`Covered Business Method Review Petition
`of United States Patent No.: 6,064,970
`
`
`
`
`Patent Owner: Progressive Casualty
`
`Insurance Co.
`
`
`
`
`
`
`
`§ Att’y Docket No.: LMIC-018-802
`§
`
`§ Customer No. 28120
`§
`
`§ Petitioner: Liberty Mutual
`§ Insurance Company
`§
`
`§
`
`
`DECLARATION OF MARY L. O’NEIL
`
`IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
`
`
`
`I, Mary L. O’Neil, hereby declare under penalty of perjury:
`
`I. Qualifications
`
`1.
`
`2.
`
`I am currently Principal of O’Neil Consulting Services, Inc. (OCS), an
`
`independent actuarial consulting practice, which I established in 1986. I have
`
`over 30 years experience as a property casualty actuary in the insurance
`
`industry. My CV is attached as Ex. 1012.
`
`OCS provides actuarial consulting services to a variety of clients from both the
`
`regulatory and private sectors. For example, the regulatory agencies in which I
`
`have provided consulting services include the North Carolina Department of
`
`Insurance (for which I have completed Private Passenger Automobile rate
`
`analyses for more than twenty years), the New Jersey Department of Insurance,
`
`the New York Department of Insurance, the Ontario Automobile Insurance
`
`Board, the Texas Office of Public Insurance Counsel, the Georgia Department
`Liberty Mutual
`Exhibit 1011
`
`3DJH
`
`
`
`3.
`
`4.
`
`5.
`
`of Insurance, the Pennsylvania Department of Insurance, and the Wyoming
`
`Department of Environmental Quality.
`
`Individual insurers or insurance pools for which I have provided consulting
`
`services include Integrity Insurance Company in Liquidation (on behalf of
`
`liquidator), Home State Holdings, Inc. in Liquidation (on behalf of liquidator),
`
`Security Indemnity Insurance Company in Rehabilitation (on behalf of
`
`rehabilitator), Pennsylvania Millers Mutual Insurance Company, several small
`
`insurers, and several self-insurance pools.
`
`The services I have performed on behalf of OCS include analysis of proposed
`
`rates by insurers, analysis of required insurer reserves in conjunction with
`
`regulatory examinations of insurance companies, evaluation of loss reserves for
`
`purposes of reinsurance commutation, preparation of required reserve opinions
`
`for individual insurers and pools, evaluation of legislation, and other special
`
`projects.
`
`Rate analyses have included private passenger automobile, homeowners’,
`
`dwelling fire, title, and workers’ compensation. These projects have been
`
`completed for individual rate filings or full industry rate filings in selected
`
`states. I have also estimated the required loss and loss adjustment expense
`
`reserves for a multibillion dollar multi-line insurer group, a number of insurers
`
`2
`
`3DJH
`
`
`
`in conjunction with financial examinations, for purposes of commutations,
`
`several small insurers, and self-insurance pools. These analyses have sometimes
`
`addressed the issues of mass torts or catastrophes.
`
`6.
`
`7.
`
`My previous work experience includes insurance actuary positions at the New
`
`Department of Insurance (“NJDOI”), Prudential Property and Casualty
`
`Insurance Company, and General Reinsurance Corporation.
`
`During my nearly two years at NJDOI, I served as the Department’s Chief
`
`Actuary. My responsibilities included supervision of the actuarial aspects of
`
`regulation for all lines of insurance: personal lines and commercial lines rates
`
`and forms, life contracts and health rates. In addition, I supervised the life
`
`valuations and supplied assistance to the Examinations Division in valuing
`
`property/casualty insurer reserves. I also served as an advisor to the
`
`commissioner and other department staff on all issues before the department.
`
`8.
`
`For the eleven years I worked at Prudential, I had a variety of responsibilities,
`
`which included insurance pricing, marketing, reserving, financial analysis, and
`
`various special projects. I started as an actuarial student and rose to the level of
`
`Vice President and Assistant Actuary. Finally, at General Reinsurance
`
`Corporation, I spent one year doing mostly statistical insurance work.
`
`3
`
`3DJH
`
`
`
`9.
`
`10.
`
`I have also worked with several law firms in a consulting and/or expert
`
`capacity. My attached CV lists all the matters in which I was involved,
`
`including my testimonial experience. See Ex. 1012.
`
`I have the professional designations of Fellow of the Casualty Actuarial Society
`
`(FCAS), Member of the American Academy of Actuaries (MAAA), Chartered
`
`Life Underwriter (CLU), and Chartered Financial Consultant (ChFC). I am
`
`also a member of the Casualty Actuarial Society (CAS), American Academy of
`
`Actuaries (AAA), and the International Association of Insurance Receivers
`
`(IAIR).
`
`11. My education includes a B.S. in Mathematics from Pennsylvania State
`
`University, and an M.A. in Statistics, also from Pennsylvania State University.
`
`12.
`
`I have been retained on behalf of Petitioner and real party in interest, Liberty
`
`Mutual Insurance Company (“Petitioner” or “Liberty Mutual”), to offer
`
`statements and opinions generally regarding the understanding of a “person of
`
`ordinary skill in the art” in the insurance industry as it relates to Progressive
`
`Casualty Insurance Company’s (“Progressive”) ‘970 Patent.
`
`13.
`
`I am being compensated at a rate of $500 per hour for my services, after expert
`
`service fees. My compensation does not depend on the outcome of this
`
`4
`
`3DJH
`
`
`
`Business Method Review Petition or the pending litigation between Petitioner
`
`and Progressive in the U.S. District Court for the Northern District of Ohio
`
`II. Materials Considered
`
`14.
`
`In developing my opinions below relating to Progressive’s ‘970 Patent, I have
`
`considered the following materials:
`
`x Progressive’s U.S. Patent No. 6,064,970 with Reexamination
`Certificate (“the ‘970 Patent”) (Ex. 1001);
`
`x PCT Publ’n No. WO90/02388 (“Pettersen”) (Ex. 1005);
`
`x The 1995 Consumers Guide on Automobile Insurance (Downstate),
`published in 1988 (“New York Guide”) (Ex. 1006); and
`
`x “Disparate Impact and Unfairly Discriminatory Insurance Rates”,
`Michael J. Miller, Casualty Actuarial Society E-Forum, Winter 2009
`(Ex. 1013).
`
`III. The ‘970 Patent
`
`A. Level of Ordinary Skill for the ‘970 Patent
`
`15.
`
`I have read Progressive’s ‘970 Patent, which I understand was filed on August
`
`17, 1998 and issued on May 16, 2000. I also have been informed that the ‘970
`
`Patent claims a priority date to a related patent of January 29, 1996. Generally,
`
`the patent relates to determining a cost of insurance based on monitored
`
`vehicle telematics data.
`
`5
`
`3DJH
`
`
`
`16.
`
`I have been informed that the factors that may be considered in determining
`
`the ordinary level of skill in the art include: (1) the levels of education and
`
`experience of persons working in the field; (2) the types of problems
`
`encountered in the field; and (3) the sophistication of the technology. I
`
`understand that a person of ordinary skill in the art is not a specific real
`
`individual, but rather a hypothetical individual having the qualities reflected by
`
`the factors above.
`
`17.
`
`The field of art relevant to the ‘970 patent is insurance, and more particularly
`
`determining a cost of vehicle insurance based on telematics data. In my
`
`opinion, a person of ordinary skill in the aspects of insurance pricing pertinent
`
`to the ‘970 patent (apart from the vehicle telematics aspects) would be an
`
`individual with at least a B.S. in Mathematics, or equivalent, with at least 5 years
`
`of experience in the insurance industry setting premiums for auto insurance,
`
`and, as a minimum, as an associate or near-associate in the Casualty Actuarial
`
`Society (e.g., passed at least 4-5 actuarial exams, including the examination on
`
`ratemaking).
`
`18.
`
`For purposes of this Declaration, unless otherwise noted, my statements and
`
`opinions below, such as those regarding my experience and the understanding
`
`of a person of ordinary skill in the art generally (and specifically related to the
`
`6
`
`3DJH
`
`
`
`references I consulted herein), reflect the knowledge that existed as of January
`
`1996, at the latest.
`
`B. Opinions Regarding Setting Costs of Insurance
`
`19.
`
`Insurance is a financial product or service in which an insurer agrees to assume
`
`certain financial risks – in particular, the risk that insured losses will occur – in
`
`return for a premium payment from a customer. The contract specifying the
`
`terms of this agreement is commonly referred to as an “insurance policy.” In
`
`determining what premium to charge a customer (or “policyholder”) for
`
`insuring a particular risk before the insurer has had any experience with that
`
`policyholder, an insurer considers a number of factors. For example, in
`
`determining a premium for a new policy, the insurer considers the prior claim
`
`history (frequency and severity of claim costs) of the prospective policyholder,
`
`as well as the prospective policyholder’s requested coverage amounts, including
`
`policy limits (for individual events and overall coverage) and the deductibles
`
`that may be subtracted when an insurer pays a customer for an insured loss.
`
`The insurer attempts to evaluate (in a process referred to as underwriting) the
`
`risk that the prospective policyholder will incur insured losses during the
`
`prospective policy period based on a variety of factors, including information
`
`about the prospective policyholder. This underwriting process yields cost
`
`information – in particular, information pertinent to expected cost of a loss.
`
`7
`
`3DJH
`
`
`
`For automobile insurance, this information would include, for example,
`
`information about the insured driver and information about the insured
`
`vehicle. For renewal pricing, an insurer is also able to consider its own
`
`historical loss experience with that customer.
`
`20.
`
`In setting insurance prices (i.e., premiums), insurance providers are subject to
`
`regulation by state authorities. Among other things, those authorities impose
`
`requirements on how providers may set the rates they charge to policyholders –
`
`in part to ensure that insurers are not unfairly discriminating among
`
`policyholders in setting these prices. These state-imposed non-discrimination
`
`requirements apply across various different types of insurance.
`
`21.
`
`Because of these non-discrimination requirements (and because they are also
`
`useful as a practical matter) it is necessary for insurers to create and apply
`
`actuarial classes – roughly speaking, groups sharing similar risk characteristics –
`
`in setting insurance rates so that their rates will meet the statutory standard of
`
`being “not unfairly discriminatory” and, hence, be approved. In the context of
`
`automobile insurance, for example, insurers generate actuarial classes of
`
`insurance that group operators or vehicles having a similar risk characteristic
`
`and base insurance rates on these classes, in part because this is required in
`
`order to produce insurance rates that meet the statutory standard of not being
`
`unfairly discriminatory. Ex. 1006, NY Guide at 14. This practice of generating
`
`8
`
`3DJH
`
`
`
`actuarial classes arose out of the rating law standards adopted by most states
`
`beginning in 1946 based on the NAIC Model Law from 1946 , which required
`
`that rates should not be unfairly discriminatory. See Ex. 1013, Disparate Impact
`
`and Unfairly Discriminatory Insurance Rates,” Michael J. Miller, Casualty
`
`Actuarial Society E-Forum, Winter 2009, at 279-280 and 283.
`
`22. As noted above, in setting the initial price or premium to be charged, the
`
`insurer considers, among other things, policy limits and deductibles for the new
`
`policy. In addition to this information being necessary for the insurer’s overall
`
`risk calculation in determining the premium for a prospective policyholder,
`
`this practice of generating and applying a collection of requested information,
`
`such as policy limits and deductibles, to determine a base cost of insurance,
`
`such as vehicle insurance, is also required in order to produce insurance rates
`
`which meet statutory non-discrimination standards. Ex. 1006, NY Guide at 14.
`
`Again, the practice of generating an insured profile of rating characteristics can
`
`be traced back to the rating law standards adopted by most states beginning in
`
`1946, based on the NAIC Model Law from 1946 which required that rates
`
`should not be unfairly discriminatory. Ex. 1013, Disparate Impact and Unfairly
`
`Discriminatory Insurance Rates at 279-80, 83.
`
`9
`
`3DJH
`
`
`
`C. Opinions Regarding the Pettersen Reference
`
`23.
`
`I have read Pettersen, which discloses,1 among other things, a way of recording
`
`the driving pattern of a vehicle using an in-vehicle device that measures speed
`
`and acceleration to evaluate the driving behavior. Ex. 1005, Pettersen at 1-2.
`
`Pettersen explains that such evaluation of driving behavior would be used by an
`
`insurance company to “set a more fair bonus arrangement” for insurance
`
`policyholders. Id. at 1.
`
`24.
`
`In my opinion, a person of ordinary skill in the art would have understood
`
`Pettersen’s disclosure of a “more fair bonus arrangement” to describe
`
`rewarding a policyholder for past driving performance. As part of this
`
`arrangement, it would have been understood that the policyholder’s insurance
`
`policy premium varies retrospectively based on the policyholder’s driving
`
`statistics (from the vehicle telematics data). And, as mentioned above,
`
`calculating an insurance policy premium necessarily involves determining limits
`
`and deductibles for a policy as well as applying actuarial classes, due to, for
`
`example, state regulations. Thus, a person of ordinary skill would have
`
`understood that Pettersen necessarily discloses that an insurance company
`
`would use actuarial classes based on the policyholder’s vehicle data, as well as
`
`the limits, deductibles, and other factors from the policyholder’s insurance
`
`1 As noted in paragraph 18, supra, the discussions herein all present my opinion of
`what a person of ordinary skill in the art would have understood as of January 1996.
`10
`
`3DJH
`
`
`
`Executed this 14th day of September,
`
`State College,
`
`3DJH
`
`