Is there an expert in the house? Expert evidence in insurance coverage cases.

• Author: Newman, Thomas R.

WHILE the admission of expert evidence is a matter that rests within the discretion of the trial judge, generally, a qualified expert will be permitted to offer his or her opinion on an issue which involves "specialized knowledge" (i.e., "professional or scientific knowledge or skill not within the range of ordinary training or intelligence"). (1) The test is one of need: Does the trier of the facts (judge, jury, or arbitrators) require the benefit of the expert's specialized knowledge? (2)

In federal courts, the admissibility of expert evidence is governed by Rule 702 of the Federal Rules of Evidence, which provides:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. (3) Experts in insurance cases, as any other expert, must be prepared to withstand a Daubert (4) challenge, as well as vigorous cross-examination.

The expert's opinion must be based on one of the following:

1. Personal knowledge of the facts upon which the opinion rests;

2. Facts and material in evidence;

3. Material not in evidence that is derived from a witness who was subject to cross-examination; and

4. Material not in evidence provided it is accompanied by evidence establishing its reliability. Once reliability is established, the expert may testify about it, even though it would otherwise be considered inadmissible hearsay. (5)

   Appropriate Subjects for Expert Evidence in Insurance/Reinsurance Disputes

   The following issues include some, but by no means all, of the issues arising in insurance/reinsurance litigation on which expert evidence may be appropriate:

1. The insurance industry has generally accepted long-standing, custom, and usage to explain ambiguous terms of an insurance policy. (6) Insurance industry custom and usage may be used to explain ambiguous terms of an insurance policy (as any other contract), but it may not be used to add to, contradict, or vary unambiguous contractual terms. (7) Whether the policy is ambiguous is a question of law for the court to decide. (8) Ambiguity will be found if the terms "are susceptible to at least two reasonable interpretations." (9) To constitute a custom and usage sufficient to affect the rights of parties to a contract, the custom and usage must be certain, definite, general, and uniform. Casual, occasional, or individual practices will not bind a party. Custom and usage must develop over time and be known and accepted by a great number of persons. (10)

2. Under a policy with a duty to defend, what is the standard of care owed by an insurer in supervising outside counsel appointed to defend a third-party claim against its insured? (11)

3. The standard of care in handling first-party claims. (12)

4. What constitutes an appropriate investigation of a claim? (13)

5. Insurance archeology and terms likely to have been included in a lost policy. For example, would a liability policy issued in the 1940's or 1950's have included products liability coverage and, if so, would it have been subject to aggregate limits?

6. In a misrepresentation or nondisclosure case, what disclosure would a reasonable underwriter have expected to be made? (14) In jurisdictions where the standard is not a "reasonable underwriter," but what the actual underwriter would have done, such evidence may come in to rebut the underwriter's testimony.

7. What evidence or other considerations in the case would have led a reasonable insurer to accept (or reject) an offer to settle a third-party claim within its policy limits? (15)

8. What evidence or other considerations would have led a reasonable insured to conclude that a claim was likely (or not) to involve an excess policy, and, therefore, require (or not) notice to the excess insurer? Or require notice by a cedent to its reinsurer? (16)

   I. Where an insurer is charged with bad faith, what constitutes appropriate claims handling under the circumstances of the particular case? (17)

10. Is a cedent is entitled to indemnity for declaratory judgment expenses under a reinsurance contract that does not specifically address that issue? (18)

11. Explaining policy terms, the significance, if any, of industry drafting history, and the nature and limitations of the coverage bought. (19)

    L. The necessity for and reasonableness of an insured's costly defense of "bet-your-company" nationwide products liability litigation. (20) A large insured whose policy gives it the right to control its defense may incur very substantial defense costs while paying little or nothing to settle claims or judgments.

13. Where the insurer has denied coverage for nonfortuity, i.e., that the insured "expected or intended" injury arising from its action or products, (21) there will be expert evidence on non-insurance matters, such as the defective nature of the product or the insured's waste disposal practices, and what the insured knew or should have known when the injury-causing acts occurred. (22)

14. Whether certain conduct increased the risk of loss from an underwriting standpoint. (23)

15. The...