Guest Column – Attorney David Cole: The Proper Care & Feeding Of A Bad Faith Litigation Expert

 

 

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In its unanimous opinion in Rancosky v. Washington National Insurance Company, 170 A.3d 364 (Pa. 2017), the Pennsylvania Supreme Court confirmed the elements of an insurance bad faith action under Pennsylvania’s bad faith statute. The Court stated: “we adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994), which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Additionally, we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” Id. at 23-24. Additionally, the Court noted that mere negligence is insufficient for a finding of bad faith under §8371. Id. at 18.

The Rancosky opinion did not change the pursuit, or the defense, of insurance bad faith claims, so much as it confirmed a body of intermediate appellate case law that had developed over the last 24 years. Most practitioners and courts had applied the Terletshy test since its publication in 1994. With Rancosky now firmly establishing what is required to prove bad faith, experts used by the parties in insurance bad faith litigation will need to tailor their reports to that standard.

Experts, of course, are not required by statute or case law in Pennsylvania insurance bad faith cases. Experts are employed by the parties at the discretion of the trial judge. Experts are to provide opinion on the reasonableness of the insurer’s conduct to assist the judge or jury in determining if the insurer acted in bad faith. Experts are to opine on the reasonableness of the insurer’s conduct, not on whether they believe the insurer acted in bad faith. That decision is reserved for the trier of fact. Most courts permit expert testimony to assist in assessing the reasonableness of the involved insurer’s conduct.

Post-Rancosky, what does an expert need to assess the reasonableness of the insurer’s conduct? In other words, what do litigators need to provide an expert in order for him or her to prepare an informed, credible report, one that will stand up to summary judgment motion and trial cross-examination? This article will address these questions. My observations are based on my 15 years and over 50 expert reports in insurance bad faith cases, mostly as an expert for the defense. A second planned article will address what counsel can expect in an insurance bad faith expert report.

What Does the Expert Need to Evaluate An Insurance Bad Faith Claim?

Let’s make the answer simple: SEND ALL NON-PRIVILEGED FILE MATERIAL TO ME and let me review them and decide what is important to my review of the insurer’s conduct. And please don’t try to influence my opinion by sending only the documents that support your client’s position, or only the “pertinent” documents that you believe are determinative of the insurer’s conduct.

Another reason to send it all to me is to avoid surprise and embarrassment at trial. I don’t want to ever have to say I have not seen a document from the file. I won’t appear surprised at trial, and I won’t have to embarrass counsel by pointing out that counsel never provided me with the document.

Finally, do not send an unredacted claim file. I don’t want to rely on documents in my report that were not produced to opposing counsel. To do so is to risk the credibility of my report, or at least result in an order from the court requiring production of the documents in question and me having to perhaps amend my report.

What Do I Expect To See In The Claim File?

What is typically contained in a claim file will depend on the type of claim involved. For example, a property damage claim will not contain medical reports and records. An auto personal injury liability claim file will not contain a fire cause and origin report. Having said that, we can generalize what most claim files should contain, as follows:

  • Insurance policy: The applicable insurance policy and declaration page for the date of loss.
  • Correspondence: All correspondence, including letters, e-mail and texts by and between anyone involved in the claim.
  • Reports: Police, doctors, witnesses, parties, experts, investigators, counsel.
  • Court related documents: Pleadings, motions, discovery and opinions from the bad faith action and pertinent documents from the underlying tort suit if there was one.
  • Log entries: Pennsylvania insurance regulations require insurers to maintain records of their claim handling activity sufficient to permit the Insurance Department to assess what was done on a given claim. Typically, this is done by insurers through a “claim log”, either manual or more likely today by computer entry. These notes are often invaluable in assessing the insurer’s conduct in a bad faith case. It is the place where claims adjusters can sort out their thinking on a claim and explain their actions, or fail to do so.
  • Claim specific records: For example, medical records in injury cases and damage assessments and insurer has allegedly failed to adhere to its own internal claims handling procedures) the insurer’s claims handling manual and “best claims practices” should be provided to me.

Not all claim files will contain all these items.

Some counsel will go in the other direction, and want to send me everything, even their “work product”, such as their summary of the case, their theory of the case, a chronology they prepared for the case, their summary of medical records in the case, etc. I do not want that information; I want to review the file on my own, prepare my own chronology, summarize the issues in my own way, and form my own understanding of the case.

I am being paid to reach my own conclusions about the insurer’s conduct, not “parrot” counsel’s view of the case. To do otherwise – that is, to provide me your work product – can make for a very uncomfortable cross-examination for me, and an effective challenge to the credibility of the defense for you.

David Cole is owner of David Cole Consulting, Inc. and he may contacted at 844-744-5600 or dcole@philadefense.org. For more information about Mr. Cole and his litigation support services, please see his website at  www.colelitigationconsulting.com 

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Keeping the “I” In IME: Pa. Supreme Court Refuses To Overturn Order Barring Plaintiff’s Lawyer From Portions of Neuropsych IME

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HARRISBURG, Jan. 18 –  Defendants in Pennsylvania civil personal injury litigation may have gotten a bit more incentive to try to keep independent medical exams free of interference by Plaintiffs’ lawyers.  This week, the Pa. Supreme Court quashed an interlocutory appeal from a trial court order barring the plaintiff’s counsel from attending parts of his client’s neuropsychological IME or recording the exam.

In Shearer v. Hafer, 2018 Pa. Lexis 353, the Pa. Supreme Court granted allowance of appeal  to consider whether a plaintiff in a civil personal injury action has the right to have counsel present and to record a neuropsychological examination of that plaintiff by a defendant’s neuropsychologist.  At the trial court level in Shearer, a Lebanon County judge issued a protective order ruling that the personal injury Plaintiff’s counsel could be present during the preliminary interview phase of the exam, but that no individual would be permitted in the evaluation room with Mrs. Shearer and the doctor during the standardized testing portion of the evaluation.  The order also provided that  the evaluation could not  be recorded.

On appeal to the Pa. Superior Court, the court affirmed the trial court ruling after finding that the order in question was collateral and properly appealable.   The Plaintiff then sought an allowance of appeal from the state Supreme Court.

In a 6-1 ruling,  the Pa. Supreme Court vacated the Superior Court ruling, and quashed the appeal, finding that an appeal from  the order in question was an unauthorized interlocutory appeal.  In writing for the majority, Justice Sandra McCloskey Todd analyzed the order under a three-part test for the appealability of interlocutory orders.

While finding that the order was separable from the main cause of action of the automobile accident case, thus satisfying the first prong of the analysis, Justice Todd found that the second and third elements of the analysis were not met.  As to the second element, the Court found that the interests in question would not go unprotected without immediate appellate review.  As to the third prong, The Court also found that the right asserted, i.e., to counsel at the entire IME,  would not be irretrievably lost, as the Plaintiff could obtain a new trial following an appeal at the end of the case.

The Court went to some length to discuss that the right of counsel at an IME was not a constitutional one, but rather one granted in the Pa. Rules of Civil Procedure,  Pa.R.C.P. 4010.  Those rules also provide that trial courts can craft protective orders in discovery to balance and accommodate the interests of competing litigants, via Pa.R.C.P. 4012.

While the Supreme Court did not address the merits of the protective order itself, the ruling suggests that if a protective order limiting the participation of the Plaintiff’s lawyer at an IME can be secured from the trial court,  the benefits of such an order are not likely to be disturbed by interlocutory appeal.

 

Geico Loses Summary Judgment Bid In Florida Bad Faith Case

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TAMPA, Fla., May 12 — On May 12, GEICO Insurance lost a bid in Florida federal court to dismiss a bad faith suit premised upon its alleged failure to adequately defend a GEICO insured in a personal injury action.  The Court ruled that a genuine issue of material fact existed as to whether the insurer acted in bad faith in its handling of the claim.

The insureds,  Manuel A. and Aleli Gonzalez bought auto insurance from GEICO General Insurance Co. and added their grandson Ishmael Ramjohn as an additional insured. Ramjohn allegedly injured Lisa Anderson in an automobile accident in February 2009, whereupon Anderson’s attorney attempted to settle Anderson’s claim with GEICO .

Anderson’s lawyer and GEICO communicated several times during 2009, leading to his sending a demand for the $100,000.00 bodily injury policy limit insuring Ramjohn. GEICO offered $2,581.16 to resolve the claim.  Later, GEICO increased its offer to $22,500.00 after receiving additional information on Anderson’s injuries.

After  Anderson sued the insureds in the Hillsborough County, Fla., Circuit Court for damages,  GEICO offered the $100,000 policy limits, which Anderson rejected.  A jury in that case returned a verdict for Anderson in the amount of  $398,097.82.

The insureds then sued GEICO in the U.S. District Court for the Middle District of Florida, alleging bad faith in handling Ramjohn’s defense.

In denying GEICO’s motion for summary judgment, Judge James S. Moody Jr. held:

“the record reflects facts that could permit a jury to find that GEICO acted in bad faith…In other words, this case, like most bad-faith cases, presents a genuine dispute that requires a jury’s resolution…For example, [insureds’ expert Peter] Knowe’s testimony creates a genuine issue for trial. Knowe testified that GEICO’s handling of the Anderson claim deviated from industry standards in several key respects. Remarkably, GEICO does not address or reference Knowe’s expert opinion anywhere in its motion…there is also evidence suggesting that GEICO did not evaluate Anderson’s claim from the perspective of a reasonable insured facing unlimited exposure.”

Judge Moody added that a reasonable jury could find that GEICO’s offer strategy in the case was executed in aid of a policy to reduce average loss payments.

Gonzalez et al v. GEICO General Insurance Company, (M.D. Fla. 2016)(Moody, J.)

Expert Cannot Testify About Exclusion; Can Opine On Industry Custom and Practice

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LOUISIANA, April 13 – A United States District Court in Louisiana has issued a ruling permitting an expert to testify in a coverage action about industry custom and practice, but barring the expert from testifying about the applicability of a policy exclusion to a coverage dispute.

The insured, Foundation Health Services,  sought reimbursement from Zurich American  for defense costs and lossess associated with an underlying  settlement with the U.S. Department of Justice and the Department of Health and Human Services. The disputed issues in the case were (1) whether a claim was first made during the policy period (2) whether a “professional services” exclusion in the policy applied to preclude coverage and (3) whether the insurer committed bad faith in denying coverage.

The insurer moved to preclude the plaintiff’s expert who was offered to testify about whether the insurer “met its obligations and responsibilities in connection with the claim at issue under custom and practice of the industry.” Id. at 4.

District Judge James Brady reviewed Federal Evidence Rules 702 and 704 and held that expert opinion on the applicability of certain exclusions “cross into the realm of making legal conclusions” were, therefore, inadmissible. Id. at 6. The Court also ruled however that “an expert may be allowed to testify regarding insurance industry standards for claims adjusting, but not the ultimate legal conclusions that an insurance company is acting in good faith.” Id.

 Foundation Health Services., Inc., et al. v. Zurich Am. Ins. Co., (M.D. La. 2016)(Brady, J.)

Property Value Admissible By Allstate To Prove Arson Fraud

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SPRINGFIELD, Feb. 29 –  A federal judge in Missouri has denied an insured couple’s attempt to exclude expert evidence Allstate Insurance  intends to submit  in a declaratory judgment action in which it seeks to have its denial of a homeowners insurance coverage claim upheld.

In Allstate Indemnity Company v. Joseph Dixon, et al., No. 14-cv-03489-MDH. W.D. Mo.; 2016 U.S. Dist. LEXIS 24678, U.S. District Judge Douglas Harpool denied a motion to strike Allstate’s expert disclosures filed by Allstate insureds Joseph Dixon and his wife, ruling that the value of the couple’s home could be probative of the couples’  financial motive to commit arson fraud. The Court found that Allstate’s proposed testimony from a county assessor as to the value of the insured couple’s home would not prejudice the homeowners, although it reserved final judgment about the precise nature of the allowed testimony until later in the case.

Allstate  denied coverage for the April 2014 fire, claiming that the Dixons falsified material facts with regard to the claimed loss. A cause and origin and claims investigation by Allstate revealed that the fire was intentionally set.  The Dixons contended in their motion to strike expert disclosures that the value of their home was not in dispute, and that expert testimony concerning the value of the property would be confusing to the jury as well as irrelevant, cumulative and prejudicial.

In denying the motion, Judge Harpool cited to an Eighth Circuit U.S. Court of Appeals’ ruling which discussed proper evidence of motive in arson fraud cases,  Gen. Cas. Ins. Companies v. Holst Radiator Co. (88 F.3d 670, 672 [8th Cir. 1996]).

Allstate v. Dixon (W.D. Mo. 2016)

Bad Faith Expert Permitted To Testify Against Progressive, Judge Rules

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KANSAS CITY, Kan., March 9 – A Kansas federal judge has ruled that an expert may testify on Plaintiff’s behalf in a bad faith case against Progressive Insurance, and that the expert can criticize Progressive’s handling of a third party auto liability claim.

In Grant M. Nelson v. Progressive Northwestern Insurance Co., No. 15-7454, D. Kan.; 2016 U.S. Dist. LEXIS 28952, District Judge John W. Lungstrom denied Progressive’s motion to preclude the Plaintiff’s expert from testifying.  Nelson sued Progressive for bad faith in the handling of his third party claim after suing and obtaining an excess verdict against a Progressive insured for personal injuries sustained in a car accident.

Progressive’s insured, Hardacre, had a $50,000 policy limit.  Following non jury trial of the personal injury case, a   state court awarded Nelson more than $530,000.  During the underlying case, Progressive offered the policy limit on Hardacre’s behalf, but Nelson declined to accept it, demanding $1 million.  Hardacre also assigned his rights against Progressive to Nelson in exchange for Nelson’s agreement not to collect against Nelson.

Nelson sued Progressive for bad faith in state court, and Progressive removed to federal court.   In the case, Progressive sought to bar opinion evidence from Plaintiff’s expert Jim Leatzow.  Judge Lungstrum rejected Progressive’s claim that Leatzow was unqualified because he had no specific auto claims handling experience.  He also rejected Progressive’s contention that Leatzow, in opining that Progressive’s investigation was insufficient, did not consider all relevant material in the claims investigation.  The judge wrote:

“Mr. Leatzow’s failure to find fault with every investigative step actually taken by Progressive is not remarkable and does not provide a basis for exclusion. Progressive will be free to cross-examine Mr. Leatzow at trial concerning the weight he gave to particular facts in forming his opinions, and the Court will assign only such weight to those opinions as warranted by the evidence. The Court denies Progressive’s motion to strike.”

While conceding the Plaintiff’s bad faith case was weak, the judge also denied Progressive’s motion for summary judgment in the bad faith case on the merits:

“there is at least some evidence that could support a finding that some percentage of fault would have been apportioned to Ms. Hardacre… the seriousness of plaintiff’s injury meant that even a small allocation of fault to Ms. Hardacre could have exhausted the policy limit of $50,000, leaving the possibility of an excess judgment. Thus, viewing the evidence in the light most favorable to plaintiff, the Court concludes that a question of fact remains concerning whether Progressive acted negligently or in bad faith in handling the claim and in failing to attempt to secure a settlement for the policy limit to protect the interest of its insured.”

The judge also ruled that Progressive’s tender of the limit did not moot the bad faith claims made by Nelson.

Grant M. Nelson v. Progressive Northwestern Insurance Co., No. 15-7454, D. Kan.; 2016 U.S. Dist. LEXIS 28952