The Coverage Attorney’s Role as Expert Witness in Proving Damages Against an Insurer

The Coverage Attorney’s Role as Expert Witness in Proving Damages Against an Insurer

By David A. Gauntlett[*]

Introduction

Historically, insurance coverage counsel have had a limited role as testifying experts. Typically, testimony of defense counsel who incurred the defense fees whose recovery is sought suffices to prove their reasonableness. But when insurers challenge their analysis, testimony from experts inform that determination. A pair of recent Texas decisions[2] demonstrate when expert witnesses can aid in resolving damage recovery disputes. An earlier decision applying California law[3] and several assessing New York law[4] also explore the limitations on use of expert testimony in addressing defense fee recovery issues. Indeed, one New York court specifically identified jurisdictional differences, one of the primary complaints of America Can! plaintiffs, as the reason for entirely discounting expert reports.[5]

How Coverage Counsel Can Establish Recoverable Damages

Black letter law in virtually every forum states that expert witnesses cannot provide legal conclusions.[6] Their framing of the facts, however, goes a long way in leading the proverbial horse to water. Despite these limitations, a policyholder expert in America Can! was permitted to opine that the insurer “slow-walked review of the bills and raised unjustified conflicts and issues, resulting in the insured having to make the direct payments and then be left to the mercy of [the insurer] in terms of getting reimbursement.”[7] He explained why this practice violated the terms of the agreement at issue.[8]

A second insured-retained expert supplemented that testimony. He also highlighted the deficiencies in the insurer’s reservation of rights (“ROR”) letters,[9] concluding that the insurer “waited too long to issue its first reservation of rights (“ROR”) letter and the other two RORs were inadequate” when insurer “waited nearly two years” to issue its first ROR. [10] “[D]uring that delay, [the insurer] had not formally abided by its duty to defend and procure counsel for the insured.”[11] The expert also noted where the insurer failed to abide by standard practice within the industry.[12]

Issues to Address or Circumnavigate

In America Can!, the insurer promptly conceded a duty to defend the underlying action but failed to fully reimburse the policyholder,[13] precipitating the insurance coverage lawsuit. The second decision addressed Plaintiffs’ quest to exclude the testimony of the insurer’s expert witness. Plaintiffs argued that his testimony included legal conclusions[14] and that he was not qualified to opine on the case’s issues.[15] Nonetheless, the court permitted the testimony because the witness was “a lawyer with over 30 years experience in insurance law who has defended insurance companies in insurance coverage and bad faith lawsuits in Texas courts and other jurisdictions and has taught and written on the topics of insurance coverage and bad faith claims.”[16]

That experience purportedly qualified him to “offer opinions regarding the handling of Plaintiffs' insurance claim and the reasonableness and necessity of the fees and expenses incurred in the trademark lawsuit.”[17] Arguments regarding the witness’s qualifications, as well as additional those regarding the methodology used,[18] “go to the weight afforded to his testimony, not its admissibility.”[19]

The Best Use of Coverage Counsel to Win Summary Judgment on Damages

In a recent Texas federal court coverage case, the Magistrate Judge Report denied the policyholder a defense for a complex class-action suit based on the “breach of contract” exclusion in a Directors and Officers policy and had no occasion to reach the issue of damages.[20] But damages were fully briefed by the insured. So the insured explained and calculated damages sought based on undisputed facts,[21] thereby enabling a ruling without a trial. And, the insurer did not contest the evidentiary showing in its Objections[22] to the Magistrate’s Report, instead relying upon a belated and evidentiarily incompetent Response to the insured’s Objections,[23] it was untimely.

Conclusion

Even when fees and their reasonableness are determined and not disputed, there can still be a final battle regarding calculation of prejudgment interest.[24] Expert witnesses cannot render legal conclusions, but they can present the facts in a manner that the conclusion is essentially foregone. In doing so, they can not only aid you in winning a coverage dispute. They might be able to avoid the costs of a trial.

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[*] David A. Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. He also serves as an expert witness on insurance coverage issues and represents policyholders and their counsel on a range of fee dispute issues with their insurers. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[2] Am. Can! & Am. Can! Cars for Kids v. Arch Ins. Co. & Care Providers Ins. Servs. LLC, Civil Action No. 3:20-CV-0850-X-BH, 2022 U.S. Dist. LEXIS 87416 (N.D. Tex. Apr. 6, 2022); Am. Can! v. Arch Ins. Co., Civil Action No. 3:20-CV-0850-X-BH, 2022 U.S. Dist. LEXIS 66271 (N.D. Tex. Apr. 9, 2022).

[3] Hewlett-Packard Co. v. Ace Prop. & Cas. Co., 2006 U. S. LEXIS 109538, *141–43 (N.D. Cal. June 12, 2008).

[4] 360Heros, Inc. v. Mainstreet Am. Assurance Co., No. 5:17-CV-549 (MAD/ML), 2021 U.S. Dist. LEXIS 160390, *5–7 (N.D.N.Y. Aug. 25, 2021) (Court acknowledged insurer fee auditor did not qualify as an expert, but improperly considered his lay opinion testimony without validating his evidentiary competency to do so.) See Palmer v. Rice, Civil Action No. 76-1439 (HHK/JMF), 77-2006 (HHK/JMF), 2005 U.S. Dist. LEXIS 10123, *9–14 (D.D.C. May 27, 2005) (Lawyer as lay witness cannot address reasonableness of attorney fees charged by other lawyers).

[5] Danaher Corp. v. Travelers Indem. Co., 2015 U.S. Dist. LEXIS 14159, *48 n.13 (S.D.N.Y. Jan. 16, 2015) (Declining to credit the reports of one expert on reasonable rates for attorneys’ fees because “there is no indication that she took into account the jurisdiction in which those rates were charged.”)

[6] Krys v. Aaron, 112 F. Supp. 3d 181, 190 (D.N.J. 2015) (“[Case law] precludes either expert (and indeed any expert) from testifying . . . whether . . . (Defendants) violated and/or complied with applicable legal requirements.”)

[7] Am. Can!, 2022 U.S. Dist. LEXIS 87416. (MOTION Limit the Testimony of Jim Leatzow and Motion to Strike Michael W Huddleston as Plaintiffs' Substitute Experts filed by Arch Insurance Company, Care Providers Insurance Services LLC, Dkt. 115-2 at p. 12/36 (Jan. 11, 2022 Motion)).

[8] Id. (“This is not a policy, like many director’s and officer’s policies, which allow only for the insured to be indemnified after it has paid defense costs.”)

[9] For the importance of ROR letters, see David A. Gauntlett, Disputes Over Control of Counsel Between Policyholders and Insurers, https://www.gauntlettlaw.com/news/disputes-over-control-of-counsel-between-policyholders-and-insurers (May 12, 2022).

[10] Am. Can!, 2022 U.S. Dist. LEXIS 87416. (Dkt. 115-1 at p. 9/19 (Jan. 11, 2022)).

[11] Id.

[12] Id. at pp. 9–10/19 (“[I]n the industry, if the insurance company believes there is a conflict regarding coverage and defense, the ROR letter will include a detailed explanation.”)

[13] Am. Can!, 2022 U.S. Dist. LEXIS 66271 at *2–3 (“Plaintiffs allege that the fees and expenses incurred and paid by them in connection with the lawsuit exceeded $4 million, but Defendants ‘only reimbursed [them] a fraction of this amount.’”) (alteration in original).

[14] Am. Can!, 2022 U.S. Dist. LEXIS 66271. (MOTION Exclude Expert Christopher Martin filed by America Can!, America Can! Cars for Kids with Brief/Memorandum in Support, Dkt. 104 (Oct. 28, 2021)) (Listing 25 specific conclusory statements from the expert report and objecting because “Martin’s report may be appropriate from an advocate arguing as counsel, but not a witness testifying under Rule 702.”)

[15] Id. (“Martin has no experience trying intellectual property cases, which is not run of the mill litigation [or] trying cases in New Jersey. Thus, he lacks even anecdotal expertise on the types of legal services that are appropriate in a trademark litigation case or reasonable fees that are typically charged by lawyers who litigate cases in New Jersey.”)

[16] Id. at *9.

[17] Id.

[18] Id. at *17 (“Plaintiffs argue that Mr. Martin's opinions are unreliable because they are based on unproven assumptions and an unreliable methodology.”)

[19] Id. at *10.

[20] SXSW, LLC v. Fed. Ins. Co., No. 1:21-CV-00900-RP, 2022 U.S. Dist. LEXIS 92709, *29 (W.D. Tex. May 24, 2022).

[21] Id. (SUPPLEMENT Brief Addressing The Settlement Order's Effect on Recovery Available to Plaintiff by SXSW, LLC, Dkt. 24 (May 16, 2022)).

[22] Id. (OBJECTION to 26 Report and Recommendations of United States Magistrate Judge to District Judge Robert Pitman by Federal Insurance Company, Dkt. 30 (June 7, 2022)).

[23] Id. (RESPONSE to Plaintiff SXSW LLC's to 27 Objection to Report and Recommendations, 26 Report and Recommendations, Motions No Longer Referred by Federal Insurance Company, Dkt. 30 (June 21, 2022)).

[24] See Legion Partners Asset Mgmt., LLC v. Underwriters at Lloyds London, No. N19C-08-305 AML CCLD, 2022 Del. Super. LEXIS 57, *1 (Super. Ct. Jan. 31, 2022) (“The Court has issued two decisions regarding the defendant insurer's obligation to pay the plaintiff insured's defense costs. The only remaining issue before the Court relates to prejudgment interest, specifically the date upon which prejudgment interest should begin to accrue.”)