Bad faith claims: the role of the expert.

• Author: Muldowney, Timothy J.

Expert witness are everywhere these days, and not the least in bad faith cases, where they're valuable for both sides

Expert witnesses often surface in both insurance coverage and bad faith litigation. Depending on the nature of the issues presented in a particular case, expert testimony may be offered on any of several issues, ranging from how a particular loss occurred, the scientific nature or progress of the loss, the damages resulting from the loss, to how an insurer processed the claim. The manner in which a claim is investigated and resolved by an insurer usually presents the foundation on which liability for bad faith rests. In short, the insurer's conduct is the subject of inquiry when a claimant asserts bad faith.

The U.S. Supreme Court's decision in Daubert v. Merrell Dow Pharmaceuticals Inc.(1) ushered in new and heightened awareness of the need to scrutinize expert testimony when offered to support claims in many kinds of litigation. Although still uncertain and developing, the influence of Daubert may be felt in cases of insurance bad faith as well.

What are some of the issues present when expert testimony is offered in bad faith litigation? First, is expert testimony required in order to prove a claim for bad faith? Second, if not required, should expert testimony nevertheless be offered to defend a bad faith claim? When expert testimony is offered in bad faith litigation, what measures are available either to promote or defeat its use? Lastly, on what subjects is expert testimony appropriate in claims of insurer bad faith and how can it be used?

NEED FOR EXPERT TESTIMONY

Claims of bad faith against insurers can arise in connection with first-party or third-party insurance claims. In either, however, an insurer's conduct in the investigation and disposition of the claim usually becomes the subject of scrutiny.

In a typical first-party claim, the insured alleges that the insurer's conduct does not meet appropriate standards of conduct and, therefore, amounts to a breach of the covenant of good faith implied in the insurance contract.(2) In similar fashion, when insureds facing third-party claims assert bad faith on the part of the insurer in connection with the claim, once again the carrier's conduct in connection with the claim becomes the focus. In many jurisdictions, statutory or administrative rules furnish the standards against which a carrier's conduct is judged.(3)

Consequently, many courts have concluded that expert testimony is appropriate in connection with the issues presented in both first-party and third-party bad faith cases on any of a variety of issues.(4) In the words of the California Supreme Court, "We can conceive of many ways in which a lay jury, in assessing the conduct and motives of an insurance company in denying coverage under its policy, could benefit from the opinion of one who, by profession and experience, was peculiarly equipped to evaluate such matters in the context of similar disputes."(5)

Can a claimant in either a first-party or third-party bad faith claim produce the necessary proof to bring its case before a jury without expert testimony? Remarkably few appellate courts have considered that issue until recently.(6) In Wisconsin, two appellate courts now have faced the issue, reaching contradictory conclusions.

In 1993, in Heyden v. Safeco Title Insurance Co.,(7) the Wisconsin Court of Appeals concluded that the failure of a plaintiff to offer expert testimony on the reasonableness of an insurer's conduct was fatal to a bad faith claim. Late in 1995, however, the Wisconsin Supreme Court overruled Heyden. In Weiss v. United Fire & Casualty Co.,(8) it rejected a uniform rule--as endorsed in Heyden--that would have required expert testimony in all first-party bad faith claims. Instead, the court held that expert testimony is required only if "particularly complex facts and circumstances outside the common knowledge and ordinary experience of the average juror" are at issue. In all other cases, the bad faith issue remains "in the realm of ordinary experience of an average juror and, therefore, will not require expert testimony."

In reaching its decision in Weiss, the Wisconsin court drew from the state's evidence rules, which, like the Federal Rules of Evidence, permit wide discretion to trial courts in requiring expert testimony.(9) The court also considered cases in areas other than insurer bad faith, such as medical and legal malpractice, to conclude that the need for expert evidence should be a matter within the discretion of the trial court and such evidence should be required only where the matter at issue is technical enough to necessitate it.(10)

Since the court found that the plaintiff's bad faith claim rested on allegations of an incomplete and slipshod investigation that prevented the insurer from learning the true facts of the claim, the court determined that the issue was not so complex or technical that it required knowledge of the insurance industry or its practices. An average juror could understand it without expert testimony, the court concluded.

While Weiss can be criticized for not giving enough weight to insurer conduct and industry practices in determining bad faith, trial courts are plainly given wide discretion in requiring expert evidence of insurer bad faith. While not required in the Weiss case, expert testimony is not fore-closed by the Wisconsin court's decision either. In Weiss, the insurer sought and obtained dismissal from the trial court because the plaintiff had failed to introduce expert testimony; the issue of whether the insurer itself might have offered expert testimony was not presented. What is evident from Weiss, however, is that only where truly complex or technical insurance claims are involved will expert testimony be required in order to present the case to the jury.

In addition, where insurer practices are at issue, which is usually the case in first-party bad faith claims, without expert testimony a jury will have no benchmark against which to measure insurer conduct. While insurers remain free to offer expert evidence in that regard, the Weiss decision may make the admission of such evidence more difficult in some cases. It should not present an insurmountable obstacle to acceptance of expert evidence. The issue, however, must be properly presented to the trial court.

SHOULD EXPERT TESTIMONY BE OFFERED?

Most experienced trial lawyers recognize the importance of a well-qualified expert in any action. Cases of insurer bad faith are really no different. Both plaintiffs and defendants can benefit in presenting their cases through the testimony of an expert.(11)

From the plaintiff's point of view, the subjects for expert testimony are often extensive and wide-ranging. Experts will often be offered in an attempt 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 . . . the application of the law of the jurisdiction . . . to the facts of the case . . . and the quality and quantity of conduct . . . in the claims handling process."(12) Insurers, on the other hand, usually take a far narrower view of the appropriate subjects for expert testimony and should attempt to confine it to those subjects which are proper for that testimony.(13)

Regardless of one's view of the proper scope of the testimony, most trial lawyers will agree that certain requirements are essential to present sound expert testimony in any bad...