25 A.3d 988
Md.2011Background
- Milliman began actuarial services for the Maryland State Retirement System in 1982, with continued contracts through 2006 affecting three systems (State Police, Judges, LEOPS).
- A coding error caused Milliman to understates liabilities by misinterpreting code '00' related to survivors’ benefits for judges and police, spanning 1982–2004.
- In 2004 Milliman disclosed the error and estimated the three systems were underfunded by over $130 million, prompting an administrative claim under statute for contract damages.
- The Maryland State Retirement System (MSRPS) claimed $73 million in losses ($34.2 million in deficient contributions and $38.8 million in lost investment income).
- The MSBCA found Milliman breached the duty of care, determining $34,208,960 in lost contributions and $38,756,188 in lost interest; circuit court later reduced damages by $34.2 million in lost contributions, deeming consideration inappropriate.
- The Court of Appeals ultimately held Milliman liable for the coding-error breaches, rejected offset against the State, and remanded to affirm the Board’s damage award in full.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Damages measure for actuarial breach? | Milliman argued no damages where funding goals were met; proposed offset against State. | System suffered losses from underfunding due to Milliman’s error; damages should reflect losses. | Damages are due for losses; not offset by State. |
| Scope of damages: lost contributions vs. lost investment income? | Damages should be limited to actual contributions lost. | Damages include lost investment income on the deficit. | Damages should reflect lost investment return, not simply lost contributions. |
| Is the State a party to the MSBCA proceedings affecting offset/damages? | State is not a party; damages should be measured against System’s losses only. | State’s use of funds should offset System’s damages. | State was not a party; no offset against the State. |
| Was the System contributorily negligent in providing data to Milliman? | System’s data explanation was confusing; duty breached by data providers. | System bore no contributory negligence; Milliman had duty to verify data. | System not contributorily negligent; Milliman breached standards of care. |
| Are the State and the System a single entity for damages purposes? | States and System are effectively the same for damages (unitary creditor logic). | State and System are distinct entities; offset/setoff not applicable. | State and System are distinct for damages; no unitary setoff doctrine applied. |
Key Cases Cited
- St. Paul at Chase Corp. v. Manufacturers Life Ins. Co., 262 Md. 192 (Md. 1971) (place plaintiff in position it would have been absent breach)
- Lomax v. Comptroller of Treasury, 323 Md. 419 (Md. 1991) (agency interrelations; garnishment and mutuality considerations)
- Hashmi v. Bennett, 416 Md. 707 (Md. 2010) (collateral estoppel and privity in joint-claims contexts)
- Dardaganis v. Grace Capital, Inc., 889 F.2d 1237 (2d Cir. 1989) (restoration of beneficiaries to position they would have occupied but for breach)
- Day v. New Hampshire Retirement System, 635 A.2d 493 (N.H. 1993) (privity/relativity in collateral proceedings; retirement system separate from employer)
- Mercer v. Board of Trustees, 2003 WL 21481021 (Cal.App. Unpub. LEXIS 6236) (unpublished; not precedential; data-quality and damages context cited)
- Cherry Cotton Mills v. United States, 327 U.S. 536 (U.S. 1946) (unitary creditor doctrine origins)