Reliance On Expert Opinions Demonstrates Reasonableness

Burns White

The Eastern District of Pennsylvania recently granted an insurer’s motion to dismiss a bad faith claim after finding that the insurer immediately conducted an investigation into the insured’s claim by hiring two professionals, and reasonably relied on the professionals’ opinions when denying the insured’s claim. See Covenant Realty v. Westminster American Ins. Co., 2021 WL 4963519 (E.D. Pa. Oct. 26, 2021).

In Covenant Realty, the glass skylight atrium of the insured’s apartment building collapsed, leaving a hole in the roof and causing debris to fall into the building’s elevator vestibule. The insured immediately filed a claim with their insurer and retained a public adjuster to investigate the cause of the atrium collapse and to assist with the claims submission process. Upon notice of the claim, the insurer also retained an adjuster and a structural engineer to conduct its own investigation of the cause of the collapse. Both parties agreed that the collapse was caused, at least in part, by decay, deterioration, and rot within the atrium, but the parties disagreed as to whether that decay was hidden. The insured claimed that it was not aware of any decay prior to the collapse through routine checking of the building, whereas the insurer’s adjuster and engineer found signs of wear and tear around the atrium, which they opined would have been visible before the collapse. Based on the opinions of its adjuster and engineer, the insurer denied the insured’s claim due to rot, wear, deterioration, and maintenance-related issues, which were excluded from the insured’s policy. The insured further argued that the deterioration had been hidden and was only revealed after the collapse, but the insurer confirmed its denial of coverage. The insured subsequently sued the insurer for breach of contract and statutory bad faith. The insurer moved for summary judgment on both counts.

The Court denied the insurer’s motion as to the breach of contract claim after finding that there was a genuine issue of material fact as to whether the collapse was caused by hidden decay. The Court noted that while the insurer presented photographs taken after the collapse that showed that the decay was not hidden, the photographs failed to demonstrate what degree of decay was visible prior to the collapse.

As for the bad faith claim, the insured argued that there was a genuine issue of whether bad faith exists because the insurer failed to appropriately investigate the loss and denied the loss despite no evidence that the damage was not hidden. The Court disagreed. The Court found that the insurer immediately conducted an investigation into the cause of the collapse by hiring two professionals, an adjuster, and a structural engineer. Both professionals found evidence that the insured knew or should have known of the decay for several reasons: the post-collapse photos showed visible rust, rot, deterioration, and wear and tear; and the application of roof mastic suggested the roof was in a state of disrepair. The Court held that these reports gave the insurer a reasonable basis for denying the insured’s claim. Because the insured failed to point to any evidence from which a jury could clearly and convincingly find that the insurer lacked a reasonable basis for denying benefits and knew or recklessly disregarded its lack of a basis, the Court dismissed the bad faith claim.

No Bad Faith When Insurer Relied on Opinion of Independent Consultant

Alycen A. Moss and Elliot Kerzner | Property Insurance Law Observer

The Court of Appeals of Georgia recently held that an insurer’s reliance on the report of an independent consultant creates a presumption that it did not act in bad faith in denying coverage. In Montgomery v. Travelers Home and Marine Ins. Co., 859 S.E.2d 130 (Ga. Ct. App. 2021), the insured made a claim under her homeowners insurance policy for water damage to her basement that she asserted had been caused by a ruptured garden hose. The insurer’s claims adjuster inspected the property two days later and saw damage that appeared to be from ground water rather than the ruptured hose. The adjuster sought input from his supervisor, who suggested that he hire an independent engineer to determine the cause of the water damage.

The insurer retained a structural engineer, who inspected the property and observed conditions on several basement walls that indicated moisture had seeped into the basement from the ground outside over a period of time. Based on his observations, the engineer opined that the water damage resulted from the migration of groundwater through breaches in the concrete masonry unit block foundation walls and slab-on-grade, not from the broken garden hose. The engineer issued a written report to the insurer detailing his findings. Based on the engineer’s report, the insurer denied the claim because ground and surface water was not a covered peril under the policy.

The insured then sent the insurer a letter challenging the denial of her claim. She claimed that the engineer had focused on the cause of pre-existing moisture damage for which she was not making a claim instead of looking at the cause of the water damage to her basement from the ruptured water hose. She also claimed the engineer’s conclusions were inconsistent with the amount of rain that had occurred at that time, and she attached to her letter weather data for the month of the loss.

After reviewing the insured’s letter, the engineer disputed her contentions, reiterating the conclusions of his report and stating that the volume of rain at the time was only one of several factors contributing to ground water intrusion. The engineer concluded that the insured’s rebuttal letter contained no new information to alter the conclusions of his report. When the insurer did not change its decision to deny her claim, the insured brought an action in Georgia state court for breach of contract, statutory penalties under O.C.G.A. § 33-4-6 for bad faith failure to pay her claim, and attorney fees. The trial court granted summary judgment to the insurer on the claims for bad faith penalties and attorney fees, and the insured appealed.

The Court of Appeals of Georgia held that the trial court did not err in granting summary judgment to the insurer on the bad faith claim because the insurer presented evidence that it denied the claim based on the advice of the structural engineer and the insured had not presented evidence from which a jury could find that the structural engineer’s advice was patently wrong or that the insurer had used it as a pretext to deny the claim. The court explained that, under Georgia law, the insurer was entitled to summary judgment on the bad faith claim unless there was evidence that the insurer had no reasonable grounds to contest the insured’s claim under the policy. The court further explained that the advice of an independent consultant provides an insurer with a reasonable ground to contest an insured’s claim unless the advice is patently wrong or is a mere pretext for the insurer’s unwarranted prior decision to deny the claim.

Applying these rules to the facts of the claim, the court noted that the insured had pointed to no evidence that the structural engineer’s advice was patently wrong. The court defined “patently wrong” as “obviously or apparently wrong,” and observed that the insured’s criticisms of the structural engineer’s advice, and the evidence she cited in support of those criticisms, merely raised a factual question concerning whether or not the advice was wrong. While the existence of a factual question was sufficient to preclude summary judgment on the insured’s underlying claim of liability under the policy, it did not preclude summary judgment on her claim for bad faith penalties.

To the contrary, the court reasoned, the existence of a factual question demonstrated that the insurer had reasonable grounds to contest the claim and supported the conclusion that it did not deny the claim in bad faith. Similarly, the insured’s evidence challenging the findings of the structural engineer were relevant to the question of whether the engineer’s conclusions were correct, not whether they served as a pretext for the insurer’s denial of the claim. Accordingly, the court affirmed the grant of summary judgment to the insurer on the bad faith claim.

The Montgomery decision highlights the importance of obtaining an opinion from an independent expert who is qualified and been properly vetted. If the expert report is not obviously wrong, and is not used as a pretext for a prior decision to deny the claim, it will help preclude a claim for bad faith penalties.

Avoid ‘Glass Houses’ Arguments When Comparing Experts

Dr. Ken Broda-Bahm | Holland & Hart

…and they are going to be bringing Dr. Smith up here to tell you that their theories are true. But when they do, remember who is paying Dr. Smith to be their hired gun and to offer that testimony.

And what about the experts hired by the side making that argument? Well, in most cases they’re paid too, but their sponsors will believe that they hired a real expert, paid them for their time and not their opinion, and so on. The jurors, however, likely recognize that as a bit of stone-throwing by someone who lives in a glass house. It may be correct that your experts are more honorable than theirs, but appealing to their paid status makes the expert battle look like a matter of, “Good for me, but not for thee.” That may contribute to the tendency for jurors to set the experts aside altogether. There’s also research (Cooper & Neuhaus, 2000) showing that the “hired gun” effect of reducing credibility based on the expert’s paid status only tends to work against an expert whose communication skills are low.

So how do you address it when their expert, you think, is just saying something for the paycheck? The most basic way is for your expert to be the better teacher. The jury will trust the person who helped them understand, and gave them tools to do their job. When you do need to compare the witness, don’t do it based on the one fact that all experts have in common (compensation). Instead, draw the contrast based on the quality and usefulness of the expert’s work to the jurors. In this post, I’ll share a quick checklist for that comparison.

The best questions to ask when looking for an angle of favorable comparison between your expert and theirs is to focus on the three parts of analysis: Input, process, and output. Your specific checklist is also likely to be particular to the relevant area of expertise and to your case, but here are some general rules of thumb.

Inputs:

  • Who brought more experience to the task?
  • Who brought the right kind of experience to the task?
  • Who reviewed the greater amount of material?
  • Who had the greater leeway to decide what they needed to review?
  • Who reviewed independently, without necessarily knowing the preferred conclusion?

Process:

  • Who conducted their own original research or study (as opposed to just materials review)?
  • Who employs the more objective (rather than subjective) process?
  • Who can better explain the concrete steps they took in reaching their conclusions?
  • Who can explain to jurors how they might understand and follow the same process?
  • Who more completely considered and dismissed rival hypotheses?
  • Who can account for exactly why the other expert got it wrong?

Outcome:

  • Who is more certain about their conclusions?
  • Who is clearer about their conclusions?
  • Who is better able to teach or communicate the conclusions?
  • Who is more definite in the implications of their conclusions, and can tell the jury what to do with this information?
  • Who is more honest in conveying the constraints or limitations of their conclusions?
  • Whose conclusions are more on-point to the case and the questions the jury needs to answer?

The deeper you get into the analysis, the more bases of comparisons you can add, and the more specific they can be. The general message is not to rely on shallow comparisons (like the glass house of expert pay) but to instead dig into the analysis and give your jurors clear and substantive reasons why your expert is better.

Assess Whether Your Witness Is Able to Counterpunch

Dr. Ken Broda-Bahm | Holland & Hart

Attorneys know the feeling: With some of your witnesses, you just want to keep it simple, encourage them to keep their heads down, and limit the possible damage. With any luck, they’ll get through it with minimal damage to your case. But for other witnesses, testimony is an opportunity. The right witness, and the prepared witness, will be able to say things that advance your case and make it harder for the other side to win. Preparing the right kind of witness is a chance to inflict some damage on the other side.

But how do you know when the witness you have is capable of safely leaving the world of “Yes or no,” and able to enter the world of the artful parry? If you fill the wrong vessel with too much confidence, they could end up missing the meaning of opposing counsel, they could say things that you don’t want in evidence, or they could take it too far by being too clever and too argumentative with the lawyer on the other side. The bottom line is, you need to consciously assess to see what your witness is capable of. If they’re fuzzy or fragile, then you probably want to keep their answers to a minimum. But if they’re tough and smart, then you want to teach them sensitive and smart ways to punch back on your adversary’s questions. It all starts with assessing the witness.

Assess Occupation and Mental Habits

When advising on jury selection, I always feel that if you know what someone does every day, five days a week, you’ve got a good start on knowing them. The same goes for witnesses. If someone works in a repetitive context where they aren’t called upon to exercise judgment very often, it will be hard for them to rise to the challenge of powerful testimony. But if someone works in a context where they’re expected to be analytical, sensitive, and professional, it will be less of a challenge. There are exceptions of course, in both categories, but I’ve found that executives, managers, doctors, and academics will, more often than not, have the native skills to be more thoughtful, assertive, and empowered in the ways they answer opposing counsel’s questions.

Assess Attitude

In addition to their capability and experience, it is also essential to assess their attitudes. Are they comfortable that they understand enough about the opposing counsel’s tactics and objectives, and about their own testimony, that they can feel comfortable pushing back against that adversary’s language and assumptions? Even if they could, they may not want to. Of course, part of the attorney’s role as a counsellor is to get them to the point that they will do as well as they can. But the legal process can be stressful, and if you add in the force of accusation for a defendant, the psychological barriers can be too high. Alternately, if you have someone who is a little too eager to mix it up with counsel, then they could easily come off as argumentative or evasive when they’re really trying to be assertive. Ultimately, you’re looking for a witness who can be savvy, but also patient and calmly persistent.

Test

Ultimately, the only way to be sure that a witness can effectively testify in a way that moves from ‘not hurting’ to ‘helping’ your case is to see them do it. Hold several practice sessions where you don’t just talk about testifying, but you actually practice it. Play the role of the lawyer on the other side, using as much as you know about their substance and their style, and see how your witness handles it. For very important testimony, I have found that three meetings is often the right number: the first to assess the witness and teach sensitivity in responding, the second to practice it and really nail it down, and the third to see if it sticks after they leave and come back.

Many attorneys will say that giving testimony is largely an act of defense: like being on the receiving side in a volleyball game, you can’t score, but you can prevent them from scoring. That is a largely accurate and useful sentiment. Still, when your witness has the ability, attitude, and training, they could use some assertiveness in both preventing those scores, and maybe scoring a point or two back. It all starts with assessing the witness.

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.