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Leveraging Daubert/Frye Standards In Insurance Litigation for Expert Testimony in State and Federal Court

Distinguishing Daubert vs. Frye Standards, Challenging Expert Reliance on Hearsay Articles, Using Daubert/Frye Motions

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, JULY 12, 2016

Anna P . Engh, Partner, Covington & Burling, Washington, D.C. Michael P . O'Day, Partner, DLA Piper, Baltimore

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Leveraging Daubert/Frye Standards In Insurance Litigation for Expert Testimony in State and Federal Court

July 12, 2016

Michael P. O’Day DLA Piper LLP (US) 410-580-4293 michael.oday@dlapiper.com

Overview

• Daubert/Frye challenges used as rule of

evidence to attempt to exclude expert testimony

• Development of case law
• Interplay of Federal Rules of Evidence (FRE)
• Strategic and practical considerations of expert

challenges

• Case law in insurance litigation

6

Frye v. United States, 292 F. 1013 (D.D. Cir. 1923)

• Defendant in murder trial sought to admit polygraph results

through expert who gave the exam

• Evidence excluded and defendant convicted
• “Just when a scientific principle or discovery crosses the line

between the experimental and the demonstrable stages is difficult to define. . . . the thing from which the deduction is made must be sufficiently established to have gained general acceptance in the particular field to which it belongs.”

• The Frye rule – “general acceptance” standard
• Presents problems for admissibility of novel science and

theories

7

Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993)

• Plaintiff alleged that birth defect was caused by

Benedictine ingestion

• Offered statistical evidence through experts
• Defendant filed for summary judgment
• No study showing a causal link
• Not supported by any consensus in the medical

community

8

Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993)

• District Court holds testimony inadmissible citing the Frye

“general acceptance” rule

• Summary judgment granted
• Ninth Circuit affirmed
• Supreme Court vacated and reversed decision
• Frye “general acceptance” test for determining admissibility of

novel scientific evidence is superseded by FRE 702

• The trial court is still the “gatekeeper”
• Scientific expert testimony must be relevant and reliable
• Focus on methodology

9

Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993)

Non-exhaustive screening factors:

1. Testing: whether the theory or technique presented as expert testimony and evidence can be (and has been) tested? 2. Peer Review: whether the theory or technique has been subjected to peer review and publication? 3. Rate of Error: what is the known or potential rate of error? 4. General Acceptance: whether there is general acceptance in the relevant scientific community?

10

General Electric Co. vs. Joiner, 522 U.S. 126 (1997)

• Plaintiff failed to show that exposure to PCBs

was the cause of his lung cancer

• Supreme Court further clarifies expert testimony

standard

• Proper standard of review is abuse of discretion
• Trial judge’s authority under “gatekeeping function” includes

rationale and conclusions – not just methodologies

11

Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999)

• Tire blow out caused fatal accident
• Plaintiff’s expert stated defect in the tire
• Physical inspection and no evidence of other issue
• Nonscientific expert proof
• Summary judgment granted
• 11th Circuit reversed and remanded
• Finding Daubert limited to scientific testimony

12

Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999)

• Supreme Court states that Daubert applies to all

expert witness testimony, including non-scientific and experienced-based testimony

• Expands and strengthens gatekeeping role under Daubert
• Reliability factors not a definitive checklist, just factors court

uses at its discretion

• Trial court’s gatekeeping function also to ensure “that an

expert, whether basing testimony upon professional studies

• r personal experience, employs in the courtroom the same

level of intellectual rigor that categorizes the practice of an expert in the relevant field.”

13

FRE 702 Amendment (2000)

Rule 702 Testimony by experts. If scientific, technical,

• r other specialized knowledge will assist the trier of fact

to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or edu-cation, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.

• Qualification, reliability, and fit

14

Application of Daubert/Frye

• Daubert standard applies in federal court
• Frye replaced by Daubert in most state courts
• Some version of Frye still used in a handful of states
• E.g., California, Illinois, Maryland, Minnesota, New Jersey,

Pennsylvania, and Washington

• Unique jurisdictions – North Dakota, North Carolina and

South Carolina

15

Frye or Daubert – Does it Really Matter?

• Daubert is more liberal than Frye
• Initially viewed as pro-plaintiff standard
• Daubert is stricter than Frye
• Increased involvement of the court
• State courts opposed adoption of Daubert
• E.g., square-off in Florida
• Standard on admissibility does not matter in

practice

• Importance is judicial awareness of gatekeeping role

16

Frye or Daubert – Does it Really Matter?

• Under either standard, it is increasingly common

to challenge experts

• Courts have wide latitude in performing gate-

keeping role

• Courts have wide latitude in determining how to

measure reliability

• Expert challenge may have a huge impact on

case

17

Use of Experts in Insurance Disputes

• Insurance disputes routinely involve experts
• Issues that are outside purview of a lay person
• Issues that jury could use expert’s help

understanding

• Damages (lost profits; economic loss)
• Valuation (property loss; business interruption)
• Causation (covered by policy; subrogation)
• Conduct (handling of claims and related

practices)

18

Impact on Case Management

• Timing and sequence of Rule 26 expert

disclosures

• Pretrial discovery and production of expert files
• Investigative discovery outside the rules
• Timing and sequence of expert depositions
• Expert rebuttal
• Build enough time into the schedule

19

Impact on Case Management

• Timing of a Daubert motion (FRCP 16, Local

Rules, Judicial Preference)

• At close of expert discovery; or
• At same time as dispositive motion; or
• As part of motions in limine.
• On average, federal courts take 84 days to rule
• n Daubert motion (James Cooper, Timing and

Disposition of Daubert Motions in Federal District Courts: An Empirical Examination, George Mason University School of Law (2015))

20

Impact on Case Management

• Why does timing matter?
• “If forced to choose between filing a Daubert challenge

too late to enable the trial judge properly to understand and rule on it, or filing it early enough to facilitate proper review, it is more prudent to file early.” Judge Paul Grimm (D. Md.) (emphasis added)

• May prevent opponent from proving a necessary

element of claim or defense

• Inn by the Sea Homeowner’s Ass’n Inc. v. SeaInn, LLC, 2015
• Miss. LEXIS 379 (Miss. July 30, 2015) (excluding expert and

granting summary judgment); M.B. ex rel. Scott v. CSX Transp., Inc., 2015 WL 5315961, -- F.Supp.3d -- (N.D.N.Y. Sept. 11, 2015) (same)

21

To File or Not to File a Daubert Motion

• Considerations against making a Daubert

challenge

• Limitations on resources
• Judicial disposition towards experts
• Weak arguments
• Challenge to expert’s qualifications only
• Expose strategy prematurely

22

To File or Not to File a Daubert Motion

• Considerations against making a Daubert

challenge

• Challenge to expert’s conclusion only
• Matters better left for attack on cross-examination
• Credibility & accuracy
• Type of expert generally accepted
• Cause your experts to be subjected to the same

standard

23

To File or Not to File a Daubert Motion

• Considerations in favor of making a Daubert

challenge . . . opinion not reliable

• Flaws with methodology
• Flaws with foundation
• Failure to follow or use an accepted methodology
• Chosen method cannot be tested or replicated

24

To File or Not to File a Daubert Motion

• Considerations in favor of making a Daubert

challenge . . . opinion not relevant

• Opinion involves matters that an average juror understands
• FRE 702: testimony is helpful to the jury
• Opinion must work directly with the facts and law
• Opinion that restates fact witness testimony
• Opinion that gives conclusions of law
• See, e.g., State Farm & Cas. Co. v. Electrolux Home

Prods., Inc., 980 F. Supp. 2d 1031 (N.D. Ind. 2013); Breezy Point Co-op, Inc. v. Cigna Prop. & Cas. Co., 868

• F. Supp. 33 (E.D.N.Y. 1994)

25

To File or Not to File a Daubert Motion

• Considerations in favor of making a Daubert

challenge . . . expert not qualified

• Must be qualified “by knowl­edge, skill, experience, training,
• r education.”
• Court is looking for “sufficient specialized knowledge” to

assist the trier-of-fact

• No perfect formula, case by case basis
• Court’s “gatekeeping” role includes making sure the expert

does not exceed the scope of his/her expertise

• See, e.g., The Phoenix Ins. Co. v. Trinity Universal Ins.

Co., 2013 WL 4594529 (D. Colo. Aug. 29, 2013)

26

To File or Not to File a Daubert Motion

• Additional factors in favor of making a Daubert

challenge

• Selective data sources
• Reliance on anecdotal evidence
• Failure to verify information
• Speculation
• Failure to consider alternatives causes
• Failure to conduct tests or inspections
• See, e.g., Steven J. Inc. v. Landmark Am. Ins. Co., 2015

WL 3849166 (M.D. Pa. June 22, 2015)

27

To File or Not to File a Daubert Motion

• Additional factors in favor of making a Daubert

challenge

• Expert would act more careful in non-litigation context
• Field of expertise is not known to reach reliable results
• Subjective belief
• Factors may not be applicable in every case
• Check your jurisdiction for other factors (a non-

exhaustive list)

28

Other Attacks on Expert Evidence

• Failure to follow the rules
• Case Management Order
• Rule 26 requirements
• Late or incomplete disclosures
• Undisclosed “expert” opinions (FRE 701)
• Phoenix Ins. v. Trinity Universal Ins., 2013 WL

4594529 (D. Col. Aug. 29, 2013) (allocation of fault not type of common observations offered by lay witness)

• Results in prejudice

29

Other Attacks on Expert Evidence

• Conclusory opinions
• “[a]n expert who supplies nothing but a bottom line

supplies nothing of value to the judicial process.” Zenith Elec. Corp. v. WH-TV Broad. Corp., 395 F.3d 416, 419-20 (7th Cir. 2005)

• FRE 403 – prejudice, confusion, waste of time,

etc.

• Cumulative testimony
• Multiple experts giving same opinions

30

Other Attacks on Expert Evidence

• Expert bias
• Work history
• Relationships
• Mistakes
• Sloppy work product
• Prior successful challenges to expert opinions
• Struck down or limited by other courts or tribunals
• Prior inconsistent positions
• Testimony, reports, publications & affiliations

31

Other Attacks on Expert Evidence

• Attempt to backdoor inadmissible and prejudicial

evidence as the “basis” for an opinion (FRE 703)

• “Trial by Literature” – expert opinion merely parrots

conclusions in an article

• FRE 803(18) – hearsay exception for statements in learned

treatises, periodicals, or pamphlets.

• Reasonably relied upon by experts in particular field in forming opinions
• Purpose is to allow experts to form opinions NOT to allow inadmissible

evidence or relax standards

• See, e.g., Old Line Life Ins. Co. v. Brooks, 2007 WL 892448

(S.D. Miss. March 22, 2007)

32

What Should the Motion Look Like?

• Develop arguments during discovery
• Give the judge a roadmap
• Explain the science
• Use the record to show the challenged
• pinion(s)
• Attach the challenged report
• Be specific about allegations
• Be specific about requested relief

33

What Should the Motion Look Like?

• FRE 104(a) is not strictly applied
• Supporting material does not have to be independently

admissible

• Supporting material that will help the court understand why

the challenged testimony is not reliable

• Supporting material outside the record
• Affidavit of your expert witness
• Affidavit of fact witness

34

Opposition to Daubert Challenge

• Explain the methodology
• Expose attacks on matters for cross-examination
• “Vigorous cross-examination, presentation of contrary

evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596.

• Accepted by other courts
• Burden of proof . . . offer evidence to rebut challenge
• Fimbres v. Garlock Equip. Co., 2014 WL 2612513 (W.D. Ky.

June 11, 2014)

35

Daubert Hearing

• Request a hearing with the Daubert motion
• Preferable to have hearing sufficiently in advance of

trial (as opposed to extended voir dire during trial)

• Hearing is discretionary
• Outside the presence of the jury
• Preview of the trial arguments and lock-in admissions
• “[A]pproach the hearing as if the judge knows nothing

and spell it out for him or her using the clearest, least technical explanation possible.” Judge Paul Grimm (D. Md.)

• Rules of evidence not strictly applied

36

Post-Daubert Ruling

• If opinion partially excluded, make proffer at trial to

preserve the record

• American Auto Ins Co. v. Omega Flex, Inc., 783 F.3d

720 (8th Cir. 2015)

• Even if motion denied, don’t give up
• Raise again during pretrial conference and at trial
• Address specific areas of expert disagreement to

narrow trial issues

• Address in advance any expert presentations to the

jury

• Demonstrative evidence (videos, models)

37

Case Law on Admissibility of Expert Witnesses in Insurance Litigation

Anna Engh Partner Covington & Burling LLP 202.662.5221 aengh@cov.com July 12, 2016

General Themes of Case Law On Insurance Experts

• Expert testimony about the customs and practices of

the insurance business

– Typically admissible

• Expert testimony that directly guides the jury on what

the law is and how to apply the law

– Typically inadmissible – Cannot usurp the role of the court in instructing the jury on the law

• The line is not clear between what is improper expert

testimony about what the law is and proper expert testimony about standard industry practice.

39

Standards Applied in Cases

• Federal Rule of Evidence 702 - “Helpfulness”

Standard

– Expert testimony permitted “if scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue …” – Applicable to insurance experts?

• Yes: “The fields of knowledge … are not limited merely to the

‘scientific’ and ‘technical’ but extend to all ‘specialized’ knowledge.” (Advisory Committee note)

• “Similarly the expert is viewed, not in a narrow sense, but as a

person qualified by ‘knowledge, skill, experience, training, or education.’” (Advisory Committee note)

40

Standards Applied in Cases

• Federal Rule of Evidence 702 - “Helpfulness”

Standard

– Standard: Will the testimony be helpful to the trier of fact?

• “Where opinions are excluded, it is because they are unhelpful

and therefore superfluous and a waste of time.” (citing 7 Wigmore § 1918) (Advisory Committee note)

41

Standards Applied in Cases

• Federal Rule of Evidence 702 - “Helpfulness”

Standard

– Can an expert go beyond testifying about her expertise and apply that expertise to the facts of the case?

• “It will continue to be permissible for the experts to take the

further step of suggesting the inference which should be drawn from applying the specialized knowledge to the facts.” (Advisory Committee note)

42

Standards Applied in Cases

• Federal Rule of Evidence 704 - “Opinion on Ultimate

Issue”

– Rule 704(a) did away with common law rule prohibiting expert testimony that resolved an “ultimate issue of fact.” – Under Rule 704(a), “An opinion is not objectionable just because it embraces an ultimate issue.” – However, testimony must meet Rule 702’s helpfulness requirement.

43

Standards Applied in Cases

• Federal Rule of Evidence 704 - “Opinion on Ultimate

Issue”

– Testimony must also comply with Rule 403: “The court may exclude relevant evidence if its probative value is substantially outweighed by the danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.” – “These provisions afford ample assurances against the admission of opinions which would merely tell the jury what result to reach …” (Advisory Committee note, Rule 704)

44

Expert Testimony Regarding Bad Faith Conduct

Examples of cases where expert testimony was admissible:

• Hangarter v. Provident Life & Accident Ins. Co., 373

F.3d 998 (9th Cir. 2004)

– Insurer claimed that the insured was ineligible for disability benefits because she was not totally disabled and was earning income. – Insured’s expert testified that the insurer deviated from industry practice in discontinuing insurance payments, challenging the insurer’s assertion that it had acted in good faith.

45

Expert Testimony Regarding Bad Faith Conduct

• Hangarter v. Provident Life & Accident Ins. Co., 373

F.3d 998 (9th Cir. 2004) (con’t)

– The insurer argued that this expert testimony “inappropriately reached legal conclusions on the issue of bad faith and improperly instructed the jury on the applicable law.” – The court disagreed, focusing on the expert’s analysis of industry custom: “While [the expert’s] testimony that Defendants deviated from industry standards supported a finding that they acted in bad faith, [he] never testified that he had reached a legal conclusion that Defendants actually acted in bad faith (i.e., an ultimate issue of law).”

46

Expert Testimony Regarding Bad Faith Conduct

• Ford v. Allied Mut. Ins. Co., 72 F.3d 836 (10th Cir.

1996)

– Expert for insurance company was permitted to testify to the issue of bad faith in uninsured motorist case by showing that the insurer relied on industry practice in the standard used for computing payment under the policy.

47

Expert Testimony Regarding Bad Faith Conduct

• Hanson v. Mut. of Omaha Ins. Co., 2003 WL

26093254 (D.S.D. Apr. 29, 2003)

– Court admitted expert testimony of insurance attorney, finding that his “extensive experience with insurance companies” and his “knowledge of insurance industry standards” rendered his testimony reliable and relevant in “assist[ing] the jury in assessing whether Mutual of Omaha had acted in bad faith.” – Court reasoned that “[b]ecause juries are unfamiliar with standards within the insurance industry,” the expert’s testimony would “provide an understanding of those standards and a determination of whether Mutual of Omaha met its standard of care under the law.”

48

Expert Testimony Regarding Bad Faith Conduct

• Hanson v. Mut. of Omaha Ins. Co., 2003 WL

26093254 (D.S.D. Apr. 29, 2003) (con’t)

– Court pointed out that “Mutual of Omaha can challenge [the insured’s expert’s] explanation of industry standards with contrary evidence.” – Court permitted most of expert’s testimony, but precluded him from testifying on matters that were not supported by industry standards, but based only on “unsubstantiated theories.”

• E.g., Opinion that insurer should reissue policy if applicable law

changes.

• E.g., Opinion that insurer should have a computer system in

place to determine which claims are denied.

49

Expert Testimony Regarding Bad Faith Conduct

• First Fin. Ins. Co. v. Jetco Contracting Corp., 202 F.
• Supp. 2d 13 (S.D.N.Y. 2001), vacated and remanded
• n other grounds, 352 F.3d 653 (2d Cir. 2003)

– Insurer and insured were both permitted to call at trial experts in insurance practices to testify on the issue of whether the insurance company had taken an unreasonable amount of time, under the customs and practices of the industry, to deny coverage for a liability claim.

50

Expert Testimony Regarding Bad Faith Conduct

• Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d

1134 (Utah 2001), rev’d on other grounds, 538 U.S. 408 (2003)

– Insurer faced a punitive damage claim for taking a case to trial, rather than settling for payment of plaintiff’s policy limit. – Insured argued that the insurer’s decision was a result of a nationwide plan to cap payouts on the company’s insurance claims (the alleged “Performance, Planning and Review” policy). – Insurer argued that it was unaware of the likelihood of the judgment against the insured, and resisted settlement in good faith.

51

Expert Testimony Regarding Bad Faith Conduct

• Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d

1134 (Utah 2001), rev’d on other grounds, 538 U.S. 408 (2003) (con’t)

– The insured introduced expert testimony regarding State Farm’s business practices to rebut the insurer’s “honest mistake” defense. The testimony focused on State Farm’s PP&R policy and its far-reaching effects. The expert discussed the company’s use of an excess liability handbook, its failure to maintain statistics on excess verdicts, and the profits derived from improper claims.

52

Expert Testimony Regarding Bad Faith Conduct

• Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d

1134 (Utah 2001), rev’d on other grounds, 538 U.S. 408 (2003) (con’t)

– The court rejected the insurer’s challenge to this expert testimony: “Most of State Farm’s objections address [expert] testimony concerning industry standards. In several instances [the expert] described ‘duties’ and ‘standards’ of behavior or of ‘care’ that should dictate the practice of insurance companies generally.”

53

Expert Testimony Regarding Bad Faith Conduct

• Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d

1134 (Utah 2001), rev’d on other grounds, 538 U.S. 408 (2003) (con’t)

– The court found no danger of the expert usurping the role of the judge, as “[i]n every instance … it was made very clear … that the witness was testifying only to prevailing standards

• f conduct in the industry, and not to legal standards or rules
• f law.”

– The court noted its own ability to provide a limiting instruction

• n consideration of expert testimony - the jury may rely only
• n the judge for an explanation of the law.

54

Expert Testimony Regarding Bad Faith Conduct

• Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., 410
• F. Supp. 2d 417 (W.D. Pa. 2006)

– The court permitted plaintiff’s expert to testify as to his

• pinion that insurer violated various state statutes in support
• f expert’s opinion that insurer acted in bad faith.

– The court noted that:

• None of the statutes or regulations were directly at issue; and
• Whether insurer complied with them could be relevant to

whether insurer deviated from industry standards.

55

Expert Testimony Regarding Bad Faith Conduct

• Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., 410
• F. Supp. 2d 417 (W.D. Pa. 2006) (con’t)

– In holding that danger of unfair prejudice did not substantially

• utweigh probative value of the proffered testimony, the

court noted that:

• A violation of the statutes was not a per se violation of duty of

good faith; and

• Any danger of unfair prejudice could be cured by a jury

instruction.

56

Expert Testimony Regarding Bad Faith Conduct

• Camacho v. Nationwide Mut. Ins. Co., 2014 WL

1396427 (N.D. Ga. Mar. 31, 2014)

– Insured proffered an expert to testify that the insurer rejected a settlement offer, placed its own interest ahead of the insured, and hid its conduct from the insured. – The court allowed much of the expert’s testimony, noting the narrow line between admissible and inadmissible expert testimony.

• “Several courts have found that because the average juror is

not likely to be familiar with the practices and procedures involved in insurance claim handling, expert testimony on these matters is admissible to assist the trier of fact.”

57

Expert Testimony Regarding Bad Faith Conduct

• Camacho v. Nationwide Mut. Ins. Co., 2014 WL

1396427 (N.D. Ga. Mar. 31, 2014) (con’t)

• “When ‘the substance of the expert’s testimony concerns
• rdinary practices and customs which are helpful to the fact-

finder’s evaluation of the parties’ conduct against the standards

• f ordinary practice in the insurance industry, his passing

reference to a legal principle or assumption in an effort to place his opinions in some sort of context will not justify the outright exclusion of the expert’s [testimony] in its entirety.’”

58

Expert Testimony Regarding Bad Faith Conduct

Limits on expert testimony regarding bad faith

• N. Am. Specialty Ins. Co. v. Britt Paulk Ins. Agency,

Inc., 579 F.3d 1106 (10th Cir. 2009)

– The Court of Appeals affirmed the District Court’s ruling excluding testimony of “bad faith” expert on grounds that it would not be helpful to the jury. – The court observed that “the excluded expert would have compared the insurance company’s actions to the industry standard,” which “the jury is capable of assessing for itself.” – The court reconciled its holding with Ford v. Allied Mut. Ins. Co., 72 F.3d 836 (10th Cir. 1996) (discussed above), by invoking the deference required by the abuse of discretion standard of review.

59

Expert Testimony Regarding Bad Faith Conduct

• Transcon. Co. v. Lemons, 2007 WL 4856868 (W.D.
• Okla. Apr. 24, 2007)

– Insured’s expert witness was asked to summarize the claim handling standards for the Oklahoma insurance industry. – This testimony was relevant to the question of whether the insurer denied the insured’s claims without adequate review

• f the policy, and acted in bad faith.

60

Expert Testimony Regarding Bad Faith Conduct

• Transcon. Co. v. Lemons, 2007 WL 4856868 (W.D.
• Okla. Apr. 24, 2007) (con’t)

– The court recognized that this testimony potentially disguised a legal conclusion:

“Dawson will not be permitted to define for the jury what is legally required of an insurance company when handling a claim for benefits or adduce other rules of law. Nor may he attempt to apply those rules to the facts of this case to direct the jury that a verdict for [the insured] is required.” “But he may, staying on the safe side of the line between ultimate facts and ultimate questions of law, explain his view of [the insurer’s] actions based on his familiarity with insurance industry practices and having rendered coverage opinions himself.”

61

Expert Testimony Regarding Bad Faith Conduct

• Baumann v. American Family Mut. Ins. Co., 836 F.
• Supp. 2d 1196 (D. Colo. 2011)

– Insured proffered a lawyer as an expert concerning insurance industry standards and claim handling, such as the insurer’s duties in specific instances and the scope of the insurer’s investigation. – The court held that the expert’s opinion that the insurance company “should” pay that portion of the claim over which there is no dispute and had a “duty” to pay such amount usurped the function of the trial judge.

• The court suggested that the expert “could have opined that it

is an insurance industry standard to pay undisputed portions of claims while adjusting the disputed portions.” Testimony regarding ordinary practice is admissible to enable the jury to evaluate the conduct of the parties.

62

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Breezy Point Coop., Inc. v. Cigna Prop. & Cas. Co.,

868 F. Supp. 33 (E.D.N.Y. 1994)

– The court precluded insurer’s proffered expert from testifying that insured’s alleged failure to provide timely notice violated terms of insurance policy and state statute. – This case illustrates the widely accepted, general proposition that expert testimony may not include legal opinions or conclusions.

63

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Harbor Ins. Co. v. Cont’l Bank Corp., 1991 WL

222260 (N.D. Ill. Oct. 25, 1991)

– At a first trial, the district court found that the insurer was not liable for defense costs in a shareholder securities fraud case. – The Seventh Circuit reversed and remanded, ruling certain expert testimony inadmissible. The insurer had introduced an attorney-expert to testify on the meaning of “indemnity” in the company’s charter. – The Seventh Circuit found that the expert’s legal opinion on a contractual term usurped the court’s role of instructing the jury on the law. Harbor Ins. Co. v. Cont’l Bank Corp., 922 F.2d 357 (7th Cir. 1990).

64

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Harbor Ins. Co. v. Cont’l Bank Corp., 1991 WL

222260 (N.D. Ill. Oct. 25, 1991) (con’t)

– On remand, the district court considered the insurer’s motion to bar the testimony of the insured’s expert, a Delaware

• lawyer. The expert was called to testify as to whether the

insurer was permitted or required to indemnify its officers and directors after a settlement. – Using the Seventh Circuit decision as a template, the trial court clarified the test for admitting the expert testimony:

• “A lawyer experienced in indemnification matters could be a

proper witness to opine on the charter’s probable meaning … . A legal expert may explain the ordinary practices of other corporations who deal with similar indemnification terms in their charter.”

65

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Harbor Ins. Co. v. Cont’l Bank Corp., 1991 WL

222260 (N.D. Ill. Oct. 25, 1991) (con’t)

“However, a legal expert may not give a legal opinion as to the meaning of the ambiguous contract terms. Nor may a legal expert give a legal opinion as to the legal standards believed to be derived from the charter.”

– The court held that the expert may testify about the ordinary practices of Delaware companies with identical indemnification language in their charters, but could not offer legal opinions.

66

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Fiserv Solutions, Inc. v. Endurance Am. Specialty Ins.

Co., 2014 WL 1415339 (E.D. Wis. Apr. 14, 2014)

– Insured’s expert proffered testimony that prior notice, prior wrongful acts, and similar exclusions were “not designed to be read so expansively . . . that they reduce or eliminate the policyholders’ incentives to purchase claims-made policies.” – The testimony, which “appear[ed] closer to a legal opinion, at first glance,” was permitted. The court held the statement was “not a legal opinion because [the expert did] not opine

• n specific interpretations of the terms but rather on the

general intent of insurers and policyholders regarding claims-made policies.”

67

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Lone Star Steakhouse & Saloon, Inc. v. Liberty Mut.
• Ins. Grp., 343 F. Supp. 2d 989 (D. Kan. 2004)

– At issue was expert testimony of a law professor submitted by the insurer addressing the economic consequences of interpreting an insurance policy as the insured suggested. – The expert-professor’s testimony was that two conditions must exist for coverage to be provided: (1) there must be some chance that the loss will occur over a particular period; and (2) the chance of accident may not be within the direct control of the policyholder.

68

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Lone Star Steakhouse & Saloon, Inc. v. Liberty Mut.
• Ins. Grp., 343 F. Supp. 2d 989 (D. Kan. 2004) (con’t)

– The expert concluded that the flooding damages sustained by the insured did not fit the insurance policy’s definition of “accident,” because the insured could have easily prevented

• r controlled the resulting damage.

– The expert stated, “It would thwart the public policy goals of creating incentives for parties to prevent losses under their control if [the insured] were successful in shifting its responsibility for that harm to its insurer.”

69

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Lone Star Steakhouse & Saloon, Inc. v. Liberty Mut.
• Ins. Grp., 343 F. Supp. 2d 989 (D. Kan. 2004) (con’t)

– The court excluded the testimony of the expert, on the ground that the testimony would not assist the trier of fact. – The court found that an insurance policy is not to be construed according to its potential economic effects, but rather as a “reasonable person in the insured’s position would have understood [it] ... Expert testimony that the damages must be ‘probabilistic’ to be covered would not, in the court’s view, assist the jury in understanding these terms.”

70

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Lone Star Steakhouse & Saloon, Inc. v. Liberty Mut.
• Ins. Grp., 343 F. Supp. 2d 989 (D. Kan. 2004) (con’t)

– The court also found that the expert’s opinion regarding coverage and control was unhelpful. The condition appeared nowhere in the policy and would only confuse the jury. – The court determined that the expert’s analysis contradicted precedent and, by striking his testimony, reaffirmed its responsibility to instruct the jury on applicable law.

71

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Lone Star Steakhouse & Saloon, Inc. v. Liberty Mut.
• Ins. Grp., 343 F. Supp. 2d 989 (D. Kan. 2004) (con’t)

– The court also dismissed the policyholder’s expert testimony

• n similar grounds. That expert stated that “damages in the

2000 lawsuit fell within the definition of an ‘occurrence.’” The court considered this opinion a legal conclusion that would not assist the jury in evaluating the facts. – Also excluded was the expert’s belief that “Liberty Mutual has no basis to apply the exclusion for ‘expected or intended injury,’” and was “barred by estoppel from denying coverage.” – According to the court, these statements involved interpretation of contract terms that should be explained to the jury by the judge alone.

72

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• SR Int’l Bus. Ins. Co. v. World Trade Ctr. Props., LLC,

467 F.3d 107 (2d Cir. 2006)

– The issue was whether the September 11 attacks on the World Trade Center constituted one or two occurrences within the meaning of the insurance policy at issue. – The insured offered expert testimony on insurance industry custom and practice regarding “per occurrence” property insurance coverage.

73

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• SR Int’l Bus. Ins. Co. v. World Trade Ctr. Props., LLC,

467 F.3d 107 (2d Cir. 2006) (con’t)

– The insurers challenged the testimony on these grounds:

• expert lacked practical experience on which to ground his
• pinion;
• expert employed no genuine methodology and drew upon no

external reference points in reaching his opinion; and

• expert could not offer a consistent, reliable methodology by

which he applied his opinions to the facts of the case.

74

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• SR Int’l Bus. Ins. Co. v. World Trade Ctr. Props., LLC,

467 F.3d 107 (2d Cir. 2006) (con’t)

– The court rejected all of these arguments and found that:

• expert had over 30 years of experience in the insurance

industry as both a broker and an underwriter and was familiar with practices in the industry, including practices relating to “per

• ccurrence” property provisions.
• expert was able to identify a practice whereby insurers equate

the definition of occurrence to a physical cause of loss to maximize the number of deductibles that an insured would be required to pay.

• insurers ignored the fact that the expert’s testimony did not

depend on engineering or scientific expertise but instead related to the customs and practices of the insurance industry.

75

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Dormitory Auth. of the State of N.Y. v. Cont’l Cas.

Co., 2013 WL 840633 (S.D.N.Y. March 5, 2013), aff’d in part, vacated in part, and remanded on other grounds, 756 F.3d 166 (2d Cir. 2014)

– Involved claims for professional negligence against an architect where the question was whether one claim that was not raised in the demand letter arose from or was related to another claim that was raised, under the insurance policy’s “related wrongful acts” provision. – The court considered (on summary judgment) testimony of insurance expert about the meaning of “related” in the policy.

76

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Seneca Ins. Co. v. Wilcock, 2007 WL 415141

(S.D.N.Y. Feb. 5, 2007)

– Limiting insurance expert’s proffered testimony to usage of the terms “loss” and “claim” in the insurance industry, and precluding expert’s views on insurer’s legal obligations and

• ther legal conclusions.
• AMEX Assurance Co. v. Caripides, 316 F.3d 154 (2d
• Cir. 2003)

– Admitting insurance-expert testimony, through court- appointed witness and a party witness, on interpretation of accidental death insurance policy.

77

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Peckham v. Cont’l Cas. Ins. Co., 895 F.2d 830 (1st
• Cir. 1990)

– Finding no legal error in admitting testimony from insurance experts/attorneys on causation, over objection that it was an “ultimate issue.” – Reasoning: “Insurance is a complicated subject and the industry, over time, has developed a patina of custom and

• usage. Arcana abound. Defendant’s proffered experts

could reasonably be expected to shed some light in a shadowy domain.”

78

Expert Testimony Regarding the Meaning

• f Insurance Policy Provisions
• Scottsdale Ins. Co. v. City of Waukegan, 689 F.
• Supp. 2d 1018 (N.D. Ill. 2010)

– Insured proffered an expert to testify about coverage. – The court struck many of the expert’s conclusions as improper “legal conclusions that will determine the outcome

• f the case.” For example:
• Opinions addressing limitations of coverage according to policy

terms “usurp the Court’s role” in interpreting policy language.

• Opinions offering conclusions about insurer’s duties under the

law are improper testimony about legal implications of conduct.

• Conclusions as to the scope of policies improperly tell the jury

what result to reach.

79

Expert Testimony About Whether A Reinsurer Was Obligated To Pay Its Reinsured

• Suter v. Gen. Accident Ins. Co. of Am., 424 F. Supp.

2d 781 (D.N.J. 2006)

– The Integrity liquidator was seeking reinsurance proceeds from General Accident for Pfizer heart valve coverage. – The reinsurer argued that reinsurance payments were not due to Integrity, because Integrity allegedly failed to determine in good faith whether the product liability claims had triggered coverage obligations. – Integrity submitted expert testimony in support of Integrity’s good faith efforts.

80

Expert Testimony About Whether A Reinsurer Was Obligated To Pay Its Reinsured

• Suter v. Gen. Accident Ins. Co. of Am., 424 F. Supp.

2d 781 (D.N.J. 2006) (con’t)

– The expert was a former Integrity employee. He discussed how the matter would be analyzed by a “hypothetical” liquidation court. – He additionally offered his view on how the hypothetical liquidation court might construe relevant case law. – The court rejected the reinsurer’s argument that this testimony was an impermissible legal conclusion, focusing

• n the nature of the expert’s background and qualifications.

81

Expert Testimony About Whether A Reinsurer Was Obligated To Pay Its Reinsured

• Suter v. Gen. Accident Ins. Co. of Am., 424 F. Supp.

2d 781 (D.N.J. 2006) (con’t)

– The court noted the expert’s 34 years of experience in the insurance business and his involvement in settlements of legal disputes. – “Where an expert is opining as to the custom and practice of a particular business, and where someone who is an expert in a particular field would be expected to understand the ways in which the laws affect the business, such testimony should be admitted.” – Here, the expert did not advise on what the law requires, but rather, what someone familiar with the law and practices of the insurance industry “believes to be the impact of the law

• n the business.”

82

Expert Testimony About Whether A Reinsurer Was Obligated To Pay Its Reinsured

• Suter v. Gen. Accident Ins. Co. of Am., 424 F. Supp.

2d 781 (D.N.J. 2006) (con’t)

– The court found that it was relevant that the testimony was presented at a bench trial, not a jury trial, where there is less danger of the expert usurping the role of the judge in advising the jury. – “Where, as here, there is no jury to instruct, the ability of the witness to ‘stray out of bounds and into the rightful territory

• f the Court is significantly lessened.”

83

General Themes of Case Law On Insurance Experts

• Expert testimony about the customs and practices of

the insurance business

– Typically admissible

• Expert testimony that directly guides the jury on what

the law is and how to apply the law

– Typically inadmissible – Cannot usurp the role of the court in instructing the jury on the law

• The line is not clear between what is improper expert

testimony about what the law is and proper expert testimony about standard industry practice.

84