Genuine Dispute Summary Judgment Reversed for Abuse of Discretion and Trial of Fact Questions About Expert Opinions

Christopher Kendrick and Valerie A. Moore | Haight Brown & Bonesteel

In Fadeeff v. State Farm General Ins. Co. (No. A155691, filed 5/22/20 ord. pub. 6/8/20), a California appeals court held that triable issues of fact and the trial court’s failure to address a request for a continuance precluded summary judgment for an insurer under the genuine dispute doctrine.

In Fadeeff, the policyholders made a claim to State Farm for smoke damage to their home from the 2015 Valley Fire in Hidden Valley Lake, California. With State Farm’s approval, the insureds retained the restoration company, ServPro, to assist with smoke and soot mitigation. State Farm documented smoke and soot on the interior walls, ceilings and carpeting, and on all exterior elevations, including on the deck and handrail. State Farm made a series of payments on the claim totaling about $50,000.

The insureds then hired a public adjuster and submitted supplemental claims for further dwelling repairs and additional contents replacement, totaling approximately $75,000. State Farm responded by using its own independent adjuster to investigate, who was neither licensed as an adjuster, nor as a contractor. State Farm also retained forensic consultants for the structure and the HVAC system, but neither the independent adjuster nor the consultants were aware that State Farm had an internal operation guide for the use of third-party experts in handling first party claims, which guidelines were therefore not followed. In addition, the consultants made allegedly superficial inspections, with one attributing smoke and soot damage to other sources of combustion, including the insureds’ exterior propane barbecue, an internal wood fireplace and wood stove and candles that had been burned in the living room. None of the consultants asked the insureds when they had last used any of the sources of combustion.

State Farm denied the supplemental claim and in the subsequent bad faith lawsuit, State Farm, relying on its use of experts, moved for summary judgment on the ground that the “genuine dispute” doctrine defeats the bad faith claim where an insurer reasonably relies upon expert opinions in reaching a claim decision. The insureds’ opposition was based on declarations from their own adjuster and expert, who opined that the work performed to date had not completely removed soot throughout the structure, or the HVAC system. The declaration from the insureds’ expert also refuted the opinions of State Farm’s expert. Plus, the insureds made a request for a continuance under Code of Civil Procedure section 437c(h), which authorizes a court to order a continuance for additional discovery, on affidavits of necessity.

At the hearing on the summary judgment motion, the trial court did not address the request for continuance. The court sustained State Farm’s objections to portions of the insureds’ declarations and reports, which gutted the insureds’ evidence contradicting State Farm’s expert, and granted State Farm’s motion. On appeal, however, the appeals court found both factual questions and an abuse of discretion by the trial court, mandating reversal.

Regarding the former, the Fadeeff court said that the use of experts does not automatically insulate an insurer from bad faith liability under the genuine dispute doctrine. (Citing Guebara v. Allstate Ins. Co. (9th Cir. 2001) 237 F.3d 987, 994.) In particular, the Fadeeff court said that where the dispute is purely factual, such as differing opinions of experts, whether there was a genuine dispute can only be decided on a case-by-case basis. (Citing Chateau Chamberay Homeowners Assn. v. Associated International Ins. Co. (2001) 90 Cal.App.4th 335, 348.) The Fadeeff court quoted Chateau Chamberay’s list of circumstances where a biased investigation claim should go to jury: (1) the insurer was guilty of misrepresenting the nature of the investigatory proceedings; (2) the insurer’s employee’s lied during the depositions or to the insured; (3) the insurer dishonestly selected its experts; (4) the insurer’s experts were unreasonable; and (5) the insurer failed to conduct a thorough investigation. (Quoting Chateau Chamberay, supra, at 348-349.)

The Fadeeff court pointed out that the insureds had presented evidence that part of their claim had been denied by State Farm in violation of the California fair claim handling regulations, based on ServPro’s work power washing the outside of the structure, which had caused the paint to peel. State Farm had denied that part of the claim on the ground that it, as well as damage to carpets and wall coverings, was not smoke or fire damage, and excluded as wear, tear or deterioration. But the insureds argued that the damage to the exterior caused by power washing was required to be covered under California Code of Regulations, title 10, section 2695.9(a)(1), as “consequential physical damage incurred in making the repair or replacement not otherwise excluded by the policy [which should] be included in the loss.” The court also noted the problem of the internal operation guide, and the State Farm independent adjuster’s failure to follow it. That and several other inconsistencies lead the Fadeeff court to conclude that there were triable issues regarding whether State Farm could have reasonably relied on its experts in denying the supplemental claims.

The Fadeeff court also reversed the summary adjudication on punitive damages, finding that State Farm failed to carry its burden to show that the Fadeeffs could not prove that State Farm acted with an absence of malice, oppression or fraud. (Civ. Code, § 3294, subd. (a); § 437c, subd. (f)(1); Basich v. Allstate Ins. Co. (2001) 87 Cal.App.4th 1112, 1118.) The Fadeeff court found that “The fact that an individual plaintiff may not believe that the people at State Farm ’wanted to harm you or hurt you intentionally’ does not conclusively answer the question whether State Farm intentionally misrepresented or concealed a material fact, or acted with knowing disregard of the rights of others.” (Citing CACI No. 3946—Punitive Damages.)

More fundamentally, the Fadeeff court found that reversal was required in any case, because of the trial court’s failure to address the request for a continuance, either at the hearing or in its ruling. The court stated that whether or not to grant a continuance under section 437c(f) is a matter within the court’s discretion, and is reviewed for abuse of discretion. But the Fadeeff court stated that reversal was mandated because a trial court’s failure to exercise discretion is itself an abuse of discretion. (Citing Kim v. Euromotors West/The Auto Galley (2007) 149 Cal.App.4th 170, 176.)

Being an Expert Witness with “Nothing” to Witness

Advise & Consult, Inc.

Fire ravaged neighborhood.

Typically, when we are hired as a construction expert witness, we are given some preliminary documents and plan on a site visit.  We are then able to “witness” many of the damaged properties (if the damage has not already been repaired) and start gathering data on what caused the damage, who the responsible parties are, and what are the estimated costs to repair the damage – in a simplified example – to find a resolution for all parties involved and move on.

There are other instances, however, where we are hired as a construction expert witness and expected to find a resolution with “nothing” to witness.  It seems increasingly more often, large wildfires, hurricanes, tornadoes, and other natural disasters are ravaging many areas, resulting in massive damage to life and property, leaving little to nothing behind over hundreds of thousands of acres.  People have suffered catastrophic losses of most if not all personal possessions including property documentation.  These clients are emotionally worn out and completely overwhelmed with starting over and finding a place of stability for their family with so many questions left unanswered.  The experience is harrowing and painful to revisit and being asked to provide documentation or answer questions about this loss causes frustration and pours salt on yet to be healed open wounds.

Law firm administration do their best to gather as much info as possible for the expert witnesses to create their report. The problem is they know what information is needed to fully support their claim for damages but do not know exactly what is needed to satisfy the insurance company and this can add months to the process – only adding to the frustration and anxiety of firm staff and property owners.  Here lies the bottleneck and the client’s frustration – being asked to relive the pain trying to gather information that is not needed.  Multiply this by the potential hundreds of clients that you have signed to represent, and this can be very frustrating and nerve wracking for staff trying to deal with hyper emotional clients and finding that they are not moving through the process in the most efficient way – causing everyone involved only an increase in stress and anxiety.

When you have a qualified expert witness firm that knows the exact information that is needed for an accurate rebuild estimate report, it streamlines the entire process from beginning to end for the clients, the law firm and/or insurance company.  This information can be gathered through a short 30-60-minute phone interview and paired with public, online sites that can provide most, if not all, of the necessary information in a good picture of the loss.  When other documentation is available from the client, those documents can be dragged and dropped by the clients straight to the expert witness.  This can all be done with a 3-5 business day turn around.  This process is efficient, accurate, and less painful, making it a win for the client, a win for the law firm and/or insurance company, and a win for the expert witness.  If your expert witness firm cannot provide this type of resolution, why are they your expert witness firm?

Sanctions Award Against Pro Se Plaintiff Upheld

Tred R. Eyerly | Insurance Law Hawaii

    The plaintiff’s failure to timely name an expert witness in his bad faith action led to sanctions being awarded against him in favor of the insurer. Black v. Fireman’s Fund Ins. Co., 2020 Cal. App. Unpub. LEXIS 2477 (Cal. Ct. App. April 23, 2020).

    After Black’s claim was denied by Fireman’s Fund, he communicated with company through letters, emails and phone conversations. Black complained that Fireman’s Fund handled his claim improperly, engaged in illegal activities and had ties to the Nazi regime in Germany. Fireman’s Fund sued Black alleging that his communications amounted to civil extortion, interference with contractual relations, interference with prospective economic advantage, and unfair business practices. Fireman’s Fund eventually dismissed its complaint without prejudice. 

    Black, however, had filed a cross-complaint in which he asserted a number of claims, including bad faith. Black designated attorney Randy Hess as an expert on insurance claims. Over the next year and a half, Fireman’s Fund repeatedly attempted to take Hess’s deposition. In March 2018, Fireman’s Fund moved to compel the deposition or exclude the testimony. The court set a July 20, 2018 deadline for the disposition to take place or else the testimony would be excluded. 

    In mid-July 2018, a new law firm entered its appearance for Black, and asked to postpone Hess’s deposition to July 20. Fireman’s Fund agreed. Then the firm asked for a 45-day extension for Black to locate and designate a new expert to replace Hess. Fireman’s Fund declined. Black moved ex parte to extend the expert discovery period. The court denied the motion. 

    Black filed another motion, seeking “a short continuance to allow a further expert designation and expert deposition.” Fireman’s Fund opposed the motion and sought $7,862.50 in sanctions. The court denied the motion, finding that Black was given 18 months’ notice of Hess’s reluctance or refusal to act as an expert. The court also awarded sanctions. 

    The Court of Appeals affirmed. In April 2017, early in the discovery period, Hess told Black that he would not act as an expert or appear at a deposition unless he was paid. A year later, Hess told Black he had withdrawn as an expert because he had not been paid. 

    Between April 2017 and July 2018, Black could have reached an agreement with Hess or found another expert. He failed to do either, forcing Fireman’s Fund to spend additional time and money to pursue and protect its discovery interests. Sanctions were warranted because in his motion, Black did not identify an additional expert witness, making the motion little more than another effort to delay the proceeding.

Great Expert Witnesses are Vital

Advise & Consult, Inc.

Construction and Property Insurance cases can be very complex and difficult for attorneys, juries, judges and those outside of the construction industry. Expert witnesses, thusly, are important in obtaining a favorable verdict. During the pre-trial preparation it can become vital for a great expert witness to inform the attorney of where their client stands and what the strengths and weaknesses of the case are.

As the case progresses through depositions and into trial, a great expert witness is vital in explaining these complex construction principles to juries and judges. Not only does the expert witness need to be knowledgeable about construction, but it is vital that they connect with the jury and judge by being personable, friendly, trustworthy and concise, but also being able to break the complex details of the case down to bite size, understandable concepts that people without construction experience can at least determine culpability.

Amy Currotto, from Merlin Law Group, says this about expert witnesses:

In establishing damages and liability under the policy, expert-witness testimony before a jury is one of the most important tools. An entire case theory can ride on the back of successful expert witness testimony, which is why policyholder lawyers should begin to consult with experts from the very beginning of a case. It cannot be overstated that winning or losing a property case often depends on the credibility and admissibility of the expert testimony. This is because without expert testimony, many property insurance cases cannot be proven.

Courts have held, when a matter is beyond the common knowledge of an average person, an expert witness opinion will be required to testify on the essential issue of causation. Policyholders who fail to present competent expert testimony on the issue often fail to prove their case which may ultimately lead to dismissal.

Richard Friedman and Patrick Malone wrote a book – Rules of the Road, A Plaintiff Lawyer’s Guide to Proving Liability states “to win cases, you must defeat complexity, confusion, and ambiguity, or they will defeat you.”

“Battle of the experts” can make the jurors skeptical, but also truly appreciate hearing the testimony of a highly educated and well-informed witness who can credibly explain to them the complicated or technical aspects of the case. Clarity is key. Being “a teacher” is vital for the expert witness to explain their findings in a way that can be commonly understood and your case can rest on this ability. Cases have been lost based on an expert’s inability to effectively communicate their opinions and methodologies to the jury. Communication can help you rise to success or it can lead to your downfall, not just for the average person, but also for an expert witness.

Recent Court Order Excluding Expert Testimony Offers Useful Reminders and Lessons for Construction Litigants

Amandeep S. Kahlon | Bradley Arant Boult Cummings

Construction claims often feature supporting testimony from design and/or scheduling experts, and exclusion of that testimony either by disqualification of the expert or a finding that the testimony is otherwise inadmissible can prove fatal to your claim or defense. States may vary in their requirements for admissibility of expert evidence, but most states follow some variant of Federal Rule of Evidence 702. Rule 702 provides that an expert may testify in the form of an opinion or otherwise if:

(a) 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;
(b) The testimony is based on sufficient facts or data;
(c) The testimony is the product of reliable principles and methods; and
(d) The expert has reliably applied the principles and methods to the facts of the case.

The recent district court order in American Contractors Indemnity Co. v. Reflectech, Inc. granting a motion to strike an expert demonstrates the importance of satisfying the requirements for admission of expert evidence under Rule 702 and other like statutes. In that case, a surety sought indemnity for payment on bonds issued to a subcontractor that defaulted on a roofing subcontract. The surety investigated the general contractor’s claim for default against the subcontractor, settled with the general contractor for approximately $400,000, and then filed suit against the subcontractor for breach of their general indemnity agreement.

The defendant subcontractor proffered an expert to opine on the adequacy of the surety’s investigation and the appropriateness of payment of the general contractor’s bond claims. In moving to strike this expert, the surety argued (1) the expert should be disqualified due to lack of experience, and (2) the expert testimony was inadmissible because it was not based on sufficient facts or data as required under Rule 702(b). The court focused on the second prong of the surety’s argument in granting the motion to strike.  The court found that the expert’s opinion was not based on sufficient facts or data because of several admissions from the expert during his deposition. Specifically, the surety persuaded the court with the following facts derived from the expert’s deposition testimony:

  • The expert admitted he never visited the project site and interviewed only one individual, the owner of the subcontractor, before drafting his expert report;
  • The expert admitted he never reviewed the surety’s records regarding the general contractor’s claim and did not know what information the surety’s investigation uncovered because that information was never provided to him;
  • The expert testified that the surety’s records would have been helpful in forming his expert opinion (the subcontractor was unable to provide any explanation for failure to provide this material to the expert when it had been produced by the surety); and
  • The expert stated that he did not review the settlement portion of the general indemnity agreement, which he had opined was unconscionable.

The facts relied upon by the court highlight the importance of selecting and managing experts in construction disputes. When selecting an expert, a party should be mindful of the expert’s prior testifying experience and his or her approach to investigating a claim or subject area for which an opinion is required. A party should also ensure its expert receives and reviews all the documents and information necessary to formulate his or her opinion. To be successful, this process requires an active dialogue with the expert throughout the course of a matter.  For example, document productions from other parties and deposition testimony from witnesses will uncover additional information an expert may need to support his or her opinions. Consistent engagement with an expert will help avoid outcomes such as that encountered by the roofing subcontractor in this case and should help a party better develop its claims or defenses as a matter proceeds.