Actuarial Standard of Practice No. 17
Expert Testimony by Actuaries
STANDARD OF PRACTICE
TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in Expert Testimony by Actuaries
FROM: Actuarial Standards Board (ASB)
SUBJ: Actuarial Standard of Practice (ASOP) No. 17
This booklet contains the final version of ASOP No. 17, Expert Testimony by Actuaries.
The ASB originally adopted ASOP No. 17, Expert Testimony by Actuaries (Doc. No. 029) in 1991. Since that time, actuarial practice in this area has evolved. Under the direction of the ASB, the Expert Witness Task Force has revised ASOP No. 17 to be consistent with the current ASOP format adopted by the ASB in May 1996 for all future actuarial standards of practice and to reflect current practices in the area of expert testimony.
Actuarial opinions that are widely divergent may raise a question about the reasonableness of one or more opinions. This question is likely to arise when the basis for any opinion is not soundly thought out or not well explained. By contrast, actuarial opinions that are supportable and carefully prepared and explained, though divergent, can generate confidence in actuaries’ competence to evaluate the costs and benefits of future contingent events. The focus of this standard is on the preparation and delivery of sound expert testimony by actuaries.
The exposure draft of this revised standard was issued in March 2001 with a comment deadline of August 15, 2001. The Expert Witness Task Force with the help of the General Committee carefully considered the eighteen comment letters received. For a summary of the substantive issues contained in these comment letters, please see appendix 2.
The most significant changes from the exposure draft were as follows:
1. The first paragraph of section 1.2, Scope, was reworded to clarify the extent to which the standard applies to actuaries providing litigation support;
2. A sentence was added to section 3.5, Identity of Principal, to specifically address the extent to which the actuary can rely upon information and instructions received from representatives of principals;
3. The last sentence of section 3.9, Cross-Examination, which advised that the actuary should expect to be cross-examined on the basis of prior statements, was stricken as being redundant with section 3.10, Consistency with Prior Statements;
4. Section 3.12, Limitation of Expert Testimony (previously titled, “Nature of the Forum”), was retitled and substantially rewritten in response to suggestions that the disclosure and compliance obligations of the actuary be more precisely identified; and
5. Section 4.3, Prescribed Statement of Actuarial Opinion, was amended to use the alternative language provided in the Transmittal Memorandum of the exposure draft.
The task force would like to thank former General Committee members Donald F. Behan, Lee R. Steeneck, and Paul B. Zeisler for their contribution to the revision of this standard.
The ASB voted in March 2002 to adopt this standard.
Expert Witness Task Force
Charles L. McClenahan, Chairperson
Frederick W. Kilbourne Lee A. Zinzow
Patricia L. Scahill
General Committee of the ASB
William C. Cutlip, Chairperson
William Carroll Donna C. Novak
Janet M. Carstens William H. Odell
Ethan E. Kra Robert A. Potter
Actuarial Standards Board
William C. Koenig, Chairperson
Ken W. Hartwell Alan J. Stonewall
Roland E. King Karen F. Terry
Michael A. LaMonica William C. Weller
Heidi Rackley Robert E. Wilcox
Section 1. Purpose, Scope, Cross References, and Effective Date
This actuarial standard of practice (ASOP) provides guidance to actuaries providing expert testimony.
This standard applies to actuaries when they testify as actuarial experts at trial, in hearing or arbitration, in deposition, or by declaration or affidavit. This standard does not apply to actuaries providing litigation support other than the expert testimony itself. However, actuaries providing such litigation support may consider the guidance in this standard to the extent that it is applicable and appropriate.
This standard supplements the Code of Professional Conduct and is intended to provide specific guidance with respect to expert testimony. Reference should also be made to other actuarial standards of practice concerned with the actuarial substance of the assignment.
Nothing in this standard is intended to discourage reasonable differences of actuarial opinion, or to inhibit responsible creativity in advancing the practice of actuarial science. Further, this standard is not intended to restrain unreasonably the selection of actuarial assumptions or methods, the communication of actuarial opinions, or the relationship between the actuary and a principal. Nothing in this standard is intended to prevent the actuary from challenging the application or a particular interpretation of existing precedent, law, or regulation where such application or interpretation would, in the opinion of the actuary, be inconsistent with otherwise appropriate actuarial practice.
If the actuary departs from the guidance set forth in this standard in order to comply with applicable law (statutes, regulations, and other legally binding authority), or for any other reason the actuary deems appropriate, the actuary should refer to section 4.
1.3 Cross References
When this standard refers to the provisions of other documents, the reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the originally referenced document, the actuary should consider the guidance in this standard to the extent it is applicable and appropriate.
1.4 Effective Date
This standard is effective for all expert testimony provided on or after July 15, 2002.
Section 2. Definitions
The terms below are defined for use in this actuarial standard of practice.
2.1 Actuarial Assumption
The value of a parameter or other actuarial choice having an impact on an estimate of a future cost or other actuarial item under evaluation.
2.2 Actuarial Method
A procedure by which data are analyzed and utilized for the purpose of estimating a future cost or other actuarial item.
2.3 Actuarial Opinion
A conclusion drawn by an actuary from actuarial knowledge or from the application of one or more actuarial methods to a body of data.
Statistical or other information that is generally numerical in nature or susceptible to quantification.
One who is qualified by knowledge, skill, experience, training, or education to render an opinion or otherwise testify concerning the matter at hand.
An item is material if it has an impact on the affected actuarial opinion, which is significant to the interested parties.
A client or employer of the actuary.
Communication presented in the capacity of an expert witness at trial, in hearing or arbitration, in deposition, or by declaration or affidavit. Such testimony may be oral or written, direct or responsive, formal or informal.
Section 3. Analysis of Issues and Recommended Practices
An actuary providing expert testimony performs an important service to the actuary’s principal, the forum, and the public by explaining complex technical concepts that can be critical to resolution of disputes. Actuaries may differ in their conclusions even when applying reasonable assumptions and appropriate methods, and a difference of opinion between actuaries is not, in and of itself, proof that an actuary has failed to meet professional standards. However, an actuary providing expert testimony should comply with the requirements of the Code of Professional Conduct. In particular, the actuary should act honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibility to the public, and should take reasonable steps to ensure that the expert testimony is not used to mislead other parties.
3.1 Review and Compliance
In addition to complying with this standard, the actuary providing expert testimony should review and comply with applicable actuarial standards of practice, the Qualification Standards for Prescribed Statements of Actuarial Opinion, and the Code of Professional Conduct.
3.2 Conflict with Laws and Regulations
If the actuary believes that a relevant law or regulation contains a material conflict with appropriate actuarial practices, the actuary should disclose the conflict, subject to the constraints of the forum.
3.3 Conflict of Interest
The actuary should be alert to the possibility of conflict of interest, and should address any real or apparent conflict of interest in accordance with Precept 7 of the Code of Professional Conduct.
There may be occasions when an actuary acts as an advocate for a principal when giving expert testimony. Nothing in this standard prohibits the actuary from acting as an advocate. However, acting as an advocate does not relieve the actuary of the responsibility to comply with the Code of Professional Conduct and to use reasonable assumptions and appropriate methods (unless using prescribed or alternative methods or assumptions and so disclosing in accordance with section 3.6).
3.5 Identity of Principal
The actuary should identify the principal on whose behalf the actuary is to give expert testimony. This principal usually names a representative, such as an attorney or manager, to whom the actuary reports during the course of the assignment. Even though that representative may retain or pay the actuary, the actuary’s ultimate obligation is to the principal and not to the principal’s representative. However, in the absence of evidence to the contrary, the actuary may rely upon information and instructions from the representative as though they came directly from the principal.
3.6 Prescribed or Alternative Methods and Assumptions
If the actuary performs calculations using prescribed or alternative assumptions or methods different from the assumptions or methods selected by the actuary in forming the actuary’s expert opinion, the actuary should state, subject to the constraints of the forum, whether the results are consistent with the actuary’s own expert opinion.
3.7 Hypothetical Questions
The actuary may be asked to answer hypothetical questions. Hypothetical questions may fairly reflect facts in evidence, may include only a part of the facts in evidence, or may include assumptions the actuary believes to be untrue or unreasonable. The actuary may refuse to answer hypothetical questions based upon unreasonable assumptions, subject to the constraints of the forum.
3.8 Testifying Concerning Other Relevant Testimony
When the actuary testifies concerning other relevant testimony, including opposing testimony, the actuary should testify objectively, focusing on the reasonableness of the other testimony and not solely on whether it agrees or disagrees with the actuary’s own opinion.
Although the actuary must respond truthfully to questions posed during cross-examinations, the actuary need not volunteer information that may be adverse to the interest of the principal.
3.10 Consistency with Prior Statements
When giving expert testimony, the actuary should be mindful of statements the actuary may have made on the same subject. If the actuary employs different methods or assumptions in the current situation, the actuary should be prepared to explain why.
3.11 Discovery of Error
If, after giving expert testimony, the actuary discovers that a material error was made, the actuary should make appropriate disclosure of the error to the principal or the principal’s representative as soon as practicable.
3.12 Limitation of Expert Testimony
The actuary’s expert testimony should be presented in a manner appropriate to the nature of the forum. If any constraints are imposed or expected to be imposed on the actuary’s ability to comply with the Code of Professional Conduct or other professional standards, the actuary should consider whether it is appropriate to serve or continue to serve as an expert.
Section 4. Communications and Disclosures
4.1 Written Reports
Expert testimony delivered by means of a written report should describe the scope of the assignment, including any limitations or constraints. The written report should include descriptions and sources of the data, actuarial methods, and actuarial assumptions used in the analysis in a manner appropriate to the intended audience.
4.2 Oral Testimony
In delivering expert testimony orally, the actuary should express opinions in a manner appropriate to the intended audience. In addition, the actuary should, to the extent practicable, be prepared to document oral testimony.
4.3 Disclosure of Deviations
When providing expert testimony, the actuary should include the following, as applicable:
a. the disclosure in ASOP No. 41, Actuarial Communications, section 4.2, if any material assumption or method was prescribed by applicable law (statutes, regulations, and other legally binding authority);
b. the disclosure in ASOP No. 41, section 4.3, if the actuary states reliance on other sources and thereby disclaims responsibility for any material assumption or method selected by a party other than the actuary; and
c. the disclosure in ASOP No. 41, section 4.4, if, in the actuary’s professional judgment, the actuary has otherwise deviated materially from the guidance of this ASOP.
Appendix 1 – Background and Current Practices
Note: The following appendix is provided for informational purposes, but is not part of the standard of practice.
The Actuarial Standards Board first adopted Actuarial Standard of Practice No. 17, Expert Testimony by Actuaries, in January of 1991. The standard addressed a type of practice, expert testimony, which had not been explicitly addressed in previously adopted standards. The standard also crossed traditional practice areas to apply whenever actuaries offered expert testimony concerning pensions or insurance. As such, the standard contained a significant amount of educational material.
Since the standard was first adopted, actuaries have become increasingly active as expert witnesses, appearing in a greater variety of venues and addressing an expanding range of topics. As actuaries have become more knowledgeable about providing expert testimony, the need for educational material has lessened to some degree. The Actuarial Standards Board has also adopted a new format for standards, and this standard reflects that format.
Actuaries may be called upon to give expert testimony concerning a broad range of issues, such as the following:
a. actuarial present values of retirement or other benefits;
b. actuarial values incident to a divorce;
c. adequacy or appropriateness of reserves, premium rates, pricing or underwriting procedures, or provision for administrative costs;
d. cost impact of claims-made or claims-paid financing;
e. cost impact of risk classification systems, tort liability decisions, or legislative/regulatory proposals;
f. lost earnings of a decedent or injured person and the actuarial present value of such lost earnings;
g. malpractice alleged of an actuary;
h. relationships between risk and return on investments;
i. value of an insurance company or other entity; and
j. withdrawal liability assessments under multiemployer benefit plans.
Actuarial expert testimony may be given in many forums including, but not limited to, the following:
a. administrative hearings or other executive branch proceedings;
b. arbitration or other extra-judicial proceedings;
c. committee hearings or other legislative branch proceedings; and
d. courts of law or other judicial branch proceedings, including depositions, declarations, and affidavits.
Actuarial testimony may be oral or written, direct or responsive, formal or informal. Actuaries may also be called upon to provide expert analysis or other litigation support in settings where they are not expected to testify.
Although actuaries sometimes provide expert testimony and support directly to a legislator, regulator, arbitrator, or judge, more typically the actuary’s principal is a party to the proceedings at which testimony is to be given. Parties to such proceedings may be the shareholders of a corporation, the policyholders of an insurer, the electorate of a political jurisdiction, the employers who maintain a state fund, or another individual or group of persons. In most instances, the principal will have retained an attorney or other representative. Often, it is the attorney or representative who retains the actuary on the principal’s behalf.
Actuaries may find themselves testifying in opposition to the opinions of other actuaries or other experts in another field (for example, accountants, statisticians, or economists) who are on opposite sides of a proceeding. At times, the opinions, assumptions, and/or conclusions expressed in expert testimony by others will be in conflict with those of the actuary. These situations may generate doubt in the minds of the audience as to which expert to believe. In such a situation, if asked to comment on the differences in testimony, actuaries attempt to demonstrate factually that the other expert’s opinions, assumptions, and/or conclusions are based on flawed data or methods. Alternatively, depending on the circumstances, the actuary may seek to demonstrate that differences between the actuary’s conclusions and those of the other expert are not material.
One challenge faced by actuaries testifying as experts is that often the audience lacks the necessary background to readily understand an actuary’s testimony. Individuals who are unfamiliar with actuarial concepts may be unable to understand communications that presuppose basic actuarial knowledge, particularly if such communications are presented using terms or acronyms with which they are unfamiliar. When an actuary testifies, it is generally important to explain technical terms and concepts so that, to the extent practicable, the audience can understand them, particularly if the audience is not sufficiently familiar with actuarial methods and assumptions to distinguish testimony that is precisely accurate but ultimately misleading. It is usually beneficial for the actuary to provide expert testimony as clearly as practicable.
Actuarial projections have a degree of uncertainty because they are based on the probability of occurrence of future contingent events. An important challenge for the testifying actuary, and arguably a most difficult one, is to convey the inherent uncertainty of actuarial estimates. Because a projection necessarily has a degree of uncertainty associated with it, actuaries may be called upon to explain the concept of uncertainty and to convey to the audience whether the actuary’s own expectations for future results are within a range believed to be acceptable to most actuaries. Moreover, when providing expert testimony, actuaries generally defend against the characterization of actuarial science or specific actuarial opinions as “guesses,” “guesstimates,” or the like. Although there are uncertainties inherent in future projections and stochastic processes, that uncertainty does not make an actuarially sound analysis the equivalent of a “guess.”
Attorneys may seek on cross-examination to attack actuarial opinions and judgments incrementally, a tactic that may be harmful to the credibility of a testifying actuary who does not respond appropriately to it. For example, if an actuary has testified to an opinion that a reasonable range for a specific liability is between $5 and $6 million, when asked on cross-examination whether $4,999,999 would be a reasonable liability, an appropriate response would be along the lines of, “that number would fall outside of my range of reasonable estimates and would therefore be categorized as not being reasonable.” A response such as “that liability is only one dollar below my range of reasonable estimates and, therefore, could be reasonable,” is likely to generate further incremental attacks (for example, “what about $4,999,998?”) that weaken the credibility of the actuary’s testimony.
Disclosure of pertinent information (including, but not limited to, the name of the principal, the actuarial methods used, the assumptions selected and support therefor, and any potential conflicts of interest) strengthens the credibility of the actuary’s testimony. Such disclosure can be particularly important when testimony is subsequently discovered to be in error. The actuary testifying as an expert witness may not have access to all parties who have relied upon expert testimony subsequently discovered to be in error, but an actuary who discovers a material error in testimony is usually prudent to correct the error, particularly if the actuary is recalled to the stand, and to document in writing the corrective steps taken.
Ultimately, the actuary seeks to provide the forum with a valid actuarial opinion based upon truthful expression of the underlying facts. This serves not only the actuary’s principal, but others who may be directly or indirectly affected by the proceedings. These others may include the principal’s opponent in a lawsuit, the current and potential policyholders in a rate hearing, the plan participants and their dependents in an employee benefit plan action, the creditors in bankruptcy court, or others. Actuaries benefit the public when they apply their professional skills in a manner that promotes the general welfare, and they enhance relations with their professional peers when they represent their work fairly and give credit where appropriate.
Appendix 2 – Comments on the 2001 Exposure Draft and Task Force Responses
The exposure draft of this actuarial standard of practice (ASOP), titled Expert Testimony by Actuaries, was issued in March 2001, with a comment deadline of August 15, 2001. Eighteen comment letters were received. The Expert Witness Task Force, with the help of the General Committee, carefully considered all comments received.
Click here to view appendix 2 in its entirety.