Eide Bailly LLP v. Humphreys

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UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Eide Bailly LLP,
Plaintiff and
Counterclaim
Defendant,
vs.
Michael Humphreys, Acting Insurance
Commissioner of the Commonwealth of
Pennsylvania, in his capacity as the
Statutory Rehabilitator of Senior Health
Insurance Company of Pennsylvania,
Defendant and
Counterclaimant.
Case No. 22-cv-3132 (MJD/SGE)
REPORT AND RECOMMENDATION
This matter is before the Court on several motions filed by
Plaintiff/Counterclaimant 	Eide 	Bailly 	LLP’s 	(“Eide 	Bailly”) 	and
Defendant/Counterclaimant Michael Humphreys (“the Rehabilitator”), Acting Insurance
Commissioner of the Commonwealth of Pennsylvania, in his capacity as the Statutory
Rehabilitator of Senior Health Insurance Company of Pennsylvania. Specifically, Eide
Bailly has filed a Motion for Summary Judgment (Dkt. 92) and three Motions to Exclude
Expert Testimony (Dkts. 97, 102, & 107), and the Rehabilitator has filed a separate
Motion to Exclude Expert Testimony (Dkt. 117.) This matter has been referred to the
undersigned by United States District Judge Michael J. Davis for report and
recommendation under 82 U.S.C. § 636(b)(1)(B). For the reasons set forth below, this
Court recommends that the Motions to Exclude Expert Testimony all be denied and the
Motion for Summary Judgment be granted.
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FACTS
Senior Health Insurance Company of Pennsylvania (“SHIP”) is an insurance
company domiciled in Pennsylvania. (Ans., Dkt. 30, ¶ 22.) Since 1964, SHIP and its
predecessors have administered long-term care insurance policies. (Id. ¶ 24.) SHIP has
not sold new policies since 2003. (Id. ¶ 25.)
Pennsylvania state law requires an insurer like SHIP to submit financial statements
to the Pennsylvania Insurance Department (“PID”) each year. 40 P.S. § 443(a)(1). These
statements disclose the company’s assets and liabilities. As it relates to SHIP, this
includes SHIP’s policy and actuarial claim reserves—“estimated future payments of
claims to policyholders,” which are “determined and maintained subject to estimates,
assumptions, and prior years’ statistics.” (Ex. 29 at 10.) 1 These estimates are prepared by
professional actuaries. (Ex. 4 at 172.)
Pennsylvania law also requires Pennsylvania-domiciled insurers to have an
independent certified public accountant audit their financial statements by June 1 each
year. 31 Pa. Code § 147.3(a). In that statutorily required audit report, the auditor opines
on whether the insurer’s financial statements “present fairly, in all material respects, the
financial position of the Company . . . and the results of its operations and cash flows” as
of December 31 of the previous year. (Ex. 29 at 2.)
Eide Bailly is an accounting firm. (Ans. ¶ 18.) SHIP engaged Eide Bailly as an
independent auditor for fiscal years 2013 through 2019 to comply with the Pennsylvania
law mandating an annual audit. (Id. ¶ 49.) According to their engagement agreements,
1 “Ex.” refers to exhibits to the Declaration of Mark L. Johnson, Dkt. 112.
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Eide Bailly was to “express an opinion about whether [SHIP’s] financial statements
[were] fairly presented, in all material respects, in conformity with accounting practices
prescribed or permitted by” PID. (Ex. 15 at 1.) For its part in the agreement with Eide
Bailly, SHIP was responsible “for the preparation and fair presentation of the financial
statements in conformity with accounting practices prescribed or permitted by” PID. (Id.
at 2.)
Milliman USA (“Milliman”) contracted with SHIP to provide actuarial
projections, analysis, and assumptions to reflect SHIP’s financial status from 2008 to
2019. (Ans. ¶ 48.) Actuaries at Milliman “provided the reserve numbers to the company
for inclusion in the financial statements. And then [Milliman] would have done the
cashflow testing. And other actuarial . . . modeling as required, which also included the
production of an actuarial memorandum and then an actuarial opinion that they would
have signed off on.” (Ex. 4 at 39-40.)
To audit SHIP’s financial statements, Eide Bailly engaged its own actuarial
specialists to support its reviews of Milliman’s work and SHIP’s actuarial reserves. (Ans.
¶ 49; see also Ex. 17.) Working with Eide Bailly, Lewis & Ellis (“L&E”) supported the
2013, 2014, and 2015 audits (Ans. ¶ 132); Axene Health Partners supported the 2015 and
2016 audits (Exs. 23, 32); and an in-house Eide Bailly actuary supported subsequent
audits. (Ex. 50 at 51.)
On April 6, 2016, Milliman issued an actuarial memorandum regarding SHIP’s
reserves at the end of 2015. (Ex. 16.) L&E reviewed the memorandum and expressed
“difficulty becoming comfortable with a couple of the assumption changes made for
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2015.” (Ex. 17.) Specifically, L&E believed that Milliman’s assumptions regarding
policy lapse and mortality rate and the lengthening of the morbidity improvement
assumption were unsupported, and that Milliman’s projection that SHIP would see two
years of losses followed by substantial period of profitability was unrealistic. (See Ex. 26
at 28.) Eide Bailly continued to facilitate discussions between L&E and Milliman, but the
two could not find a middle ground. (Exs. 17, 18, & 20.)
SHIP knew of the concerns that L&E raised but represented to Eide Bailly that
they “agree[d] with the findings of Milliman (the specialists) in evaluating [SHIP]’s
aggregate reserves.” (Ex. 30 at SHIP-EB-009577.) Thereafter, Eide Bailly engaged
Axene to review Milliman’s work and offer its view on the issues L&E identified. (Ex.
23.)
Axene reviewed Milliman’s work and issued a report. (Ex. 28.) In the report,
Axene determined that Milliman’s assumptions were reasonable. (Id. at 2.) After
receiving Axene’s report, Eide Bailly issued an unmodified audit opinion of SHIP’s 2015
financial statements in June 2016. (Ex. 29.)
In January 2017, PID retained actuarial consultant Oliver Wyman “to review
SHIP’s reserves.” (Ans. ¶ 161.) Wyman delivered a draft report to PID in July 2017, and
a final report in October 2017. (Exs. 34, 35.) In his report, Wyman noted the same issues
with SHIP’s reserves that L&E had identified during its 2015 audit—that SHIP’s reserves
were severely deficient and its projected assets were materially short of its expected
liabilities. (Ans. ¶ 161.) In November 2017, PID accepted Wyman’s actuarial
examination of SHIP (Ex. 36.) PID informed SHIP that it would “continue to closely
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monitor [SHIP’s] financial condition and operating results.” (Ex. 36 at 4.) PID continued
monitoring SHIP and eventually placed it under formal supervision in February 2018,
appointing Patrick Cantilo as the duly authorized representative for PID. (Ex. 37.) In
January 2019, Mr. Cantilo, acting as SHIP’s appointed supervisor, developed a draft
rehabilitation plan for SHIP’s LTC business. (Ex. 38.)
Jessica K. Altman, Insurance Commissioner of the Commonwealth of
Pennsylvania, eventually petitioned in January 2020 for an order placing SHIP into
rehabilitation. (Ex. 39.) A Pennsylvania court ordered SHIP into rehabilitation a week
later, naming Ms. Altman as Rehabilitator. (Ex. 40.) Michael Humphreys, Acting
Insurance Commissioner of the Commonwealth of Pennsylvania succeeded Ms. Altman
as Rehabilitator, and SHIP’s rehabilitation remains ongoing.
The Rehabilitator filed an initial rehabilitation plan in April 2020. (Ex. 41 at 5.)
Multiple parties interested in SHIP’s rehabilitation intervened and provided comments for
the Rehabilitator’s consideration. (Ex. 41 at 6; see also Ex. 59.) The Rehabilitator filed an
amended rehabilitation plan in October 2020. (Ex. 41 at 6.) Another comment period
followed, and then a second amended rehabilitation issued in May 2021. (Ex. 41 at 6.)
This second amended rehabilitation plan described a phased approach under which
policyholders would choose from a menu of options including increased premiums or
reduced insurance benefits. (Ex. 41 at 6-10; see also Ex. 42.)
The Commonwealth Court of Pennsylvania held a five-day hearing in May 2021.
(See Ex. 41 at 69.) Ultimately, the court rejected various intervenors’ objections and
approved the second amended rehabilitation plan in August 2021. (Id. at 2, 78-82.)
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A few months later, in January 2022, SHIP sent notices of potential future policy
modifications and rate increases to some policy holders. (Ex. 49 at Ex. B, p. 1.)
Regulators from other states intervened and appealed the plan’s approval to the
Pennsylvania Supreme Court. (Ex. 48.) These collateral challenges delayed the
Rehabilitator from implementing any policy modifications. (See Ex. 49 at Ex. 1, p. 13.)
The Pennsylvania Supreme Court subsequently affirmed the approval of SHIP’s second
amended rehabilitation plan in June 2023. (Ex. 48.)
In this action, the Rehabilitator claims that Eide Bailly’s negligent audit of SHIP’s
actuarial reserves in 2015 directly contributed to SHIP’s financial harm. It states that, in
light of L&E’s concerns about Milliman’s actuarial assumptions, Eide Bailly should not
have issued an unmodified or “clean” audit opinion on SHIP’s 2015 financial statements
in June 2016. The Rehabilitator claims that, but for Eide Bailly’s unmodified audit
opinion, SHIP would have been placed in rehabilitation much sooner, its rehabilitation
would have proceeded much faster, and it would have received an additional $234
million in premium revenue.
PROCEDURAL BACKGROUND
Eide Bailly filed this action seeking a declaration that the Rehabilitator has no
valid claims against Eide Bailly arising from the above events. (Dkt. 1.) The Rehabilitator
answered and asserted various counterclaims. (Ans.) The Rehabilitator’s counterclaims
that arose before 2016 were dismissed, as were its claims for breach of fiduciary duty and
fraudulent concealment. (Dkt. 68 at 44-45.) The Rehabilitator later abandoned its claim
that Eide Bailly was professionally negligent in connection with SHIP’s Roebling
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reinsurance transaction. (Ex. 56 at 12-13; Ex. 10 at 9.) This leaves only the
Rehabilitator’s claim that Eide Bailly was professionally negligent in connection with
“the appointment of Axene” to review L&E’s concerns with Milliman’s actuarial
assumptions about SHIP’s reserves. (Dkt. 68 at 44-45.)
Eide Bailly now moves to exclude three of the Rehabilitator’s expert witnesses
from testifying: James Wrynn, Lisa Kuklinski, and Carl Harris. For his part, the
Rehabilitator moves to exclude three of Eide Bailly’s expert witnesses from testifying:
Avram Tucker, Timothy Gustafson, and Marc Cohen. Eide Bailly also moves for
summary judgment on the Rehabilitator’s sole remaining claim for professional
negligence. Judge Davis referred the parties’ motions to the undersigned for a report and
recommendation, and this Court heard oral argument on the parties’ motions on
September 29, 2025. The motions have been fully briefed, and the issues are now ripe for
disposition. Because the parties’ Daubert motions might affect the factual record
available for the jury’s consideration, the Court will address the Daubert motions first.
ANALYSIS
I. 	Daubert Motions
A. Legal Standard
The admissibility of expert testimony is governed by Federal Rule of Evidence
702. The proponent of the testimony has the burden to show by a preponderance of the
evidence that the testimony is admissible under Rule 702. Lauzon v. Senco Prods., Inc.,
270 F.3d 681, 686 (8th Cir. 2001). Under the Rule:
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A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an
opinion or otherwise if:
(a) The expert’s scientific, technical, or other specialized knowledge will
help the trier of fact to understand the evidence or to determine a fact in
issue;
(b) The testimony is based on sufficient facts or data;
(c) The testimony is the product of reliable principles and methods; and
(d) The expert has reliably applied the principles and methods to the facts
of the case.
Fed. R. Evid. 702.
“Under the framework developed in Daubert, trial courts must serve as
gatekeepers to insure that proffered expert testimony is both relevant and reliable. Trial
courts are given broad discretion in fulfilling this gatekeeping role . . . .” Wagner v.
Hesston Corp., 450 F.3d 756, 758 (8th Cir. 2006) (citations omitted). The proposed
testimony must be useful to the factfinder; the expert witness must be qualified; and the
proposed evidence must be reliable. Lauzon, 270 F.3d at 686. Even where an expert may
be qualified, the court must continue to perform its gatekeeping role by ensuring that the
particular testimony “does not exceed the scope of the expert’s expertise, which if not
done can render expert testimony unreliable.” Wheeling Pittsburgh Steel Corp. v.
Beelman River Terminals, Inc., 254 F.3d 706, 715 (8th Cir. 2001). “[D]oubts regarding
whether an expert’s testimony will be useful should generally be resolved in favor of
admissibility.” Miles v. Gen. Motors Corp., 262 F.3d 720, 724 (8th Cir. 2001) (citation
omitted).
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In determining the reliability and relevancy of the proffered testimony, the Court
examines factors such as
Whether the theory or technique is subject to testing, whether it has
been tested, whether it has been subjected to peer review and
publication, whether there is a high known or potential rate of error
associated with it, and whether it is generally accepted within the
relevant community.
Unrein v. Timesavers, Inc., 394 F.3d 1008, 1011 (8th Cir. 2005) (citation omitted.)
Subsequent cases have proposed additional factors, including
whether the expertise was developed for litigation or naturally
flowed from the expert’s research; whether the proposed expert ruled
out other alternative explanations; and whether the proposed expert
sufficiently connected the proposed testimony with the facts of the
case.
Polski v. Quigley Corp., 538 F.3d 836, 839 (8th Cir. 2008) (citation omitted). This
evidentiary inquiry, however, “is meant to be flexible and fact specific, and a court
should use, adapt, or reject Daubert factors as the particular case demands. There is no
single requirement for admissibility as long as the proffer indicates that the expert
evidence is reliable and relevant.” Unrein, 394 F.3d at 1011 (citation omitted).
If a party believes that an expert opinion has not considered all of the
relevant facts, an objection to its admission is appropriate. Even a
theory that might meet certain Daubert factors, such as peer review
and publication, testing, known or potential error rate, and general
acceptance, should not be admitted if it does not apply to the
specific facts of the case.
Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1056 (8th Cir. 2000) (citations
and footnote omitted). However,
[a]s a general rule, the factual basis of an expert opinion goes to the
credibility of the testimony, not the admissibility, and it is up to the
opposing party to examine the factual basis for the opinion in cross-
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examination. Only if the expert’s opinion is so fundamentally
unsupported that it can offer no assistance to the jury must such
testimony be excluded.
Bonner v. ISP Techs., Inc., 259 F.3d 924, 929-30 (8th Cir. 2001) (citation omitted).
B. Eide Bailly’s Daubert Motions
1. James Wrynn
The Rehabilitator offers the expert testimony of James Wrynn, a Senior managing
director in the Global Insurance Services practice of FTI Consulting, Inc. (“FTI”) with
expertise in insurance matters. (Ex. 57 ¶ 2.) Mr. Wrynn is a licensed attorney with
extensive experience litigating insurance issues since 1982. (Id. ¶ 3.) He served in
numerous roles in various New York State entities, including as Executive Director of the
New York State Insurance Fund in April 2009, and superintendent of the New York State
Department of Insurance, and First Deputy Superintendent of the New York State
Department of Financial Services. (Id. ¶¶ 4-7, App. 1.) After serving in these capacities,
Mr. Wrynn returned to the private sector where he worked in a variety of insurance and
reinsurance matters. (Id. ¶¶ 8-14.)
Mr. Wrynn opines that audit opinions “are of critical importance [to regulators] in
assessing the financial condition of the insurer.” (Ex. 57 ¶¶ 53-61.) He further opines that
if Eide Bailly had issued a modified opinion or not signed any audit opinion in June
2016, PID could have taken “prompt regulatory action.” (Id. ¶¶ 62-65.) Mr. Wrynn also
opines that PID’s actions after June 2016 would have significantly changed had there
been a different audit outcome. (See id. ¶¶ 66-78.) In his deposition testimony, Mr.
Wrynn stated that it was “unlikely” that SHIP would have been placed into rehabilitation
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within six months. (Ex. 13 at 34.) He also testified that a different audit outcome might
have caused PID to examine SHIP sooner. (Id. at 15, 24-25, 112.)
Eide Bailly argues that Mr. Wrynn’s opinions are unreliable because he lacks
relevant regulatory experience. This Court disagrees. Mr. Wrynn has extensive
experience in the insurance industry, including working in state regulatory agencies and
serving as Vice-Chair of the Solvency Modernization Initiative and the Insurance
Association of Insurance Commissioners. Although Mr. Wrynn’s experience does not
include the experience of seeing a modified audit report or placing a long-term insurance
company into rehabilitation, his experience does include serving in a state body that
ensured the solvency of insurance carriers and a familiarity with the regulatory landscape,
including the importance of statutory audits.
Eide Bailly relies on case law where courts have determined that the witness’s
expertise did not sufficiently overlap with the area on which they were asked to offer an
expert opinion. Waitek v. Dalkon Shield Claimants Tr., 934 F. Supp. 1068, 1085 (N.D.
Iowa 1996) (if the proposed expert witness’s experience “does not provide the requisite
expertise in the area on which they are asked to offer an expert opinion, the witness’s
testimony may be excluded”); Hale County A & M Transport, LLC v. City of Kansas
City, 998 F. Supp. 2d 838, 843 (W.D. Mo. 2014) (excluding pilot’s testimony on snow
removal because he had “neither managed a snow removal team at an airport nor ha[d] he
personally participated in a snow removal process”). Eide Bailly’s argument, however,
narrows what courts accept as relevant experience beyond the vanishing point. Mr.
Wrynn’s experience in the insurance industry—including his time as a regulator placing
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insurance companies in rehabilitation—is much more akin to a doctor with experience
treating patients who have used the medical device in question testifying about whether
the device cause the plaintiff’s injuries than it is a pilot testifying about airport snow
removal. Compare Waitek, 934 F. Supp. at 1089, with Hale County A & M Transport,
998 F. Supp. 2d at 843. This Court agrees that Mr. Wrynn’s testimony is relevant and will
be helpful to the fact-finder. He is qualified to render the opinions included in his report,
and Eide Bailly’s challenges to the factual bases of those opinions go to the weight of his
testimony rather than its admissibility. Accordingly, this court recommends that Eide
Bailly’s motion to exclude Mr. Wrynn’s testimony be denied.
2. Lisa Kuklinski
The Rehabilitator also offers the expert testimony of Lisa Kuklinski, a practicing
actuary and Managing Director at FTI in the Life and health actuarial team. (Ex. 52 at
¶¶ 5-6.) Ms. Kuklinski is a Fellow of the Society of Actuaries and a member of the
American Academy of Actuaries. (Id. ¶ 7. She has worked as an actuary since 1990,
including as Chief Actuary of MetLife’s U.S. and Latin America region, overseeing, inter
alia, individual and group life insurance. (Ex. 52 ¶ 6, Ex. A.)
Ms. Kuklinski was retained to provide opinions regarding SHIP’s damages. (Ex.
52 ¶ 1.) As part of her report, Ms. Kuklinski assumed that “[h]ad Eide Bailly conducted
their audits in accordance with GAAS, the PID would have sooner become aware of
SHIP’s true financial condition,” and “SHIP would have been placed under the control of
PID.” (Ex. 52 ¶ 42.) Ms. Kuklinski further assumed that SHIP would have been placed in
rehabilitation on January 1, 2017” (referred to as “Six Months to Rehab”), and that “the
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Rehabilitator would have taken similar actions as was done in 2020 to improve SHIP’s
financial condition[.]” (Id. ¶ 42.) Ms. Kuklinski further assumed that SHIP’s
rehabilitation would have proceeded such that all of SHIP’s insureds would have
willingly accepted a 60.8% premium increase rather than opt for reduced insurance
benefits. (Id. ¶¶ 45-48.) Ultimately, Ms. Kuklinski offered an opinion setting forth her
calculations as to the extent of damages that SHIP and its policyholders suffered.
Eide Bailly argues that Ms. Kuklinski is not qualified to offer her damages
opinions or underlying timing assumptions, and that her damages opinion lacks support
and is based on an unreliable application of her method to the facts. This challenge falls
flat. Ms. Kuklinski’s background and qualifications satisfy Rule 702’s standard. She has
been an actuary for 30 years focusing on insurance companies, and she worked on other
substantial rehabilitation events, including the D.H. Baldwin Company and the PHL
Variable Insurance Company. (Kuklinski Aff., Dkt. 134-2, ¶¶ 4-5.) Ms. Kuklinski is
qualified to offer her expert opinion as to the extent of damages based on assumptions
that she includes in her report.
Eide Bailly also challenges Ms. Kuklinski’s opinion for her reliance on Mr.
Harris’s rate-increase calculation, arguing that nothing in Ms. Kuklinski’s opinion or
testimony suggests that she “verif[ied] Harris’s model, the evidence on which it relies, or
even his arithmetic.” (Dkt. 104 at 26.) This is an issue of weight, not admissibility. For
one, Eide Bailly’s argument that Ms. Kuklinski’s report merely repeats simple arithmetic
is belied by a cursory review of the report itself. (See Ex. 52.) Furthermore, Ms.
Kuklinski addressed concerns that she did not independently evaluate Harris’s model
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both in her deposition and in her subsequent affidavit, stating she “fundamentally
understood and supported [Mr. Harris’s] assumptions and methodology.” (Dkt. 134-2
¶ 20; see also Ex. 10 at 204 (stating that she and Mr. Harris had discussions about his
model).)
This Court determines that Ms. Kuklinski’s expert opinion is based on sufficient
facts, is the product of reliable methods reliably applied to the facts of the case, and is
relevant to the issues that the jury will face. Accordingly, this Court recommends that
Eide Bailly’s motion to exclude Ms. Kuklinski’s evidence be denied.
3. Carl Harris
The Rehabilitator offers the expert testimony of Carl Harris, a Consulting Actuary
and Principal of Oliver Wyman Actuarial Consulting, Inc. (Ex. 51, App. A.) Mr. Harris
has worked as an actuary in the life insurance industry since 1979. (Id.) He is a Fellow of
the Society of Actuaries, a Member of the American Academy of Actuaries, and a Fellow
of the Conference of Consulting Actuaries, among other professional affiliations. (Id.)
Mr. Harris was retained as a damages consultant to provide an opinion regarding (1)
SHIP’s statutory financial statement reserves for fiscal year 2015; (2) the actuarial
assumptions SHIP used to calculate and evaluate SHIP’s year-end 2015 statutory reserve
adequacy; and (3) the dollar value of forgone reasonable rate increases on SHIP
insurance premiums that would have been obtained if SHIP’s reserves had been properly
valued. (Ex. 52 ¶ 1.1.1.)
In his expert report, Mr. Harris opined that SHIP’s statutory reserves were
insufficient based on his actuarial evaluation. (Ex. 51 ¶ 2.1.) He further opined that
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Milliman’s actuarial assumptions were not reflective of what experience would indicate,
which resulted in SHIP’s reserves being inadequate. (Id. ¶ 2.2.) Mr. Harris also
determined that an average 60.8% rate increase was actuarially justified at the time based
on his actuarial evaluation of SHIP’s historical and projected premium and claims
experience that would have been used as of December 31, 2016. (Id. ¶ 2.3)
Eide Bailly challenges Mr. Harris’s testimony, arguing that his independent
reserves estimate and assumptions are irrelevant to the claim that Eide Bailly improperly
responded to L&E’s concerns, and Mr. Harris’s foregone premium increase calculation is
not based on evidentiary reality or sound methodology. (Dkt. 99.) As to Mr. Harris’s first
opinion, Eide Bailly argues that Mr. Harris’s independent evaluation is not at all
connected to the concerns L&E raised with Milliman’s work, and therefore not relevant
to SHIP’s existing claim against Eide Bailly. The Court disagrees. Mr. Harris’s reserves
estimates and independent evaluation address not only concerns raised by L&E, but also
“those that should otherwise have been considered by Eide Bailly[.]” (Dkt. 133 at 8.)
Certainly, testimony as to the accuracy and reasonability of Milliman’s calculations is
relevant to whether Eide Bailly’s reaction to L&E’s concerns with Milliman’s work was
reasonable. Mr. Harris’s testimony regarding his first and second opinions could aid the
jury in resolving whether Eide Bailly’s actions were reasonable.
As to Mr. Harris’s third opinion—that SHIP’s foregone premium increase was
actuarially justified at the time—Eide Bailly argues the opinion lacks evidentiary support
and does not employ sound methodology. Again, the Court disagrees. Eide Bailly focuses
its argument on the real-life results of SHIP’s actual rehabilitation. Mr. Harris’s expert
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opinion, though, relies on actuarial methodology set forth in his report to project what
could have happened if SHIP’s rehabilitation occurred earlier in time. (See Ex. 51.) The
factual basis of Mr. Harris’s opinion goes not to its admissibility, but to the weight the
jury will give it, and this Court cannot say that Mr. Harris’s opinion is “so fundamentally
unsupported that it can offer no assistance to the jury.” Lancaster v. BNSF Railway Co.,
75 F.4th 967, 970 (8th Cir. 2023). Mr. Harris’s report sets out the methodology that he
used to reach the opinions expressed in his report, and those opinions could be helpful to
the jury in determining both the issue of Eide Bailly’s liability and the potential extent of
damages. Accordingly, this Court recommends that the motion to exclude Mr. Harris’s
expert testimony be denied.
C. The Rehabilitator’s Daubert Motion
For its part, the Rehabilitator moves to exclude the testimony of three of Eide
Bailly’s rebuttal experts: Avram Tucker, Timothy Gustafson, and Marc Cohen. The Court
addresses each witness in turn.
1. Avram Tucker
Eide Bailly offers Avram Tucker as a rebuttal expert to address Ms. Kuklinski’s
report supporting the Rehabilitator’s claims of economic damages. (Ex 54 ¶ 5.) Mr.
Tucker is the CEO and founder of TM Financial Forensics, a consulting firm specializing
in accounting, economics, finance, engineering, and information technology. (Id. ¶ 9.) He
has almost 50 years of experience in accounting and economic analyses, is a licensed
CPA, and holds certificates in Financial Forensics and Global Management Accounting
from the American Institute of Certified Public Accountants. (Id. ¶ 13.) Mr. Tucker has
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consulted on more than 500 forensic accounting matters, including disputes involving
insurance claims and coverage, professional negligence, regulated industries, and
commercial damages. (Id. ¶ 14-15.)
Mr. Tucker’s opinion rebuts Ms. Kuklinski’s damages opinion. Mr. Tucker’s
report analyzes evidence regarding SHIP’s rehabilitation and policy modifications and
opines that Ms. Kuklinski’s damages model is unsupported. (Id. ¶¶ 50-70.) Mr. Tucker
relied on evidence of the amount of time it took SHIP to enter rehabilitation and modify
its policies to challenge Ms. Kuklinski’s damages model. (Id. ¶¶ 60-63.) He also relied on
actual rate-increase acceptance rates to challenge Ms. Kuklinski’s assumption that 100%
of insureds would have chosen a 60.8% rate increase. (Id. ¶¶ 64-66.) Relying on the
above, Mr. Tucker develops an alternative damages model to counter Ms. Kuklinski’s.
(Id. ¶¶ 67-70.)
The Rehabilitator challenges Mr. Tucker’s testimony because he is not an actuary
and therefore, he cannot offer expert opinion testimony as to Ms. Kuklinski’s damages
model, which relies on actuarial analysis, and because Mr. Tucker is not an expert in the
insurance field. This Court disagrees. “The function of rebuttal testimony is to explain,
repel, counteract, or disprove evidence of the adverse party.” Marmo v. Tyson Fresh
Meats, Inc., 457 F.3d 748, 759 (8th Cir. 2006) (citations omitted). The fact that Mr.
Tucker is not an actuary is a reason to challenge the weight his testimony deserves, not its
admissibility. See Holbrook v. Lykes Bros. S.S. Co., Inc., 80 F.3d 777, 782 (3d Cir. 1996)
(exclusion is not warranted on the sole grounds that “the proposed expert does not have
the specialization that the court considers the most appropriate”). The courts’ liberal
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approach to admitting expert testimony argues in favor of admitting Mr. Tucker’s
testimony and allowing the jurors to evaluate it next to Ms. Kuklinski’s testimony and
determine how much weigh each deserves.
2. Timothy Gustafson
Eide Bailly also offers the expert testimony of Timothy Gustafson in rebuttal to
the Rehabilitator’s experts. (See Ex. 53.) Mr. Gustafson is an actuary with 40 years of
experience in long-term insurance, including 30 years as a Principal at Deloitte
Consulting LLP and 8 years as its Chief Actuary for healthcare. (Ex. 53 ¶¶ 1-4.) He is a
Fellow of the Society of Actuaries and a Member of the American Academy of
Actuaries. (Ex. 53 ¶ 5.) He has been deposed as an expert multiple times in matters
involving long-erm care insurance companies. (Ex. 62 at 26.)
Mr. Gustafson’s opinion addresses the actuarial opinions expressed by SHIP’s
experts, Vance Burke, Lisa Kuklinski and Carl Harris. (Ex. 53 ¶ 8.) Mr. Gustafson’s
report explains actuarial standards, including regulations and norms that govern an
actuarial audit. (Id. ¶¶ 21-65.) Mr. Gustafson’s report then analyzes the actuarial aspects
of SHIP’s 2015 audit (id. ¶¶ 66-97), SHIP’s financial challenges (¶¶ 98-129), and Carl
Harris’s actuarial analyses (¶¶ 130-205). Mr. Gustafson’s report also rebuts the actuarial
bases of the expert opinions of SHIP expert witness Vance Burke (¶¶ 206-249) and Lisa
Kuklinski (¶¶ 210-263). Mr. Gustafson’s report identifies over 350 documents that he
considered in performing his analysis and writing his report. (Ex. 53 at 3, Ex. B.) Mr.
Gustafson also testified that his analysis complies with the Actuarial Standard of Practice
on credibility (Ex. 62 at 54, 61-63).
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The Rehabilitator argues that Mr. Gustafson’s testimony should be excluded
because he admits he is not qualified as an expert in numerous fields, he offers
impermissible expert opinions on topics for which he is not qualified, his opinion fails to
meet Rule 702’s reliability requirement because it lacks a methodology, and the basis for
his opinions were not included in his report. This court cannot agree. The issues that the
Rehabilitator identifies as points of concern with Mr. Gustafson’s report and testimony—
the fact that he has not testified “in court” about long-term care insurance, that his
expertise is “actuarial auditing” rather than “auditing standards,” that he could not
immediately recall certain documents on which his report relied, that his report “lacks
calculations or analytical data of any kind”—are issues of credibility. None of the case
law that the Rehabilitator cites holds that a rebuttal expert whose report includes the
actuarial standards and practices Mr. Gustafson relied on should be excluded. See, e.g.,
Sylla-Sawdon v. Uniroyal Goodrich Tire Co., 47 F.3d 277, 284 (8th Cir. 1995)
(excluding expert for, in part, “sketchy and vague” nature of the expert’s affidavit);
Werth v. Hill-Rom, Inc., 856 F. Supp. 2d 1051, 1059-60 (D. Minn. 2012) (excluding
expert testimony for failing to disclose reliance on national fire-protection standard
protocol). Mr. Gustafson’s report and testimony establish both “how” and “why” he
reached his opinions. See Salgado v. Gen. Motors Corp., 150 F.3d 735, 742 n.6 (7th Cir.
1998). The Rehabilitator’s challenges go not to the admissibility of Mr. Gustafson’s
testimony, but to the weight the jury should give it. Accordingly, this Court will
recommend that the Rehabilitator’s motion to exclude Mr. Gustafson’s expert testimony
be denied.
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3. Marc Cohen
Finally, the Rehabilitator challenges the expert testimony of Marc Cohen. Mr.
Cohen is a Professor of Gerontology at University of Massachusetts, Boston who has
worked in and studied long-term care insurance for over 25 years and published
extensively on the topic of long-term care insurance. (Ex. F at 1 & App. 1.) Eide Bailly
offers Mr. Cohen as a rebuttal expert to provide an overview of the long-term care
insurance industry and key concepts and an overview of regulation of the industry, as
well as to rebut certain assumptions in the Rehabilitator’s experts’ opinions by explaining
the behavior of insureds and the timeline of rate-increase implementation. (Dkt. 128 at
39-41.)
The Rehabilitator challenges Mr. Cohen’s testimony, arguing that he lacks any
actuarial, auditing or accounting expertise, is not an expert in the receivership process,
and does little more than add and subtract to interpret a spreadsheet. The Rehabilitator
cites to United States v. Felak, 831 F.2d 794, 797 (8th Cir. 1987), and Lone Star
Steakhouse & Saloon v. Liberty Mut. Ins. Grp., 343 F. Supp. 2d 989, 1015 (D. Kan.
2004), arguing that Mr. Cohen’s expert testimony is not admissible where the jury could
review the record and perform the same analysis. Eide Bailly argues that Mr. Cohen is
highly qualified to offer expert testimony on topics he has spent decades studying, and
that his testimony “will advance the jury’s understanding of (1) the long-term care
insurance industry; (2) regulation of the long-term care insurance industry; (3) the
behavior of SHIP insureds when faced with rate increase options; (4) how insureds’
behavior may vary over time when faced with rate increase options; and (5) the timing of
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SHIP’s rehabilitation rate increase implementation.” (Dkt. 128 at 44.) Eide Bailly also
argues that Mr. Cohen’s testimony would assist the jury in evaluating the Rehabilitator’s
“unwieldy, 27,000-row, 118-column spreadsheet[.]” (Id. at 45.)
This case involves long-term care insurance regulation and actuarial analyses, a
subject that is not within the knowledge or expertise of lay people. As such, this Court
takes guidance from In re ResCap Liquidating Trust Litig., 432 F. Supp. 3d 902 (D.
Minn. 2020). There, ResCap moved to exclude the proffered expert testimony of one Mr.
Burnaman on grounds that it constituted inadmissible fact testimony. Id. at 931. Mr.
Burnaman was to testify about the bankrupt entity’s role in the mortgage-backed
securities industry, including “how [the bankrupt entity] was designed to allow access to
expanding financing alternatives, was poised to take advantage of the mortgage-market
disruptions, and that a significant component of [the entity]’s growth was in new, non-
standard mortgage products.” Id. The court denied ResCap’s motion to exclude the
testimony, noting that the general background and history of the industry was necessary
“to educate the factfinder.” Id.
Similarly here, the regulatory framework of long-term care insurance and the
behavior of the industry over time are not within the knowledge or expertise of lay
people. To the extent the Rehabilitator disagrees with the factual basis of Mr. Cohen’s
testimony or wants to contradict his assertions and conclusions, he can do so through
cross-examination or a similarly situated witness. Id.; see also Marvin Lumber & Cedar
Co. v. PPG Indus., Inc., 401 F.3d 901, 916 (8th Cir. 2005) (“Generally, even post
Daubert, ‘the factual basis of an expert opinion goes to the credibility of the testimony,
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not the admissibility.’” (citation omitted)). Further, to the extent Mr. Cohen can provide
industry-relevant context to help the jury make sense of the Rehabilitator’s spreadsheet,
context is helpful. See Mahaska Bottling Co. v. PepsiCo, Inc., 441 F. Supp. 3d 745, 754
(S.D. Iowa 2019). Accordingly, this Court recommends that the Rehabilitator’s motion to
exclude Mr. Cohen’s testimony be denied.
II. 	Motion for Summary Judgment
Eide Bailly also moves for summary judgment, arguing that the Rehabilitator has
failed to demonstrate that there is a genuine issue of material fact on the issues of
causation and damages, and that the Rehabilitator’s recovery is barred by the doctrine of
in pari delicto. The Rehabilitator argues that the doctrine of in pari delicto does not apply
and that genuine issues of material fact require resolution by a fact finder.
A. Legal Standard
Summary judgment is appropriate if “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). “A fact is ‘material’” only if it may affect the outcome of the
lawsuit. TCF Nat’l Bank v. Mkt. Intelligence, Inc., 812 F.3d 701, 707 (8th Cir. 2016).
Likewise, an issue of material fact is “genuine” only if “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the burden of establishing
a lack of genuine issue of fact, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), and
the Court must view the evidence and any reasonable inferences in the light most
favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
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U.S. 574, 587 (1986). In responding to a motion for summary judgment, however, the
nonmoving party may not “‘rest on mere allegations or denials,’ but must demonstrate on
the record the existence of specific facts which create a genuine issue for trial.” Krenik v.
Cnty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
B. In Pari Delicto
Eide Bailly argues first that the Rehabilitator’s claims against it are barred by the
equitable doctrine of in pari delicto.2 “The equitable defense of in pari delicto embodies
the principle that a plaintiff who has participated in wrongdoing may not recover
damages resulting from the wrongdoing.” Kelly v. BMO Harris Bank Nat’l Ass’n, 115
F.4th 901, 904 (8th Cir. 2024) (citing Grassmueck v. Am. Shorthorn Ass’n, 402 F.3d 833,
837 (8th Cir. 2005). This defense bars recovery in Minnesota “when the plaintiff’s ‘fraud
was no less than that of’ the defendant.” Id. (quoting State ex rel. Head v. AAMCO
Automatic Transmissions, Inc., 199 N.W.2d 444, 448 (Minn. 1972)). Where it is
applicable, the in pari delicto defense “operates to prevent wrongdoers at equal fault from
recovering against one another and ‘is based upon judicial reluctance to intervene in
disputes between [wrongdoing] parties.’” Christians v. Grant Thornton, LLP, 733
N.W.2d 803, 814 (Minn. Ct. App. 2007) (quoting AAMCO, 499 N.W.2d at 448). Eide
Bailly relies on Christians to argue the Rehabilitator’s claims must be barred. In
2 It is indisputable that the Rehabilitator has brought parallel litigation against SHIP’s
former managers and directors, alleging that they were engaged in a fraudulent effort to
hide SHIP’s actual financial condition from its regulators. The Rehabilitator’s Fed. R.
Civ. P. 30(b)(6) designee Patrick Cantilo also testified that SHIP’s managers were trying
to mislead regulators and wanted a clean audit opinion, even if the numbers were faulty.
(See, e.g., Ex. 3 at 24-26.)
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Christians, a company’s CEO entered into transaction that was contrary to the company’s
best interest and later concealed that transaction from the company’s auditor, Grant
Thornton LLP. Id. at 806-07. Grant Thornton’s subsequent audit overstated the
company’s equity, the company went bankrupt, and its trustee brought an auditor
malpractice action against Grant Thornton. Id. 807-08. The Minnesota Court of Appeals
determined that in pari delicto barred recovery because the CEO’s inequitable conduct to
deceive outsiders was imputed to the company, and therefore the company bore “at least
substantially equal responsibility for the injury it s[ought] to remedy [in the action].” Id.
at 810, 814-15.
Michael Humphreys has been appointed as Rehabilitator of SHIP under
Pennsylvania statute. The parties disagree as to how this should apply under Minnesota
law, and thus whether the in pari delicto defense should bar the Rehabilitator’s claims.
Humphreys argues that his appointment as Rehabilitator is most analogous to a court-
appointed receiver, and “when a receiver has been appointed for a corporation, [the
corporation] is removed from the picture and, hence, in pari delicto does not apply.”
Kelley v. College of St. Benedict, 901 F. Supp. 2d 1123, 1129 (D. Minn. 2012). (See
Mem. in Opp’n, Dkt. 132, at 20-22.) If that is the case, then the actions of SHIP’s former
officers are irrelevant and in pari delicto would not bar any claims. Eide Bailly argues
that rather than a court-appointed receiver, the Rehabilitator should be treated like a
bankruptcy trustee who “steps into the shoes of the debtor and is subject to any defenses
that could be raised against the debtor, including the defense of in pari delicto.” Kelley v.
BMO Harris Bank, 115 F.4th at 905. (See Reply Mem., Dkt. 140, at 16-19.) If this is
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correct, then the actions of SHIP’s former officers are relevant and could bar the
Rehabilitator from asserting any claims against Eide Bailly.
The difference between the two is critical. This Court’s research has not
uncovered a Minnesota court directly addressing whether the doctrine of in pari delicto is
available against insurance companies in rehabilitation. And even presuming that in pari
delicto could bar claims brought by the Rehabilitator—which is far from certain—it is
possible that genuine issues of material fact might make application of the doctrine
improper. See Miksic v. Boekermann Grafstrom Mayer, LLC, No. 15-cv-539 (JRT/BRT),
2017 WL 1169528, at *6-7 (D. Minn. Mar. 28, 2017) (determining material factual
dispute makes it “improper for the Court to apply the in pari delicto doctrine at this
time”). This Court need not dive into this particular thicket, however, because as set forth
below, it determines that summary judgment is appropriate on separate grounds.
C. Causation
For purposes of its summary judgment motion, Eide Bailly does not contest
whether genuine issues of material fact exist as to the existence of a duty arising from its
engagement agreements with SHIP or its breach of that duty. (See Mem. in Supp., Dkt.
94, at 22 (“[E]ven if Eide Bailly had been negligent, it would still be entitled to summary
judgment . . . .”).) Instead, it argues that no genuine issues of material fact exist with
respect to causation or damages. Specifically, Eide Bailly argues that the Rehabilitator
has failed to present competent evidence that Eide Bailly’s unmodified 2015 audit caused
SHIP injury and that the Rehabilitator has failed to provide non-speculative evidence of
SHIP’s damages.
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To prevail in an action for auditor malpractice or breach of contract, the plaintiff
must prove the existence of a duty or contract, breach of that duty or contract, factual and
proximate causation, and damages. Christians, 733 N.W.2d at 808 (citing Vernon J.
Rockler & Co. v. Glickman, Isenberg, Lurie & Co., 273 N.W.2d 647, 650 (Minn. 1978),
and Rubbelke v. Mabley, 410 N.W.2d 880, 883 (Minn. Ct. App. 1987)). In Christians, the
Minnesota Court of Appeals addressed what is necessary for a claimant to establish a
genuine issue of material fact on the issue of causation:
When applying the “but for” test, we must envision what would have
occurred but for the negligent conduct . . . . In the professional-
malpractice case, . . . the inquiry is more complex. In Blue Water [v.
O’Toole], the plaintiff alleged that an attorney’s failure to file an
application in time constituted malpractice, and the supreme court
held that the plaintiff had to show that the application would have
been accepted. [336 N.W.2d 279,] 282 [(Minn. 1983)]. And in
Jerry’s Enterprises, Inc. v. Larkin, Hoffman, Daly & Lindgren, Ltd.,
the supreme court required another legal-malpractice plaintiff to
show that it would have cleared title to a land in a flawed real-estate
transaction. 711 N.W.2d 811, 819-20 (Minn. 2006).
Christians, 733 N.W.2d at 812-13. Thus, the plaintiff must introduce “concrete evidence”
of what another interested entity would have done but for the attorney’s negligence and
what those actions would reasonably have produced. Id. Showing that many positive
things could have occurred but for the negligent conduct is not enough; instead, the
plaintiff must introduce concrete evidence of what the plaintiff would have done but for
the defendant’s negligence and what those actions would have reasonably produced.
Schmitz v. Rinke, Noonan, Smoley, Deter, Colombo, Wiant, Von Korff and Hobbs, Ltd.,
783 N.W.2d 733, 741 (Minn. Ct. App. 2010) (quoting Christians).
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The court in Krasne v. Mayo Clinic set forth what claims of professional
negligence require to establish causation explaining:
a plaintiff must submit “an opinion with proper foundation and
enough information about the specific case to reassure the court that
the jury will have sufficient information to draw a reasonable
inference—without speculating—that the provider’s conduct caused
the plaintiff’s injury.” Rygwall v. ACR Homes, Inc., 6 N.W.3d 416,
434-35 (Minn. 2024). In other words, the expert affidavit must set
forth a specific and nonspeculative theory as to how the allegedly
negligent actions caused the injury. See id.
Krasne v. Mayo Clinic, No. 21-cv-746 (JMB/ECW), 2025 WL 1886040, at *2 (D. Minn.
July 8, 2025). The expert opinion supporting causation must contain “sufficient
foundation and factual specificity to illustrate ‘how’ and ‘why’” the asserted negligence
caused the complained-of damages. Id. (citing Teffeteller v. Univ. of Minn., 645 N.W.2d
420, 429 n.4 (Minn. 2002)).
Both Christians and Krasne demonstrate what parties must do to carry their
causation burden. In Christians, the court rejected the plaintiff’s “but for” causation
evidence, finding “no concrete evidence that the outcome would have been any better” if
the defendant had not negligently concealed the corporation’s financial status. 733
N.W.2d at 813. Specifically, the court wrote:
The trustee was not able to produce sufficient causation evidence.
Instead, the trustee broadly asserts that “action” would have been
taken and problems would have been “rectified,” while resting on
the presumption that those efforts would have resulted in a more
beneficial outcome. Even when taken in a light most favorable to the
trustee, and drawing every interest in favor of the trustee, these
statements cannot defeat a motion for summary judgment.
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Id. In Krasne, District Court Judge Jeffrey M. Bryan determined that the expert report
from Krasne’s treating physician established causation sufficient to send the issue to the
jury because (1) the doctor’s CV reflected extensive professional and academic
experience and he had formed his opinion based on Krasne’s records and his own
professional assessments in treating Krasne; (2) the doctor “set forth a coherent and fact-
based theory as to how the incident caused Krasne’s ongoing pain;” and (3) the doctor
provided “additional specificity” and “bolster[ed] his theory by ruling out other possible
sources of Krasne’s ongoing pain, including theories offered by [the defendants’]
experts[.]” 2025 WL 1886040 at *3-4.
Another Minnesota case that explored causation based on expert testimony is
Schmitz v. Rinke, Noonan, Smoley, Deter, Colombo, Wiant, Von Korff and Hobbs, Ltd.,
783 N.W.2d 733 (Minn. Ct. App. 2010). There, the plaintiff failed to offer expert
testimony on but-for causation and the Court held,
Schmitz’s evidence on but-for causation is limited to his testimony
that he would have been more motivated to negotiate and that he
would have attempted to negotiate a deal or settlement. This is
similar to Christians, in which we held that broad assertions that
“action” would have been taken and problems “rectified” failed to
produce sufficient evidence of factual causation. 733 N.W.2d at 813.
A jury would not be entitled to presume that those efforts would
have resulted in a more beneficial outcome. Id. As a matter of law,
but-for causation is not shown by “speculative potential outcomes.”
Id.
Schmitz, 783 N.W.2d at 742-43.
Finally, Jerry’s Enterprises v. Larkin, Hoffman, Daly & Lindgren, 711 N.W.2d
811 (Minn. 2006), bears some examination. In that case, defendant Larkin Hoffman
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represented Jerry’s Enterprises in the purchase of some undeveloped land in Woodbury,
MN. Id. at 815. Part of the agreement included a buy-back option, where the seller could
repurchase the entire property if Jerry’s Enterprises had not begun construction of
improvements within two years of the purchase. Id. Larkin Hoffman did not discuss the
provision with Jerry’s Enterprises, and the closing documents did not include the buy-
back option. Id. Just over two years after Jerry’s Enterprises purchased the land, the seller
acted to exercise his buy-back option. Id. Jerry’s Enterprises had to defend against a suit
brought by the seller, and when it lost, paid the seller $4.2m to retain ownership of the
property. Id. at 815-16. Jerry’s Enterprises then sued Larkin Hoffman for malpractice.
The Minnesota Supreme Court determined that Jerry’s Enterprises had provided enough
evidence to create a fact question as to whether, but for Larkin Hoffman’s alleged
negligence, Jerry’s Enterprises would have obtained a more favorable result in the
transaction. Jerry’s Enterprises argued “that if Larkin had informed Jerry’s of the possible
cloud on its title to the property, it would have begun construction within the two-year
time period and prevented [the seller] from exercising his buy-back option.” Id. at 820.
The president of Jerry’s Enterprises testified at trial “that had he known of the possible
survival of the buy-back option, Jerry’s would have ensured that the option was
extinguished, either by beginning construction or otherwise.” Id.
Thus, a plaintiff in a professional malpractice case must demonstrate but-for
causation with sufficient fact-based information that allows a jury to draw a reasonable
inference based on more than just speculation. Oftentimes, that will require expert
testimony—for example, an expert opinion with proper foundation and enough
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information about the case to offer reasonable, non-speculative testimony about what
would have happened, based on facts and recognized processes. See, e.g., Krasne, 2025
WL 1886040 at *3-4. Similarly, sufficient evidence of an actual, concrete decision not to
act in a way that would have prevented the damages can create a fact question for trial.
See Jerry’s Enters., 711 N.W.2d at 820. But there must be enough evidence to establish
causation beyond mere speculation, beyond a claim that “action would have been taken,”
or beyond a claim that the plaintiff would have been “motivated” to act. See Christians,
733 N.W.2d at 812-13; Schmitz, 783 N.W.2d at 742-43.
The evidence in the record before this Court is insufficient to clear that hurdle.
Here, the Rehabilitator argues that the Commissioner of Insurance, who was running the
Pennsylvania Insurance Department in 2016, would have promptly taken steps to
investigate SHIP’s financial condition, would have appointed a rehabilitator, and would
have started the court process to rehabilitate SHIP within six months – if Eide Bailly
would have issued a modified audit report or no audit report at all. But this is speculation
and argument. When Mr. Cantilo was first working with SHIP and PID’s authorized
representative in 2018, PID had already “started believing there could be deficiencies in
the projection of [SHIP’s] liabilities” and had ”engaged other consultants to try to drill
down on that.” (Ex. 3 at 42.) And “when the department came to believe that there were
substantial financial problems with the company,” it spent “additional time” preparing
and submitting plans to remedy those conditions” (Id. at 42-43.) But the record contains
no concrete evidence as to what actually would have happened but for Eide Bailly’s
alleged negligence. The Rehabilitator relies on testimony and opinions of possible
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outcomes, not definite ones. Mr. Cantilo, for example, testified that if Eide Bailly had
informed regulators of SHIP’s true financial condition in mid-2016, “then corrective
action would have been followed either by management or the regulators at that time”
and “management could have felt compelled to take corrective action.” (Id. at 37.) When
asked what that corrective action would look like, Mr. Cantilo stated that “call[ed] for
speculation.” (Id. at 38.) He further testified that he believes that it was probable that
SHIP would have been placed in rehabilitation in 2017, and that what would have
happened in 2017 “is materially different from what happened in 2020 when there were
still clean audit opinions . . . .” (Ex. 3 at 48.) These opinions and conjectures, though, are
not concrete evidence. Unlike the owner in Jerry’s Enterprises who testified as to what
his specific course of action would have been, there is no concrete evidence of how PID
would have exercised its discretion had Eide Bailly issued a different audit opinion.
Indeed, Mr. Wrynn’s testimony provides that the PID was not required to place SHIP in
rehabilitation in 2016; it could have exercised its discretion to begin an investigation
instead. (Ex. 13 at 24-25, 34.) Ms. Kuklinski similarly testified that PID could have
exercised its discretion by taking action other than immediately placing SHIP in
rehabilitation. (Ex. 10 at 108-09.) Thus, the testimony and opinion evidence the
Rehabilitator provides does not state what PID would have done. It shows that PID could
have taken one of a few different options available to it.
Ultimately, there is no concrete evidence that the outcome would have been better
for SHIP if Eide Bailly had not issued an unmodified audit report in 2016. As the
Rehabilitator’s own experts and witnesses agree, PID had a range of options available to
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pursue in addition to sending SHIP into rehabilitation. The Rehabilitator’s experts do not
provide concrete facts to support a finding of causation. In her report, Ms. Kuklinski
calculated damages “on the premise that, but for Eide Bailly’s failure to perform a proper
audit, . . . management and the PID would have sooner become aware of SHIP’s true
financial condition . . . and would have sooner been placed under PID control or taken
other remedial measures.” (Ex. 52 at 9.) An opinion based on the premise that SHIP
would have drawn PID’s attention sooner is not itself evidence of how PID would have
acted.
As the testimony on the record establishes, PID had multiple options available to
address SHIP’s financial woes. The Rehabilitator relies on the testimony of Mr. Cantilo
to create a genuine issue of material fact, but Mr. Cantilo admits that he cannot say with
certainty what would have happened “without speculating.” (See Ex. 3 at 37:21-38:15.)
The Rehabilitator also argues that, had Eide Bailly not issued an unmodified audit
report, SHIP would have reported that its Risk Based Capital (“RBC”) level was below
70%, which would have required PID “to take immediate control over the company by
operation of law.” (Dkt. 132 at 28.) But the Rehabilitator’s own expert Mr. Wrynn
testified that the Commissioner can choose a different tool to use when a company’s RBC
goes below 70% (Ex. 13 at 71-73) and opined that PID would not have immediately
placed SHIP into rehabilitation. (Id. at 24-25.)
Given these various options, it is up to the Rehabilitator to “untangle the multiple
decisions that result in a single net-loss figure and explain how that figure would have
changed ‘but for’ some alleged negligence.” Christians, 733 N.W.2d at 813. And unlike
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Jerry’s Enterprises, there is nothing in the record establishing that PID would have
exercised its discretion to place SHIP in rehabilitation immediately if Eide Bailly had
issued a different audit report. See Jerry’s Enters., 711 N.W.2d at 820.
Ultimately, even taking the Rehabilitator’s experts’ statements in a light most
favoring the Rehabilitator and drawing every inference in his favor, these statements fail
to create a genuine issue of material fact that SHIP would have been immediately put into
rehabilitation but for Eide Bailly’s unmodified audit report. The record lacks evidence of
an actual, concrete decision not to act in a way that would have prevented SHIP from
suffering damages. Instead, the evidence the Rehabilitator relies on is speculative on what
action could have been taken or that PID might have been motivated to act sooner. This is
not sufficient to establish a genuine issue of material fact.
D. Damages
Eide Bailly also argues that SHIP’s alleged damages are entirely speculative and
inconsistent with the evidence. Speculative, remote, or conjectural damages are not
recoverable at law. Lassen v. First Bank, 514 N.W.2d 831, 839 (Minn. Ct. App. 1994),
review denied (Minn. June 29, 1994). A claimant must present competent evidence
sufficient to permit a jury to conclude not only that the defendant’s negligence caused
damages, but evidence “tending to show what would have been the outcome” had the
negligence not taken place. Schmitz, 783 N.W.2d at 743. Claimants must prove the fact of
loss to a reasonable, although not absolute, certainty. Leoni v. Bemis Co., 255 N.W.2d
824, 826 (Minn. 1977). There is no general test for determining whether damages are
remote or speculative, so these matters are generally left to the judgment of the district
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court. Olson v. Aretz, 346 N.W.2d 178, 183 (Minn. Ct. App. 1984) (choosing not to
reverse to order a new trial “because damages were speculative”), review denied (Minn.
Oct. 30, 1984). “The law does not require mathematical precision in proof of loss, but
only proof to a reasonable, although not necessarily absolute, certainty.” Speed RMG
Partners, LLC v. Arctic Cat Inc., No. 20-cv-609 (NEB/LIB), 2023 WL 11960176, at *10
(D. Minn. July 25, 2023) (quoting Leoni, 255 N.W.2d at 826)).
Courts apply this as best they can under the circumstances of each case. “[W]hen a
plaintiff improperly attributes all losses to a defendant’s illegal acts, despite the presence
of significant other factors, the evidence does not permit a jury to make a reasonable and
principled estimate of the amount of damage.” Christians, 733 N.W.2d at 812 (cleaned
up). The claimant must produce evidence that would permit reasonable jurors to reach a
nonspeculative conclusion about damages[.]” Id. Damages claims based on “sheer
speculation” and an “unsubstantiated, self-serving prediction” of foregone profits are not
recoverable. Sievert v. First National Bank in Lakefield, 358 N.W.2d 409, 411, 415-16
(Minn. Ct. App. 1984). Additionally, Minnesota law does not recognize deepening
insolvency as a theory of damages. Christians, 733 N.W.2d. at 809.
Like Eide Bailly, the defendant in Krasne moved for summary judgment on
damages on the grounds that the plaintiff failed to provide the required expert opinions to
establish his damages. 2025 WL 1886040 at *4. The court determined that the plaintiff
had provided sufficient evidence for a jury to find damages, citing to both the plaintiff’s
testimony and the expert report, which included “specific descriptions of the damages
[the expert] believes Krasne has incurred as a result of the Incident.” Id. The court also
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noted that Krasne’s claimed damages did not arise from a failure to diagnose a condition,
loss of chance, or failure to prevent the worsening of a preexisting condition. Id. at *5.
Thus, to establish a genuine issue of material fact in this case, the Rehabilitator must
produce evidence that would permit reasonable jurors to reach a nonspeculative
conclusion about what damages Eide Bailly’s conduct caused.
This is a close call. In this Court’s view, the Rehabilitator’s proffered damages
evidence amounts to speculation. The Rehabilitator and its experts speculate how quickly
SHIP would have entered rehabilitation, how quickly the rehabilitation would have
progressed, and how quickly its newly calculated premium increases could have been
approved, and how quickly those new premiums would have generated revenue.
Nevertheless, the Rehabilitator has produced expert testimony and analysis that gives a
basis from which a jury could determine damages. And “[t]he law does not require
mathematical precision in the proof of loss but only proof to a reasonable, although not
necessarily absolute, certainty.” Unique Systems, Inc. v. Zotos Int’l, Inc., 622 F.2d 373,
378 (8th Cir. 1980) (quoting Leoni, 255 N.W.2d at 826). As such, the Rehabilitator has
demonstrated that a genuine issue would exist for a trier of fact to conclude what
damages SHIP has suffered.
Nevertheless, as determined above, there exists no genuine issue of material fact
that Eide Bailly’s conduct is the “but for” cause of any damages that SHIP suffered.
Accordingly, based on the foregoing, this Court recommends that Eide Bailly’s motion
for summary judgment be granted.
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RECOMMENDATION
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY RECOMMENDED THAT:
1. Plaintiff Eide Bailly’s Motion to Exclude the Expert Testimony of Carl
Harris (Dkt. 97) be DENIED;
2. Plaintiff Eide Bailly’s Motion to Exclude the Expert Testimony of Lisa
Kuklinski (Dkt. 102) be DENIED;
3. Plaintiff Eide Bailly’s Motion to Exclude the Expert Testimony of
James Wrynn (Dkt. 107) be DENIED;
4. Defendant Michael Humphreys’ Motion to Exclude the Expert
Testimony of Avram Tucker, Timothy Gustafson, and Marc Cohen
(Dkt. 117) be DENIED; and
5. Plaintiff Eide Bailly’s Motion for Summary Judgment (Dkt. 92) be
GRANTED.
Dated: January 31, 2026 	s/Shannon G. Elkins
SHANNON G. ELKINS
United States Magistrate Judge
NOTICE
Filing Objections: This Report and Recommendation is not an order of judgment of the
District Court and is therefore not appealable directly to the Eighth Circuit Court of
Appeals.
Under Local Rule 72.2(b)(1), “a party may file and serve specific written objections to a
magistrate judge’s proposed finding and recommendations within 14 days after being
served a copy” of the Report and Recommendation. A party may respond to those
objections within 14 days after being served a copy of the objections. See Local Rule
72.2(b)(2). All objections and responses must comply with the word or line limits set
forth in Local Rule 72.2(c).
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