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Selecting and using expert witnesses in bad faith cases.

You must be selective in choosing experts in bad faith cases. If experts are not credible or they overextend themselves, your case will not succeed.

Consider using knowledgeable lay witnesses as well as conventional experts. Lay witnesses who arc well versed in insurance industry practices or who have themselves been victims of ruthless insurance company tactics can be believable witnesses. As in any litigation, witnesses must not only be knowledgeable but credible. Jurors know when a witness is "stretching" the envelope of truth.

This article explores some different types of experts and lay witnesses who may successfully reach the jury in these cases and explains how and when to use them.

Types of Experts

Adjusters. These are obvious experts to call. You should have little problem presenting these witnesses as experts - whether they are former adjusters now turned consultants or people presently adjusting for major insurance companies.

If you use respected retired adjusters or current adjusters who had or have substantial responsibilities with major companies, defense lawyers will be hard pressed to challenge their testimony. This is because the defendant will likely use in-house or retired adjuster consultants to counter the testimony of your experts.

Once chosen and properly qualified, these experts will be able to educate jurors on a variety of topics including

* the insurance carrier's duty to defend its client;

* the extent of this duty;

* the dollar value of the claim (property, casualty, health, or accident);

* the application of the law of the jurisdiction (including insurance regulations, the Uniform Deceptive Trade Practices Act, and case law) to the facts of the case; and

* the quality and quantity of conduct - whether intentional, willful, wanton, malicious, or in reckless disregard of the rights of the insured or a third-party claimant - in the claims-handling process.

Economists. The ultimate goal in most of this litigation is to convince the jury (and the judge) that an excess verdict or punitive damages award or both ought to be considered to punish, take away the "ill-gotten" gain, set an example, or deter future similar conduct. An economist - preferably one who has kept abreast of insurance practices and accounting procedures - may be helpful in explaining why a company should be punished and made an example of to deter future similar conduct.

Since economists are specialized in the field of "crunching numbers," they can explain the forces of the insurance marketplace and how and why companies "pad" the bottom fine. You can use an economist to educate jurors or to calculate gross profit as a result of bad faith conduct.

An economist can explain insurance industry terms such as "reserves," "incurred losses," "book losses," and "rates of return." Using diagrams and flow charts, economists can explain how premium dollars are broken down and siphoned off by carriers. Economic schemes to avoid painting a clear picture of company profitability also should be explored.

Economists can set the stage for the amount of a punitive damages award. They can perform a pivotal role in convincing a jury how a company is profiting from its reprehensible conduct.

Economists can be used to calculate gross profit as a result of bad faith conduct. Many of these cases involve a carrier's cheating, double-dipping, low-balling, double-dealing, or fraud. This conduct can consist of shaving small amounts off every claim - or refusing to pay or timely pay claims involving health, disability, and credit life or mortgage insurance, based on hypertechnical constructions of policy language, misrepresentation, or outright fraud.

Economists are in the best position to quantify dollars saved by a carrier's willful conduct over any incremental period of time. Once the cconomist calculates the carrier's savings, research can be conducted to determine the carrier's internal rates of investment so that present-day calculations can be made to show gross profits or savings realized.

Professors. Professors at local colleges or universities can be crucial players in exposing the exploits of carriers. Law professors, especially those with a background in insurance law, are particularly well suited to help expose a carrier's past bad faith cases.

Many insurance law professors have compiled data on topics such as the profitability of insurance carriers; the need for more effective regulatory measures; and the failure of past regulatory measures by state insurance commissioners due to ill-equipped, understaffed, and underfunded offices. These professors can also present a historical perspective on how the insurance industry in this country operates in an ineffectually regulated environment.

Attorneys. Attorneys who practice insurance law can explain technical issues involving the application of a state insurance regulatory scheme or the application of the Uniform Deceptive Trade Practices Act to the conduct in question. The attorney experienced or trained in this area can explain how the facts of a case apply to the law in your jurisdiction to clarify difficult points.

Attorneys who have handled similar claims or dealt with the same carriers in litigation are well qualified to address the issues of prior bad conduct, custom and practice, absence of mistake or inadvertence or both in insurance claim practices, intentional conduct, or similarity of facts vis-a-vis your case with the carrier's prior conduct.

Retaining a defense lawyer who has represented insurance companies for the bulk of his or her professional life is effective.

This attorney will be credible in explaining the schemes used by companies and how these practices in the marketplace vary from the printed manuals, procedures, or guidelines carriers issue. The attorney can explain "dummy" files or document destruction programs designed to hide the truth or "create" the "truth" a carrier wants conveyed.

Insurance commissioners. Former or current state commissioners can be used as experts. Unfortunately, many of them obtained their training and experience working for insurance companies, so caution is in order.

Depending on your state's regulatory environment, an insurance commissioner could be one of the most knowledgeable experts in identifying abusive practices. Since commissioners oversee state insurance regulatory schemes (and in varying degrees are enforcers of a state's deceptive trade practices statute), no one would appear to be in a better position to relate facts and figures concerning industry practices.

An insurance commissioner should be qualified to discuss -

* theory of insurance risk spreading);

* adjusting practices in the industry (in general);

* adjusting practices of different carriers; and

* how different companies manipulate claims experience to affect rates.

Lay witnesses. A lay witness is someone who by knowledge, training, experience, education, or otherwise can help the jury understand the conduct of a particular carrier.(1) Used car salespeople, builders, mechanics, auto body repair specialists, fire cause and origin specialists, psychologists, media specialists, and insurance sales agents are but a few potential lay witness experts.

Ben Hogan, of Birmingham, Alabama, some time ago, used a local English teacher as a lay witness expert in an insurance fraud case. In Phillips v. United American Insurance Co., a $1.8 million verdict was rendered because of the carrier's fraudulent failure to pay a $264 medical claim.(2)

A brochure the carrier used to explain the coverages available was clearly different from the actual policy. The teacher diagrammed sentence by sentence the brochure's promises of coverage and concluded that the policy language had a different meaning than the corresponding language in the brochure. On cross-examination, defense counsel, not realizing how damaging this would be, asked the teacher to diagram the corresponding sentence in the policy, and the witness's point was easily made.

Use of an English teacher was innovative and points out that one need not have an expert with a 10-page resume and a Ph.D. to reach a jury. An English teacher is also far less expensive than most experts and may be known by some jurors. How much more credibility could a conventional expert have than an English teacher who taught jurors' children?

In a recent case tried to a jury in West Virginia, a used car salesman testified in the compensatory phase of a bifurcated insurance bad faith case. He explained why Allstate's conduct in deducting reconditioning and cleanup fees in total vehicle loss cases was improper and would result in paying far less than fair value to the insured.(3)

Before trial, the court had excluded the plaintiff's right to use its only insurance expert due to a claim that the insurance adjuster had confidential work product concerning Allstate's activities. The West Virginia Supreme Court of Appeals overturned the trial court. Nevertheless, the trial court later continued to exclude the expert on other grounds. This left the plaintiff with only a used car salesman to explain why Allstate's claims adjusting practices were improper.

A survey of prospective jurors conducted before trial indicated that the most believable witness for either party would be the used car salesman. (The expert witness pool had included chief executives for six major insurance companies proffered by Allstate.) The jury returned a compensatory damages award in the exact amount that the used car salesman indicated was fair based on his training, experience, and knowledge of West Virginia insurance laws.

Strategies for Punitive Damages


In fight of recent U.S. Supreme Court decisions concerning the viability of punitive damages awards, parameters on these awards are being set. Awards in all jurisdictions will now be subject to retrospective review. Therefore, greater use of experts is suggested to ensure keeping punitive damages awards on appeal.

The key to preserving these awards is "due process." Each state's review of a trial court's punitive damages award must now involve substantive standards designed to comport with minimum constitutional due process rights.

For example, in Pacific Mutual Life Insurance Co. v. Haslip, the U.S. Supreme Court looked at Alabama's method of reviewing punitive damages awards and confirmed that since Alabama conscientiously reviewed 12 different substantive areas in passing on a punitive damages award, it had comported with minimal due process.(4)

In TXO Production Corp. v. Alliance Resources Corp., the U.S. Supreme Court found that West Virginia's substantive standards also comported with sufficient due process standards.(5)

If your state has not yet developed standards, adopt West Virginia's when selecting experts and develop your factual presentation to conform with the standards. This will ensure retaining the punitive damages award.

In most bad faith cases, the club held over the carrier is the threat of punitive damages. With heightened scrutiny now being applied to these awards, it becomes crucial to meet as many of the standards as possible by presenting proper expert opinion testimony based on the facts of your case.

For example, an economist could render expert testimony concerning these substantive standards:

* the defendant's financial position;

* the attempts to conceal the wrong by using "voodoo" accounting; and

* the profitability of the conduct and arguably the defendant's awareness of the conduct by reference to internal accounting practices.

In-house adjusters, plaintiffs counsel, and claimants in other legal actions could review the facts and documents compiled during discovery and testify about experiences with the company in question. These witnesses could render expert opinion testimony on the following standards:

* the duration of the conduct claimed to constitute bad faith;

* the defendant's awareness of the conduct;

* the attempts to conceal the bad conduct;

* the frequency of like conduct; and

* the reprehensibility of the conduct in light of a comparison of in-house claims procedures and manuals, in-house oral communications, and what was actually done to the insureds to "pad" company profits.

An attorney or professor could discuss these standards:

* the reprehensibility of the conduct in relation to insurance regulatory schemes; deceptive trade practices acts in other states; and the rendering of expert testimony as to whether the conduct is willful, wanton, intentional, malicious, or reckless in disregard of the insured's or the claimant's legal rights;

* the desirability of removing the profit motive by awarding punitive damages; and

* the specific use of attorneys to show how litigation costs prevent or preclude many bad faith cases from being filed, thereby resulting in insureds being deprived of the benefit of their insurance contracts because of the financial position and strength of the insurance industry.

Insurance commissioners could relate specific facts to back up the following standards:

* whether the carrier has been criminally sanctioned for past conduct;

* whether, and how many times, the company has been subjected to other civil damages awards or administrative sanctions under a state deceptive trade practices act; and

* the harm done to the litigant as well as the likelihood of future harm to insureds similarly situated as a result of the defendant's conduct if it is allowed to continue as before.

Use of these experts pressures the defendant to negate their testimony through its own experts. Unfortunately for the carrier, use of these experts may force it to discuss substantive standards a second time, thereby reinforcing the insurance carrier's bad conduct before the jury.

It does not appear that the U.S. Supreme Court decision in Daubert v. Merrell Dow Pharmaceuticals, Inc. will affect most insurance bad faith cases.(6) Daubert merely held that a court is to review the methodology and principles on which experts base their opinions, not the results of these opinions themselves.(7)

Practice Pointers

How to uncover defense experts. In most cases, including insurance bad faith ligation, you will encounter the discovery battle of experts. A typical scenario goes like this: The plaintiff submits the complaint, interrogatories, request for admissions, and request for production. Among other things, a request is made to discover the names and addresses of all possible defense experts, a designation of the facts known and opinions held by these experts, and a short statement of the underlying basis of the opinions to which they are expected to testify.(8)

Of course, the typical response from the defendant goes like this: "Please be advised that discovery is still ongoing. It's too early in discovery to obtain, much less identify, the names of any experts we propose to use." Or "We don't know who you will use as experts or what they will say, so until we receive this information we can't respond." Although I would advocate using the Ride 26(b)(4) discovery tool early and often, here is another way to short-circuit this game.

To combat the "we don't know enough" excuse, serve with your complaint a set of interrogatories requesting the experts but include the names, addresses, and resumes of your experts along with a Rule 26(b)(4) disclosure. By doing this early, you serve three purposes:

* You tell the defendant that you are prepared;

* The defendant no longer has any excuse not to start searching for experts to combat yours; and

* The defendant knows exactly what your experts will testify to.

In line with what is suggested above, submit a Rule 30(b)(6) or similar deposition notice to the corporate defendant early. This rule requires the defendant to provide information the plaintiff can use to early advantage.

How to find the most knowledgeable deponent. In almost every case, you will be exposed to facts that require interpreting policy language and applying facts to the law of your jurisdiction. In trying to establish a violation of a deceptive trade practices act, you must show how conduct violated or deviated from the law. Why not demand in your 30(b)(6) deposition notice that the corporate defendant designate that person most knowledgeable of the facts of the case in relation to the law of the jurisdiction and then proceed to take that person's deposition?

Before starting the deposition, simply read the notice to the person (or people) the defendant sent to appear. Next, ask which person most closely matches the description in the notice. If anyone responds to this, proceed by asking appropriate questions delineating the carrier's conduct.

Ideally, the person who steps forward will also be used to speak for the company at trial. But typically, a defendant will seek outside experts to explain away its conduct. These experts may disagree with the in-house experts obtained under the "most knowledgeable" deponent notice.

Sometimes a deponent put forth by the defendant is not comfortable admitting that he or she is the "most knowledgeable" person in the company on a subject. After you read the notice, the person replies that neither he or she nor anyone else in the entire company is the most knowledgeable on the subject.

In this situation, the defendant at least looks awkward and probably ignorant about its own procedures. The 30(b)(6) deposition notice format requires the company to put forward one or more officers, directors, or managing agents who can expertly speak for the company. If the person put forward win not or cannot authoritatively do this, the company loses credibility when trying to justify its conduct toward the insured or claimant.

How to overcome the instruction not to answer routine questions. Discovery battles take place in these cases as well as in highly contested medical negligence and products liability cases. Defense lawyers sometimes tell crucial witnesses, including expert witnesses or highly placed company officials, not to answer certain questions because they know that a true answer will be harmful or prejudicial. Here is a technique to obviate this attempt to hide crucial information. You should set down for hearing, at the earliest practical time, a motion to prohibit defense counsel from instructing witnesses not to answer questions. Inform the court that according to the rules a witness can be instructed not to answer questions only (1) when the lawyer instructing the witness is actually that party's lawyer, (2) when if answered the question could implicate Fifth Amendment rights, or (3) when the question would impermissibly intrude into the attorney-client relationship.

Usually judges are receptive to this motion, and they instruct defense counsel to avoid these tactics.

Overcoming Objections In many insurance bad faith cases, defense counsel will be highly protective of so-called experts who will testify that the defendant did no wrong, that all company policies and procedures were followed, and that the company did not violate any provisions of the state Uniform Deceptive Trade Practices Act or any other statutory or common law.

In order to protect their experts, defense counsel will typically make the following objections during the deposition process:

* The question asked is beyond the scope of the knowledge of this expert;

* The expert witness is not authorized to speak for or on behalf of the company; and

* The question being asked calls for a legal conclusion and the witness is not a lawyer.

If defense counsel tries to protect an expert or lay witness by interposing these questions, you have hit pay dirt.

In the first instance, if you have used 30(b)(6) notice before deposition, you have already uncovered "those individuals most knowledgeable about the handling of the claim under consideration" and the pertinent facts and law. Since the company has designated, under that rule, the most knowledgeable person, counsel making this objection made the witness out to be a mere lay witness or an uninformed "expert" - a person who although being the most knowledgeable to speak for the company can't speak because he or she doesn't know the law or the facts.

A Catch-22 Tool

One approach to use when confronted with this conduct is to follow up with these questions:

* Do you adopt the statement of your legal counsel that the question is beyond your knowledge as an expert?

* You are not authorized to speak for the company, are you?

* Do you agree that you are not a lawyer or trained as a lawyer and therefore cannot and should not be making legal decisions or determinations for the company?

If the witness makes the appropriate responses, you will have neutralized the deposition. Why? In the typical case, you will be suing the adjuster who adjusted the claim. This person is being put forward as one of the people most knowledgeable about the handling of the claim in relation to the facts and the law.

The witness has stated competence to adjust the claim and perform all those tasks and then turns around and pleads incompetence to testify as to whether the job was performed in accordance with the law.

Beware of objections to the use of your expert. If you have chosen to use a former claims adjuster from a carrier you once sued, objections could be raised based on claims the expert must be disqualified due to prior relationship with the carrier and the possession of privileged and confidential information.

The typical objection is based on Rule 26 of the Rules of Civil Procedure for either federal or state courts. In part, this rule codifies the work product doctrine. It provides that information prepared in anticipation of litigation is privileged and that courts are to be especially on guard against disclosure of any of the other party's mental impressions and legal theories.

Counsel for insurance companies argue that since your expert worked in a sensitive position with the carrier either just before the claim was filed or actually during the claim handling, the adjuster is tainted by possessing the mental impressions, legal theories, and information prepared in anticipation of litigation in your case.

Some of the cases counsel will mention are Mayer v. Dell, Wang Laboratories v. Toshiba Corp., Paul v. Rawlings Sporting Goods, and Marvin Lumber & Cedar Co. v. Norton Co.(9)

Not one involves a suit against an insurance company and for good reason. In most cases, if you use a former claims adjuster for a certain insurance company, that person does not have a law degree; the person is not privy to the mental impressions and legal theories of in-house or out-of-house legal counsel; and, in most cases, legal counsel never dealt directly with adjusters.

Only if the defendant can establish that your expert participated directly with legal counsel in preparing a defense to the case under consideration will the defendant have even a chance of excluding your expert.

The fact is that in almost every claim an adjuster does not set policy and procedure for a major insurance company. Policies and procedures are set at the home office by high-ranking employees who inform claims adjusters of any changes by memos.

You should be able to overcome claims that your expert should be disqualified. Have the expert present affidavits disclaiming participation in developing any legal strategies and defenses and/or disclaiming any knowledge of any mental impressions or conclusions of in-house or out-of-house legal counsel.

Use of expert witnesses in insurance bad faith litigation is not an exact science. Innovative use of expert and lay witnesses is crucial in obtaining a successful jury verdict and protecting and ensuring a punitive damages award. As in all major litigation, care should be taken not to extend an expert witness beyond his or her realm of expertise.

Insurance Section:

Good Alliance Against Bad Faith

ATLA's Insurance Section supports member attorneys who represent plaintiffs in insurance disputes. Members receive late-breaking news concerning recent developments on procedure, discovery, evidence, and pre-trial and trial techniques designed to enhance lawyering skills.

"Every trial lawyer is eventually going to come across an insurance matter that requires some expertise," said Frank Verderame, the 1994-95 section chair. "Our goal as a section is to provide a broad base of legal education about insurance laws for our members as well as to exchange case information."

Verderame said that the section is currently attempting to better coordinate efforts with ATLA's insurance litigation groups "to provide a more comprehensive support group for our members."

The four litigation groups - Bad Faith Insurance, ERISA/Employee Benefits, Fidelity Insurance, and Property and Fire Loss - currently operate as networking centers, sharing information and expertise. The Insurance Section focuses more on educational programs.

According to Verderame, close cooperation between the litigation groups and the section would be both cost-effective and member friendly. It would also be "a natural outgrowth that reflects the maturation of the Insurance Section as a whole," Verderame said.

The section is currently working to develop a comprehensive member directory and a quarterly newsletter covering legal news and trends in insurance law.

Tom Henretta, the incoming chair for 1995-96, "will bring great continuity to the job," according to Verderame. "Tom will work with ATLA's Public Affairs Department to make the Insurance Section even more accessible to members of Congress, health care subcommittees, the White House, and the major news organizations - all of whom have called on us to answer insurance-related questions in the past year," he said.

For more information on the programs and activities of the section or to become a member, contact Lynn Gewessler at (800) 424-2725 or (202) 965-3500, ext. 312. Annual dues are $25.

James C. Peterson practices with Hill, Peterson, Carper, Bee & Deitzler in Charleston, West Virginia.


(1) See, e.g., FED. R. EVID. 701 (1987). (2) Phillips v. United Am. Ins. Co., CV-87-132-JSS (D. Ala. May 25, 1989); 32 ATLA L. REP. 252 (Aug. 1989). (3) McCormick v. Zakaib, 430 S.E.2d 316 (W Va. 1993). Accord Hawkins v. Allstate Ins. Co., 733 P.2d 1073 (Ariz. 1987), cert. denied, 108 S. Ct. 212 (1987). (4) Ill S. Ct. 1032 (1991). The Alabama standards were set forth in Green Oil Co. v. Hornsby, 539 So. 2d 218, 223-24 (Ala. 1989). (5) 113 S. Ct. 2711 (1993). The West Virginia standards were developed in Garnes v. Fleming Landfill, Inc., 413 S.E.2d 897, 899-900 (W. Va. 1991). (6) 113 S. Ct. 2786 (1993). (7) Id. at 2796. (8) See FED. R. CIV. P. 26(b)(4) or your state's similar discovery rule. (9) Mayer v. Dell, 139 F.R.D. 1, 3 (D.D.C. 1991); Wang Lab. v. Toshiba Corp., 762 F. Supp. 1246,1248 (E.D. Va. 1991); Paul v. Rawlings Sporting Goods, 123 F.R.D. 271, 278 (S.D. Ohio 1988); Marvin Lumber & Cedar Co. v. Norton Co., 113 F.R.D. 588, 591 (D. Minn. 1986).
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Title Annotation:Insurance Law
Author:Peterson, James C.
Date:Sep 1, 1995
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