Employers Reinsurance v. Mid-Continent Cas. Co.

202 F.Supp.2d 1212

EMPLOYERS REINSURANCE CORPORATION, Plaintiff, v. MID-CONTINENT CASUALTY COMPANY, Defendant.

No. CIV.A. 01-2058-KHV.

United States District Court, D. Kansas.

May 1, 2002.

COPYRIGHT MATERIAL OMITTED

Douglas R. Richmond, Gerald A. King, Carlton D. Callenbach, Armstrong Teasdale LLP, Kansas City, MO, for Plaintiff.

Vincent F. O'Flaherty, Christopher J. Carpenter, Niewald, Waldeck & Brown, P.C., Kansas City, MO, for Defendant.

MEMORANDUM AND ORDER

VRATIL, District Judge.

Employers Reinsurance Corporation ("ERC") brings suit against Mid-Continent Casualty Company ("MCCC") for a declaratory judgment whether the parties' reinsurance agreement requires it to reimburse MCCC for litigation expenses which MCCC incurred in three declaratory judgment suits between MCCC and its insureds.¹ ERC and MCCC each ask the Court to determine the scope of coverage under the reinsurance agreement. ERC also asserts claims for breach of contract, misrepresentation and unjust enrichment on account of declaratory judgment litigation expenses which it previously paid to MCCC. MCCC has filed counterclaims for breach of contract and breach of duty of good faith and fair dealing based on ERC's failure to pay current claims for such expenses. MCCC also asserts a counterclaim for estoppel and advances affirmative defenses of waiver and estoppel based on ERC's past payment of such claims. This matter comes before the Court on Plaintiff Employers Reinsurance Corporation's Motion To Strike Defendant's Expert Robert F. Hall ("Motion To Strike Hall") (Doc. # 72) filed February 8, 2002 and Defendant Mid-Continent Casualty Company's Motion To Strike And Exclude The Testimony Of James Powers ("Motion To Strike Powers") (Doc. # 69) filed February 8, 2002. For reasons set forth below, the Court sustains both motions in part.

Standards For Admitting Expert Testimony

The Court has broad discretion in deciding whether to admit expert testimony. See Kieffer v. Weston Land, Inc., 90 F.3d 1496, 1499 (10th Cir.1996). Rule 702, Fed.R.Evid., provides that a witness who is qualified by knowledge, skill, experience, training or education may testify in the form of opinion as to scientific, technical or other specialized knowledge if such testimony will assist the trier of fact to understand the evidence or to determine a fact in issue. The touchstone of Rule 702 is helpfulness of the expert testimony, a condition that goes primarily to relevance. See BioCore, Inc. v. Khosrowshahi, 183 F.R.D. 695, 699 (D.Kan.1998) (quoting Miller v. Heaven, 922 F.Supp. 495, 501 (D.Kan.1996)). Thus, the Court must determine whether the proffered evidence would be helpful to the trier of fact. See BioCore, 183 F.R.D. at 699. In so doing, the Court examines specific subject areas of proposed expert testimony to ascertain whether each is sufficiently tied to the facts of the case so that it will be helpful to the fact finder. See id. Any doubts should be resolved in favor of admissibility. See id.

Analysis

I. Motion To Strike Hall

Robert F. Hall is the designated expert for MCCC. Hall has worked in the insurance industry for more than 40 years. From 1961 to 1974, he worked as claims adjuster, suit adjuster, claims supervisor, suit supervisor and assistant claims manager for Liberty Mutual Insurance Company. From 1974 to 1987, he worked at American Re-Insurance Company as claims supervisor, assistant secretary, vice-president, manager and senior claims officer. From 1987 to 1997, he held the positions of senior vice president, executive vice president, manager and senior claims officer for Reliance National Insurance Company. Since 1997, Hall has been self-employed as an insurance consultant, expert witness and arbitrator. Hall attended Northern Illinois University from 1959 to 1961, but he does not have a college degree. In 1972 and 1974, he attended management seminars at Wharton School and Northwestern University, respectively. In 1987, he attended an Aspen Institute program on justice in society. Hall does not hold any professional insurance designations. Over the years, he has been a member of various professional associations involving insurance and reinsurance. He is certified as an arbitrator by ARIASUS, a reinsurance and insurance arbitration society. Hall has been selected to act as arbitrator in more than 50 insurance and reinsurance disputes. He has testified as an expert witness in at least 14 actions.

According to his expert report, Hall proposes to testify regarding the following areas: (1) custom and practice in the insurance industry regarding the general duties and expenses of an insurance company with regard to investigating, evaluating negotiating and settling claims; (2) the extent of coverage under the extra-contractual obligations provision in the reinsurance agreement; (3) interpretation of the word "loss" in the reinsurance agreement, based on custom and practice in the insurance industry; (4) his understanding of the terms "waiver" and "estoppel"; (5) his understanding of the duty of utmost good faith and fair dealing and reasons for imposing the standard; (6) how ERC kept informed of the status of underlying declaratory judgment actions; (7) the fact that ERC did not inform MCCC of its belief that the reinsurance agreement did not cover declaratory judgment litigation expenses; (8) his opinion that such legal fees and expenses fall within the definition of "claims expenses" and are therefore covered under the reinsurance agreement; (9) his opinion that MCCC's payment of legal fees which policyholders incurred in declaratory judgment actions is a covered "loss" under the reinsurance agreement; (10) efforts by reinsurers since 1983 to avoid paying declaratory judgment litigation expenses and ongoing discussion in the insurance industry regarding same; and (11) his conclusion that ERC denied MCCC's claims in bad faith. See Hall's Report at 4-7, Exhibit A to Memorandum In Support Of Plaintiff Employers Reinsurance Corporation To Strike Defendant's Expert Witness Robert F. Hall ("ERC Memorandum") (Doc. # 73) filed February 8, 2002.

A. Hall's Qualifications

ERC contends that Hall is not qualified to testify about industry custom regarding reinsurance agreement coverage of declaratory judgment litigation expenses. Specifically, ERC maintains that Hall's opinions are not based on education and that his experience in the reinsurance business is limited to 13 years of employment with one reinsurance company. Rule 702 imposes an important gate-keeping function with regard to the admissibility of expert opinions. See Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). In order to determine whether Hall's expert opinion is admissible, the Court must determine whether Hall is qualified by "knowledge, skill, experience, training, or education" to render an opinion. See Rule 702, Fed. R.Evid.; Ralston v. Smith & Nephew Richards, Inc., 275 F.3d 965, 969 (10th Cir.2001).²

MCCC counters that Hall's work experience and training qualify him to testify as an expert. The Court has carefully reviewed Hall's credentials and finds that his background and experience qualify as "specialized knowledge" gained through "experience, training, or education." Rule 702, Fed.R.Evid. ERC's arguments go to the weight of his testimony, not its admissibility. See McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1043 (2d Cir.1995). The Court therefore concludes that Hall is qualified to testify as an expert in the case.

B. Legal Conclusions

ERC asserts that Hall's interpretation of the reinsurance agreement constitutes a legal conclusion which is an improper subject of expert testimony. MCCC denies that Hall's opinions are legal conclusions, and contends that his opinions are relevant to (1) understanding technical terminology which is not adequately defined in the agreement; (2) explaining custom and industry with respect to ambiguous terms; and (3) determining the parties' intentions and MCCC's reasonable expectations under the reinsurance agreement. Under Rule 704(a), Fed. R.Evid., an expert witness may testify in the form of an opinion or inference, even if the opinion or inference embraces an ultimate fact issue. See A.E. By and Through Evans v. Indep. Sch. Dist. No. 25, 936 F.2d 472, 476 (10th Cir.1991) (citations omitted). An expert, however, may not apply the law to the facts of the case to form legal conclusions. See id. (citing United States v. Jensen, 608 F.2d 1349, 1356 (10th Cir.1979)); Frase v. Henry, 444 F.2d 1228, 1231 (10th Cir.1971). Nevertheless, an expert may refer to the law in expressing his opinion. See id. (citing Specht v. Jensen, 853 F.2d 805, 809 (10th Cir.1988)).

Hall's opinions regarding contract interpretation are admissible if the Court determines that the reinsurance agreement is ambiguous. Under Oklahoma law, the Court interprets an insurance contract in accordance with ordinary contract law principles.³ See IDG, Inc. v. Cont'l Cas. Co., 275 F.3d 916, 921 n. 2 (10th Cir.2001) (interpreting Oklahoma law). If it is unambiguous, the Court interprets the agreement according to the plain meaning of the words in the policy. See id. If a policy term is ambiguous, however, evidence of extrinsic facts and circumstances which demonstrate the parties' intent is admissible, and construction of the contract becomes a mixed question of law and fact for the jury to determine under proper instructions. See Fowler v. Lincoln County Conservation Dist., 15 P.3d 502, 507 (Okla. 2000).

The Court has not determined whether the reinsurance agreement is ambiguous.⁴ See Max True Plastering Co. v. U.S. Fid. & Guar. Co., 912 P.2d 861, 869 (Okla.1996) (court determines as matter of law whether insurance contract is ambiguous). If the Court finds that the agreement is not ambiguous, Hall's opinions regarding contract interpretation are not admissible. See Wicks v. Riley County Bd. of County Comm'rs, 125 F.Supp.2d 1282,...