissibility. Motion denied.

Rehabilitator's Motions to Exclude EB's Experts (Tucker, Gustafson, and Cohen) All three of the Rehabilitator's motions to exclude EB's experts were denied. The court provided no individualized discussion of these motions beyond the order itself, indicating no objections were filed that required extended analysis.

Summary Judgment — Causation

Under Minnesota law governing professional malpractice, the plaintiff must introduce "concrete evidence" of what it would have done but for the defendant's negligence and what those actions would have reasonably produced. Christians v. Grant Thornton, LLP, 733 N.W.2d 803, 813 (Minn. Ct. App. 2007).

The Rehabilitator argued that SHIP need only show that EB's breach was a "substantial factor" in delaying intervention and worsening SHIP's condition, and that the evidence showed PID's decision-making landscape would have been materially altered. He relied on Jerry's Enterprises, Inc. v. Larkin, Hoffman, Daly & Lindgren, Ltd., 711 N.W.2d 811 (Minn. 2006), in which a business owner testified specifically that he would have taken concrete protective action had he known of a legal risk.

The court rejected this analogy. In Jerry's, the plaintiff's representative testified to a specific action he would have taken. Here, the Rehabilitator's own experts could only say what PID could have done — not what it would have done. Expert Wrynn testified that a modified audit report alone would not have required PID to place SHIP into rehabilitation; PID had broad discretion. Expert Cantilo testified he could only speculate about PID's response. Expert Kuklinski acknowledged PID could have taken actions other than immediate rehabilitation. Because PID was not required to take any particular action, and no evidence established what it actually would have done, the causal chain was too speculative. The court affirmed the R&R on this point and overruled the Rehabilitator's objection.

Summary Judgment — Damages (Court Departs from R&R)

The R&R had found — despite acknowledging speculation about how quickly SHIP would have entered rehabilitation, how quickly the process would have progressed, how quickly rate increases would have been approved, and how quickly new premiums would have generated revenue — that the experts' use of recognized actuarial methodologies was sufficient to create a triable issue on damages.

EB objected, arguing this finding was internally inconsistent with the R&R's own characterization of the evidence as speculative, and that no admissible evidence established that PID would have forced immediate rehabilitation, that courts would have quickly approved a rehabilitation plan, or that policyholders would have paid the new rates.

The court sustained EB's objection. Applying the standard that damages must be established to a "reasonable, although not necessarily absolute, certainty," the court found that the entire damages theory depended on a chain of speculative discretionary events — governmental regulatory choices, judicial approvals, and policyholder behavior — that the experts themselves did not agree would have occurred. Expert Harris, for example, assumed 100% policyholder acceptance of rate increases solely for calculation convenience, without opining that this would actually occur. Because the damages evidence was premised on the same speculative causation chain that defeated the causation element, a trier of fact could not reasonably assess and award damages. Summary judgment was granted on damages as well, as a modification to the R&R.

In Pari Delicto

The equitable defense of in pari delicto (Latin for "in equal fault") bars recovery when a plaintiff participated equally in the wrongdoing at issue. The parties disputed whether and how this defense applied to the Rehabilitator, who was appointed under Pennsylvania law. Because the court granted summary judgment on causation and damages grounds, it declined to reach this issue.

Disposition

- Eide Bailly's motion for summary judgment: GRANTED (with modification expanding the grounds beyond the R&R's recommendation). - Eide Bailly's motions to exclude expert testimony of Carl Harris, Lisa Kuklinski, and James Wrynn: DENIED. - Rehabilitator's motions to exclude expert testimony of Tucker, Gustafson, and Cohen: DENIED. - Judgment to be entered in favor of Eide Bailly LLP.