Expert Witness & Bad Faith

In bad faith cases, juries must often decide if the way an insurer processed a claim lacked a “reasonable” basis.  Courts have consistently held that experts can help—by explaining how a claim is supposed to be handled.  The same courts also insist, however, that experts may not “tell the jury what result to reach.”  Three recent cases from an assortment of federal courts enforced that rule by excluding expert opinions.  But the real lesson of these cases might be that carelessness in presenting expert testimony is a greater barrier to admissibility than any actual rule of evidence.

What Does the Book Say?

Rule 702 of the Federal Rules of Evidence provides, among other things, that a party may offer expert testimony, “if…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….”  Furthermore, courts have “broad discretion” respecting the admission of expert testimony.  E.g., Smith v. Rodillo, 2014 WL 5859629 (Ga. App. Ct. 2014); Phelps-Roper v. Heineman, 2014 WL 5489365 (D. Neb. 2014).

Experts may, therefore, express their views about an “ultimate issue” that must be resolved by the trier of fact.  FRE 704(a).  But they may not present a “legal conclusion” or “direct[] a jury as to the result it should reach in making a decision.”  E.g., Owen v. Kerr-McGee Corp., 698 F.2d 236 (5th Cir. 1983); Elsayed Mukhtar v. California State University, Hayward, 299 F.3d 1053 (9th Cir. 2002).

As the U.S. District Court for the District of Montana remarked in Jarecke v. American National Property & Casualty Co. (D. Mont. Nov. 12, 2014), “the line between a permissible opinion on an ultimate issue and an impermissible legal conclusion is not always easy to discern.”  In Kraeger v. Nationwide Mut. Ins. Co., 1997 WL 109582 (E.D. Pa. 1997), for example, a court held that an expert could not opine that an insurer had “acted in ‘bad faith.'” At the same time, it ruled that an opinion to the effect that the insurer “had no reasonable basis for its actions” could be “helpful to the jury” and would be admitted.

Stopped at the Border

Jarecke involved a claim that the insurer had violated the Montana Unfair Trade Practices Act, and that it acted with “malice,” in connection with a claim for uninsured motorist benefits.  The plaintiff moved to exclude the testimony of the insurer’s expert, an attorney, whose report found that the insurer’s conduct had been “reasonable and consistent with its duties and responsibilities to handle claims … under Montana’s UTPA.”  While opposing that motion, the insurer itself sought to exclude the testimony of the plaintiff’s expert (also an attorney), who concluded that the insurer “unreasonably failed to attempt a prompt, fair and equitable settlement,” and had thereby “violated subsections (1), (4) and (6) of” the same statute.

In September, a federal court in Mississippi addressed a similar motion in Willis v. Allstate Ins. Co. (S.D. Miss. Sept. 26, 2014).  Willis arose out of a claim under a homeowner’s policy, and the plaintiff charged the insurer with breach of contract and bad faith.  The plaintiff moved to exclude the testimony of the insurer’s expert, in whose opinion the insurer had had “an arguable and legitimate basis for … denying [the plaintiff’s] contents claim” and “did not breach the contract in bad faith.”

Also in September, in McClain v. Madison National Life Ins. Co. (N.D. Ind. Sept. 4, 2014), an insurer charged with breach of covenant in the handling of a long-term disability claim sought to exclude an opinion that it had acted in bad faith and was guilty of “conscious wrongdoing.”

All of these motions to exclude were granted—in part.  In Jarecke, the court held “it [was] clear” that the statements quoted above “contain [legal] opinions that must be excluded.”  In Willis, the court cited Mississippi case law, holding that “[t]he question of whether [an insured] had an arguable basis for denying the … claim is an issue of law for the court.”  On that basis, it excluded testimony as to whether the defendant “had an arguable or legitimate reason to … deny payment of [the] contents claim.”  And it went further:

This bar applies equally to testimony that Defendant’s delay or denial was ‘reasonable,’ ‘appropriate,’ ‘within industry standards,’ or any other alternative phrasing that effectively addresses the ultimate legal issue of bad faith.

In McClain, the court also found that testimony about “whether or not Defendants engaged in bad faith” related to “the ultimate conclusion” and would be precluded.

But Wait…

The courts’ rulings didn’t end there.  The court in Jarecke denied the parties’ motions, “to the extent they seek to prevent these witnesses from testifying altogether.”  That is, it deferred decision about exactly what testimony the lawyer-experts would be permitted to give until the trial itself.

In Willis, the court provided more guidance:

[Defendant’s expert] may … provide testimony about ‘technical and specialized’ aspects of the ‘insurance industry’ that will ‘assist the trier of fact in understanding the issues and related evidence.  In other words, he may testify about industry norms such as ‘a standard insurance industry procedure for handling of claims …’ Likewise, he may testify as to ‘the standard of conduct’ expected from adjusters or claims handlers.  But he may not ‘draw conclusions from those standards’ as to the ultimate legal issue of Defendant’s alleged bad faith.

McClain came out the same way:  “testimony regarding industry standards provides some evidence of bad faith and is admissible.”  However, because “a violation of industry standards alone is insufficient” to establish bad faith, the court went on to grant the insurer’s motion for summary judgment.

Don’t Give Up

Sometimes, courts permit experts to offer opinions that sound an awful lot like “legal conclusions.”  For example, in Furr v. State Farm Mut. Auto. Ins., 716 N.E.2d 250 (Ohio App.3d 1998), an expert testified that the claim had been “handled in a manner well below appropriate standards of care,” and that “there was no reasonable justification for the delays and the failure of [the insurer] to make payments on the claim.”  Yet an Ohio appellate court found “that the trial court did not abuse its discretion in finding that [the expert’s] testimony either relates to matters beyond the knowledge or experience possessed by laypersons or dispels a misconception common among laypersons.”  See also Amerigraphic, Inc. v. Mercury Cas. Co., 107 Cal.Rptr.3d 307 (Cal. Ct. App. 2010) (trial court erred by excluding testimony that insurer’s construction of “Business Income” term in policy was consistent with industry standards); Lone Star Steakhouse and Saloon, Inc. v. Liberty Mut. Ins. Group, 343 F.Supp.2d 989 (D. Kan. 2004) (permitting expert to offer opinions “relating to insurance industry standards … and whether Liberty Mutual’s conduct conformed to such standards”); Johnson v. American Family Mut. Ins. Co., 674 N.W.2d 88 (Iowa 2004) (in action based on insurer’s alleged bad faith failure to settle within policy limits, affirming trial court’s decision to allow personal injury attorneys to opine that odds of excess verdict had been slight).

More often, though, courts stick to the pattern illustrated in Jarecke, Willis and McClain.  On the one hand, they will exclude testimony that purports to state whether an insurer violated the standards it was legally obligated to uphold.  On the other hand, they will permit experts to opine about what the industry standards are for handling hypothetical claims—including hypothetical claims that are identical to the claim at issue.  Once that opinion has been provided, it is up to the attorney to point out that those standards either do or do not describe what the insurer actually did.

In this legal landscape, expert reports of the kind offered in Jarecke—reports that include explicit statements about whether the insurer did or did not violate a particular statute—needlessly invite in limine motions and negative rulings.  The wiser course is to discuss both the facts of the case and the “standards” that apply to it in abstract terms.  Yet, as Jarecke and the other recent cases demonstrate, even a preclusion order may not be fatal.  In Willis, the defense expert was not permitted to state that the insurer’s denial had been “appropriate” or “reasonable,” but he was permitted to describe what appropriate and reasonable conduct would be.  That’s evidence any lawyer would be happy to use.