Expert Witnesses (Sometimes Lawyers) in Insurance Bad Faith [IBF]Cases[1]:
An Mostly Elementary Introduction to Some Fundamentals in Two Parts

(Part II)

This is Part II of an essay that contains a number of short “chapters.”  The first three are in Part I, so we begin with Chapter IV.
___________________________________________________________

IV.  Typical
Issues and Conduct of Insurers & Adjusters in Bad Faith Cases: The Expert
Witness

A.      In virtually all bad faith cases, an
expert (as well as the adjusters) will have to know the meanings of the operative words in insurance contracts, their accepted usage in the insurance
“industry,” and how they might be ambiguous,[2]
whether they are thought to be or are argued to be.[3]
Of
course, the adjuster has to—or should—know the things during the adjustment
process itself before any testifying expert is involved.  It is not entirely uncommon for field
adjusters not to recognize ambiguities in policies.  The same is often true of supervising desk
examiners, and it can be true of more senior officers in adjustment
departments.  Amazingly, teams of
adjusters conduct “round table” discussions, and the claims file indicates a
50/50 disagreement as to what relevant language policy means.  Sometimes those in underwriting can be helpful,
but they have a tendency to talk about what they intended, as if that is always
clear.  Lawyers in the Adjustment
Division of the general counsel’s office can be helpful, but they have a
propensity to advocate the insurer’s “official” position and not examine the
language of the policy with objective skepticism.
B.      In
virtually every case, the type of expert witness discussed herein will have to
be able to relate that which is alleged to be a loss and the descriptive
language in a policy.  Here, are a few
examples of which there are many, many more:
1.
What is “wind damage”?  (Notice how
quickly this meaning links to other matters—How does it relate to other
damages?  How does one look at its order
and timing?)  Remember, there are subsidence
exclusions in or added to many policies, e.g., liability policies, when
construction projects are involved. What is “subsidence”?  Here is a typical passage, from a typical
endorsement, sometimes attached to CGL policies:
a. Would any sinking or settling whatsoever of the ground under a parking
lot, say, being built constitute subsidence?

b. What is sinking anyway?  Obviously, it is different from subsidence.
c. Is “subsidence ambiguous?  Some dictionaries define it as a “deep” drop,
at least as one alternative.  Others
describe it as a drop at or close to a bottom.
d.
What if it were 1/10th of an inch?

e. What if it were the contents of a
bottomless sand box?  Bought
yesterday?)
f. What if a dozen different
companies worked on the initial project and it is not clear who caused the
problem.  What if the subsidence
exclusion is applicable only if the policy holder caused the problem, and it
cannot be told which company caused the sinking? All these are problems of
meaning and interpretation.
2. What is “ACV”?
What is the real meaning of this term spelled out, “Actual Cash Value”?  How is this figured?  The phrase is usually-pretty-much-always
taken to mean actual sale value minus
depreciation.   What counts as
evidence or what?  How is actual sale
value of a partially damages complex building reliably computed?  Why can there be so much disagreement between
policyholders and insurers?  And between
the people hire to each?  Is it fair to
treat building which is worth one thing before a real estate bubble bursts and
less during the burst period, but which will rise again in the normal courts of
things?  Should this be true when the
policyholder paid premiums on an property evaluation double what it is during
the burst-period?[4]   How is evidence gathered and calculations be
done for current estimates of a building which has been entirely destroyed work?)
3.
Can a building which has been completely destroyed be restored, as that undefined term is used in many property policies?  As it is used in ordinary language?
4.  If only the equivalent of and/or accidents,
i.e., “occurrences,” is within coverage, what makes something not an accident,
and therefore not within coverage?
a.
Consider this in a FPC:  Suppose a
homeowner had large quantities of a highly flammable, explosive substance in
his garage, where he smokes!  What if the
material is highly explosive and the homeowner not only smokes in the garage,
but also fixes his motorcycles, two or three at a time, and keeps Widespread Panic, the focus of his broad
and focused musical taste at a high volume?
What if he, alone with Verdi operas, is distracting and reduces his
concentration?
b. Now consider a different problem in
an LI policy.  Suppose
an adjuster
believes that the word “occurrence” refers to “property damage” which has
occurred and not the negligent act which occurred somewhat earlier—or a lot
earlier—and which caused the “property damage..”  Can it get any worse?
5. What if a
business which calls itself “The Fun House,” and has a well known business
motto, “What happen in the Fun House, stays in the “Fun House,” burns a good
bit, including all of the picturesque bedroom furniture, most of which came
from the Romantic period, or its starts a bigger fire that spreads throughout
the building and burns the whole ting down.
Suppose The Fun House is situated over a “strip joint,” which itself burns.  Is the insurer obligated to pay for the
property damage?  What if the “House of
Fun” is situated over a casino?  What if
all the establishments in the building are used by the insurer’s in-house
adjusters?  Its underwriters?  Its executives?          (How are these latter facts about “meaning” of the
relevant policy, if at all?)
6. What some
insurance adjusters, all in the same insurer, keep confusing the word “’occurrence,’”
a defined term in the policy which essentially involves the idea of an
“accident,” and word “occurrence,” which is not a defined term and has only to
do with something happening.  (Remember,
in insurance policies defined terms are distinguished from others by some sort
of special designation.  Here are some
typical ways of doing this: italicize the defined term, underline it, or place
it in quotes.  The case just described
turns on this differentiation.[5])  Here is a three-pronged  example of what I’m describing: :
a. The
“occurrence” must occur within the coverage period.
b. The
“property damage” must occur within the policy period.
c. The
“property damage” need not occur during the policy period, thought the
“occurrence” must.
C. Not all
IBF problems arise out of individual errors by “idiot,” “dozing,” “revengeful,”
or mean-spirited adjusters. Sometimes IBF arises out of the insurer—often
through senior “officials” in the adjustment department—establishing an
adjustment rule.[6]  Here are the related rules I saw recently.
1.  Supposedly the Carrier Insurance Company
(“Carrier”) believes that its FPC property policy does not cover lifted (or
uplifted) roof shingles resulting from a hurricane. Thus a roof shingle merely
having been uplifted by even severe wind cannot have suffered physical damage.
2.
Carrier has also prescribed that an adjuster can and should determine whether a
roof shingle is a lifted single simply be looking at it while standing over
it.  Thus, an adjuster must go on the
roof and walk around to perform a reasonable adjustment, but it need not crawl
on the roof or made a close-to-the-eyeball inspection.
3.
Carrier was prescribed that in big storm loss situations, e.q. hurricanes,
adjusters should work much its internal records set forth three reasons :
a.
more insured submit phony (fraudulent) claims after a big storm when many are
submitting claims;
b.
this adjustment method speeds things up and saves carrier/money, and
c.
this “method puts quickly calculated suits in the pockets of honest
policyholders more quickly.”
4.  Carrier believes that the mere ripping of the
seal between a lifted shingle and the wood roof under neither it is not
“physical damage” as defined in the policy.[7]  After all, a torn shingle which is not worn
out will repair itself in a couple of years at most.
Each of the immediately
forgoing involves an insurer creating a rule of establishing coverage and handling
adjustment without a reasonable basis.
This is especially true if the insurer has not really thought about the
problem, has not researched, performed, or relied upon relatively certain inquiry
which is not subject to genuine controversy.[8]  Notice the insurers actions precede any
actual adjustment process.
D.
Of course, something else an expert
on adjustment has to know about, is how reasonable adjustments are conducted.  I will return to this presently.
E.
In the meantime, it must also be remembered that there are lots of other
things expert witnesses need to know, and other terms they have to be attentive
to.
F. Now we come to some really BIG stuff including core principles and
tests.  (This was just hinted at a
couple of subsections ago.)  Obviously, findings
of common law and/or statutory insurer bad faith can essentially turn on these
kinds of principles or results.  These prescriptive
considerations need to be conceived of in several ways as setting forth, as
customary conceived in terms of common sense and then measuring against  industry standards:[9]
1.       The more thorough the insurer’s investigation, the more carefully it is
reviewed, discussed, objectively and rationally debated within the company
(or the office of the high prestige independent adjuster)[10]
2.       The more logical the adjuster’s reasoning in the context of investigation, reporting,
and decision-making the more thoughtful
and reasoned the insurer’s final
decision(s) will be (or will plausibly appear), and so on, the less likely the
insurer will likely be found to be in bad faith.
a. The more
reasonable the insurer’s conduct is the more it matches the opposite of bad
faith.
b. They may
all be called Epistemological-Logical Principles
3. An
insurance adjustment expert should be able to articulate and highlight the
logic-and-reasonableness reasonableness, or lack thereof, of the claims
handling actor and decision makers.
4.       It is also crucial that the insurer have
the right attitude.  The expert witness
(as with claims handlers in general) must articulate the principle “Look for coverage!”[11]                                       a. An
insurance adjustment expert must also be able to formulate and describe how the
insurer did or did not fulfill this standard.
b. The vast
majority of adjusters will do so as well, say, in deposition when this happens
the expert’s function is to trace out the consequences of applying this noble
axiom.
c. A “right
attitude” in this context should not be confused with a mental state.  Corporations do not have mental states; they
have activities which will not happen without a section with an attitudinal
consensus, at least among section leadership.
5.       An insurer under performance assessment
should never deviate from any genuinely fundamental adjustment principle.       This includes the “look for” Principle
and all of the Epistemological-Logic Principles mentioned above.
6.       An insurance adjustment expert witness
must, in most cases, know and be able to set forth how to do this.[12]
7.       The same points apply to cause and origin.
8.       All the same just stated points must be
true for the entire adjustment team—or at least—that part of the team involved
in a given case, up to and including the senior decision makers.
9.       Insurance Adjustment experts should be
able to recognize and explain insurer misrepresentations, no matter how they
occur.
V.
Other Uses for Insurance Expert Witnesses

A.
Insurance expert witness can also be
used in an insurance case for the following:
1.       Explain
the policy, if that is permitted by a court;
2.      Discuss the policy in order to explicate the
idea of “distance” between insurer adjustment an the policy, assuming that is
the real problem (or part of it);
3.       Explain
structures and processes leading up to policy insurance
a.
marketing;
b.
retail agents, wholesale agents and/or MGAs;
c. the surplus lines carrier and its
relation to state agencies; and
d.
underwriting.
4.
Explain a variety of other assorted matters, such as:
a.
the issuance of Certificates of
Insurance
(i)
nature;
(ii) purpose;
(iii)
text;
(iv)
who—may and/or does issue;
(v)
to whom;,
(vi) why;
(vii)
meaning of language; and/or
(viii)
problems.
b. ACORD forms for the adjustment
process—who is and who should not be involved and what should involvement look
like?
5. Can
erroneous information utilized by an insurer constitute the insurer’s
commitment to that false “information’?
a. One would
think so, although obviously it would not be waiver, if unintentional.
b.What would
count as an actionable misrepresentation?
6.  Describe and explain the structure of the
insurance industry, e.g., sales, intermediary group structure regulation,
relations with other types of institutions and “players” (e.g., governmental
commissions, banks, &c.)
7. Explain
facts about differences in adjustment processes, e.g., CGL versus commercial
property insurance, business interruptions versus non-payment of loan
insurance, maritime v. commercial airplane insurance
a.     most significantly: how are different
types of  adjustment done, e.g., at what
pace
b.     how different types of adjusters
usually behave
c.      how different adjustment
departments—those working on different types of cases–conduct communications
with policyholders and others:
(i)    oral
(ii) written: such as
·
denial
letters,
·
reservation of rights communiqués,
·
“You
can count of us letters”
Of course, experts will not just be
describing how all these things work.
They will also often be describing whether various functions have been
correctly or reasonably performed.  This
need not be in a bad faith case, of course.
It is often necessary in complex contract cases, and occasionally in
super-twisted-in-all-directions securities cases, and the like.
7.  Of course, some experts will be good at one
area and        incompetent at
another.
a. Some
adjusters and/or experts can testify about the way intermediaries related to
each other, to different types of intermediaries (e.g., retail agents and
MGAs), and/or to insurers. But  not at
all types of experts to how long it takes to adjust this or that type of specialized  or esoteric claim, the order in which
reasonable adjustment should be performed in a given case, whether engineers
are needed, what type is needed, how an engineer would fit in, what is sound
engineering, the same for sophisticated accounting,  how liability insurers and their adjusters should
observe, track, and direct defense counsel, and so on and on.
b. Why and
how insurers or their lawyers should not expect what might be called “thorough
horizontal knowledge.”
VI.
Qualifying
and Preparing Experts[13]
& Other        Recommendations

A.
Challenges
as to Qualifications:  Often it is
argued that a proposed expert is not really qualified to testify.  Experts are challenged by way of a “Motion to
Disqualify.” They are numerous, but with some witnesses, they get less routine,
as time goes along.
1.
The usual ground urged for disqualifying a proposed expert is that s/he doesn’t
know enough.
2. Often
opponents of the witness argue that the proposed witness does not have enough
experience of the relevant sort.  (E.g.,
the witness primarily has done worker’s comp claims so s/he should not be
permitted to testify in an adjustment case involving Financial Institution
Bonds.)
3.
Sometimes the claim is not just that
the proposed witness doesn’t know enough, but that s/he does not have sufficiently
scientific training or knowledge and/or that there has been no experiments,
and/or there has been no peer review of the proposed experts polished work.  There is a U.S. Supreme Court case, which
some lawyers use as the foundation for this.[14]  It’s the wrong case for challenging insurance
experts.  Nobody adjusting claims is a
“scientist” and there is no science or technology involved.  It’s like complaining that a historian is not
a scientist.
4.
In any case, sometimes experts are
qualified—in fact, in the area of insurance adjustment, usually, if proposed
experts are any good at all they are permitted to testify; but sometimes they
are not.  Difficulties arising in
conjunction with disqualification get more pronounced as the complexity and/or
value of the case go(es) up.
5.
The fact that a proposed expert
witness of some experience has been disqualified completely once—or a few
times—is not a certainty as to what will happen in a particular case.  Judges decide these issues and have wide
discretion in their rulings.
B.      Other Recommendations.  Expert witnesses must be prepared for
testifying, whether in depositions or for trial.
1.       They
must prepare themselves.  This
happens by study, by writing a report (if required), and by rehearsal-speech.  Experts should think about the questions they
will be asked and construct the right sorts of answers and the right sorts of
arguments.  They should avoid humor and
witty sarcasm most of the time and incivility all the time, even when pointing
out the outrageous incivility of examining counsel.  (This must be done even though it makes the
testimony less interesting and more boring.
Well, maybe a little bit here and there.
It better be less than too much, and it better be good.  Usually don’t tell jokes.)
2.  Advocating
lawyers in the case at hand should prepare expert witnesses.  Except in monetarily smallish cases, this
should be done carefully.  It takes
time.  Sample questions should be
used.  The expert’s degree of knowledge
and preparedness should be quizzed.
Videotaping is particularly helpful.[15]  Previous deposition and reports should be
reviewed.  These can be found on WestLaw,
and—more significantly—on association, society, or
common-interest—organizations, amongst lawyers, for example.
3.       Restraint.  All expert testimony should be presented with
restraint.  This is true both with
respect the lawyer offering the witness and the witness himself. An expert
witness is not an advocate.  S/he is an objective authority.  Expert witnesses
are supposed to be characterized by objectivity,
a sense of seriousness, perhaps a semi-academic-like quality, affability, and so forth. Remember the
teaching at all times.
4.       Most of the time expert witnesses should
regard themselves as “teachers.”
5.
Arguably, expert testimony should
have that which might be called a “Christian” quality.  Of course this has nothing to do with
religious or internal belief.  Perhaps,
under most circumstances, an expert witness should not wear a cross or any
other religious symbol on his lapel or around her neck.  The point here is that there should be a
degree of friendliness, love of neighbor (including strident and even insulting
lawyers), and sometimes even a tenor of forgiveness.  (Some might believe that this is nothing but
secular cynicism in disguise. The expert and the presenting lawyer must be
cautious and careful.)
VI.
Lawyers
as Expert Witness:
In
Insurance IBF Cases

A.      Sometimes lawyers are perfect
witnesses.  What if the problem arises
out of the insurer’s General Counsel Office, or the adjustment division?  What if the real problem arises out of the
insurer failing to supervise defense counsel in an appropriate and reasonable
way?  Surely, an insurance lawyer may be
very helpful in testifying about an insurer’s internal guidelines, behavior
rules, and so forth.
B.  Often lawyers, no matter how experienced or
knowledgeable they are, get challenged because they have never been a salaried
employee of an insurer.
1. This happens to me even though I
have given over 100 insurance-related depositions, testified in over 35, or so,
trials or arbitrations, many more mediations, and have published scores of
times, not to mention spoken, on insurance topics.
a. It does not seem to matter that I
have licenses in both adjustment and in being an intermediary.
b. It never seemed to stop, except
for litigants for whom I have been retained before.  It seems to true much more with insurers than
it is with policyholders.  Some years
ago, the last point was not the case.
2. All this happens to virtual all
lawyers who are retained to testify as expert witnesses.  It is even true of lawyers who once worked
for insurers, if that took place years before.
3.
Both of the two preceding points apply to testify as to intermediaries.
4.
Of course, all this happens to all expert-witness candidates, but more
so with lawyers.  Perhaps an exception is
a fulltime law professor who has worked on insurance law for many years.
B.      Then
again, experienced insurance lawyers with enough of the right sort of experience
and/or training are probably as well qualified as many or most actual
adjusters.
1.
This point is true, if for no other reason, than because lawyers have a
good sense of what counts as a convincing argument, even when empirical facts
are central to the decision.
2. It is not being suggested that
lawyer-witness should give these types of arguments.  Rather, they are prepared to recognized them
(and their opposites) when used by the claims or adjustment departments of
insurers.
C.      There
is usually an attempt to disqualify experienced insurance lawyers on the
grounds that they have not been employees of insurance companies, usually in
adjustment departments.   This is an
illogical argument, even if it sometimes works.
If a very experienced insurance lawyer is presented as an expert and
that lawyer has worked for insurance companies over and over again on may sorts
of problem, the chances are that such a lawyer will be at least as qualified to
testify to the issues at hand as employees of insurance companies, e.g.,
adjusters.
D.
Earlier the matter of “distance” was
discussed.  In bad faith cases, the
conclusion may depend upon the “distance” between how a policy is or should be
understood and how the insurer actually understood it.  Lawyers are often very good at this, so long
as they do not come off as advocates.
E
One last thing, lawyers as expert witness have little danger of exposure to
malpractice liability—of that founded upon fiduciary-ness—either.  First, such an expert I not functioning as a
lawyer.  Second, the duties and danger of
lawyers do not apply here.  Third most
states have refused to recognize such cause of action.  Alas, that established may be subject to a
new trend.  It is still a minority,
however.[16]  Nevertheless,
have expert witnessing explicitly included in your malpractice insurance.
VII.
Conclusion
One of the most important things to
remember about expert witnessing is this:
The testimonial function of an expert witness is teaching.  When
testifying an expert witness should regard her/himself as a teacher.  In preparing to be an expert witness, that
person should keep in mind past teachers who were the most instructive, the
most likable, the most authoritative, and the least irritating.  Then, try to generalize their attributes; in
this regard, think about not just you, but your spouse, your kids, your Xs,
your Ys, and your Zs.  Call up you
“brothers” and “sisters” from college.
Now, try to put it all together.
You will be amazed how often the stories and evaluations match up.  The expert witness should be like that.   However, s/he should avoid advanced physics
teachers, actual chemistry teachers, usually accounting teachers, and certainly
those who taught differential equations.
These people are too hard to understand; they go too fast; and they are
usually boring.  Above all, though for
different reasons, AVOID THE USUAL LAW SCHOOL PROFESSOR TYPES !  Actual law professors are OK, so long as they
don’t act or talk like it.  As already
been stated, restrained semi-academic knowledgeableness is fine, but ostensible
learnedness is usually not.[17]  Alas, this means you have to avoid the entire
faculty at, Chicago or Yale—and their “family relations”–and a good number of
their mentally-high-powered graduates—namely those who exude it.  (Elitism is a good thing in some contexts,
but this is not one of them.)

[1]  This
is a revised version of a speech-paper distributed at a Continuing Legal
Education program held in the at South Texas School of Law.
[2] It
is advisable for an insurance expert to keep in mind the simple fact that a
term is vague or difficult to understand does not make it ambiguous.  Vagueness and complexity are separate
issues.  (Consider this: the more complex
the policy and/or that which is insured by it, the more likely that some of the
terms will be difficult to understand.
Sometimes engineers or physicians, or physicists, not to mention
chemists, have to be brought in to explain the terms and both its meaning and
its common usage.  Obviously, adjusters
cannot usually do this.)  QUESTION: Is
accounting the same sort of thing?

[3]
Notice again a good deal of this has to do with knowing whether an insurer is
interpreting its contract in an acceptable “insurance industry” way.   As
a general rule, insurers and insureds need to be quite literalistic in
interpreting insurance contracts.  This
was centrally involved in the application of the Ambiguity Rule in insurance
contracts, although it applies to all contracts.

[4] There is
also, of course, another question entirely.
If the phrase is “actual case value,” why should depreciation figure in
at all.  That is a deduction from ACV,
nor part of it.
[5]
This problem can rise to the absurd.  I
have been asked in a deposition for legal authority about the idea that a
defined term, such as “occurrence,” indicated in the policy to be defined, must
be treated differently than the same term when not in quotes, italics or
underlined. Of course, no competent insurance adjuster or coverage lawyer could
make this mistake.  Still “idiot”
adjusters are not the only people who can make this kind of mistake. “Idiot”
lawyers made too, as happened in my deposition.

[6] Of
course some of these people can be bigger “idiots than a bumblers and
relatively ignorant field adjuster.  Here
is an example.  No long ago in a
deposition, a senior adjustment official, who was also a lawyer, was asked to
formulate and set forth at least some of the
rules of adjustment his company formulated and used in any adjustment
process.   Here is roughly what he
said:  “A rule is how a company does
things.” (In other words, it is not a prescription.”  Perhaps the fellow simply confused “rule”
with “as a rule.”
[7] Property
insurance policies—whether residential
or commercial—usually define “property damage” to contain the following
words, or something equivalent to them.
“Physical damages” has occurred if there has been “physical damage to tangible property.”

[9] In this
regard, proving bad faith and defending against it, resemble proof of and
refutations of allegations of negligence.

[10] ?
[11] There
is universal agreement (or close to it) about this principle in the insurance
industry. Of course, like any foundational principle, based upon values, which
is not in the self-interest of the person or entity, there is not always
universal “follow-ance” of this principle:
sometime by accident, sometimes by inexperience, sometimes by
sloppiness, sometimes by “idiocy,” sometimes by negligence, and sometimes by
design.  The worse it gets on this
“spectrum,” the more it is or indicative of insurer bad faith.  All adjusters should be fit and ready to
testify to this evaluation and stating it, or it’s opposite(s).

[12]
Some cases are unusual, vastly unfamiliar, or hugely complex.  In this sort of case, and adjuster cannot be
expected actually to do the calculation.
[13] Of
course, merely proposed experts may need this sort of thing too.
[14] Daubert [MSQ]
[15]
Of course there are document discovery problems right here.  Expert witnesses should not get or retain
videotapes of training or practice sessions.
Lawyers should not save them either, if at all possible.

[17]
Of course, an accounting professor in a business interruption case, an engineer
in a property damage case, a wind scientist (what few there are) in a hurricane
case are all exceptions to this general point, though my point as to
self-presentation remains true, but to a more limited extent.