Gebremedhin et al v. American Family Mutual Insurance Company

Filing 248

ORDER granting in part and denying in part 198 Motion to Strike. By Magistrate Judge Nina Y. Wang on 8/21/15. (nywlc1)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 1:13-cv-02813-CMA-NYW
WELDESAMUEL GEBREMEDHIN, an individual,
TERHAS DESTA, an individual,
ABRHAM GIDAY, a minor, by and through his guardians and natural parents,
WELDESAMUEL GEBREMEDHIN and TERHAS DESTA,
Plaintiffs,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY,
Defendant.
______________________________________________________________________
ORDER ON AMERICAN FAMILY’S MOTION PURSUANT TO FED. RULE EVID. 702
TO STRIKE THE OPINIONS OF PLAINTIFFS’ EXPERT GARTH ALLEN
______________________________________________________________________
Magistrate Judge Nina Y. Wang
This matter comes before the court on Defendant American Family Insurance
Company’s (“Defendant” or “American Family”) Motion Pursuant to Fed. Rule Evid. 702
to Strike the Opinions of Plaintiffs’ Expert Garth Allen, filed on May 21, 2015 [#198] (the
“Motion to Strike”). This Motion was referred to this Magistrate Judge pursuant to the
Order Referring Case dated October 21, 2013 [#6], the Reassignment dated February
9, 2015 [#158], and the Memorandum dated May 27, 2015 [#205].

The court has

carefully considered the Motion and related briefing, the arguments of the Parties’
counsel at the August 18, 2015 oral argument on the Motions, and the applicable case
law. For the reasons discussed below and as set forth herein, the court GRANTS IN
PART and DENIES IN PART American Family’s Motion to Strike.

BACKGROUND AND RELEVANT PROCEDURAL HISTORY
This case involves third-party breach-of-contract and bad faith claims arising out
of an insurance coverage dispute between Glen and Veronica Turner (the “Turners”)
and American Family. The Turners were foster parents insured by an American Family
homeowner’s insurance policy in the spring of 2009 while then infant Plaintiff Abrham
Giday suffered severe brain injuries while placed under the Turners’ foster care. [#3 at
¶¶ 7-8]. Abrham Giday and his birth parents (also the Plaintiffs in the instant litigation)
subsequently filed suit in a Colorado state court against the Turners (the “underlying
litigation”). [Id. at ¶ 6].
The Turners sought a defense and indemnity from American Family under their
homeowner’s policy. [Id. at ¶ 11]. American Family in turn denied any obligation to
provide any coverage in the form of indemnity or a defense, citing (inter alia) that the
facts as alleged in the underlying litigation triggered intra-insured bodily injury and
business pursuits exclusions in the insurance agreement.
Under the operative Scheduling Order, the Parties were required to designate “all
experts and provide opposing counsel with all information specified in Fed. R. Civ. P.
26(a)(2) on or before January 30, 2015.” [#153]. On January 30, 2015, Plaintiffs served
the expert report of Garth Allen (“Professor Allen”). [#198-1]. Professor Allen teaches
insurances at the College of Business Administration at the University of Northern
Colorado.

[Id. at 1].

According to his report, his “educational background and

professional activities,” which include “teaching seminars and workshops to insurance
professionals, and consultations with insurers as well as insureds,” have allowed him to
“become familiar with the practices, customs, and procedures relevant to casualty

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insurance policies, coverages, and claim practices.” [Id.]. According to Professor Allen,
“[t]here is, of course, substantial overlap between industry standards and the law
because the standard is to never act in violation of the law.” [Id. at 4]. He further states
that “references in this report to regulations, statutes, and case law are intended not as
statements of what the law is but are instead intended as a description of insurance
industry standards that have evolved as a result of legal precedents.” [Id.].
On May 21, 2015, American Family filed the instant Motion to Strike. [#198]
American Family seeks to strike a wide range of the opinions proffered by Professor
Allen, reflected below.

American Family contends that many of Professor Allen’s

opinions improperly reach the ultimate issues in this case in contravention of Rules 702
and 704 of the Federal Rules of Evidence, improperly interpret the relevant legal
standards and the contract, and improperly seek to instruct the factfinder of the relevant
legal standards and the contract. [#198]. American Family further argues that a few of
Professor Allen’s opinions, including his assertion that in Colorado the prevailing
industry practice is to “defend almost all tendered claims due to the extraordinarily
broad nature of the defense obligation and the high cost to insurers that improperly fail
to defend their insured,” should be excluded as lacking an adequate basis. [Id. at 1416].
In opposition, Plaintiffs contend that courts have concluded that expert testimony
in bad faith cases going to ultimate issues of fact (rather than law) and premised on
explaining applicable industry custom and practice is not barred by Rule 704, and may
be helpful to the jury under Rule 702. [#217]. Plaintiffs also argue that to the extent a
number of Professor Allen’s opinions are found to be inadmissible, the same applicable

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standards and reasoning should bar a number of opinions disclosed by American
Family’s “bad faith” expert Steven Plitt.1 [Id.].
American Family’s Motion to Strike expressly challenges the following specific
opinions in Professor Allen’s report:2
1.

My opinion is that American Family’s conduct was unreasonable and in
violation of multiple widely recognized minimum insurance claim handling
standards. [#198-1 at 7].3

2.

As noted in detail above, American Family’s refusal to defend its insureds
and settle the claims against them was unreasonable, contrary to industry
standards, and therefore in bad faith. [Id. at 15].

3.

American Family’s improper application of the Intra-Insured and Business
Pursuits exclusion, failure to recognize the broad duty to defend, failure to
participate in mediation or settlement discussions, failure to take
advantage of a settlement opportunity within limits, and the overall refusal
to provide any defense or protection for the Turners represents intentional
and willful conduct that violates the rights and interests of the insureds.
[Id.].

4.

American Family also engaged in a number of prohibited practices in
violation of the Colorado Unfair Claim Settlement Practices Act. [Id. at 7].

1

Plaintiffs have not filed a motion to strike Mr. Plitt’s opinions. As noted by American
Family, a party may not include a motion in a response to an original motion.
D.C.COLO.LCivR 7.1(d). Accordingly, in considering American Family’s Motion to
Strike, the court does not consider Mr. Plitt’s report, because whether or not Mr. Plitt’s
opinions comply with Rules 702 and 704 of the Federal Rules of Evidence and the
relevant case law is irrelevant to whether Professor Allen’s opinions are permissible.

2

The discrete portions of Professor Allen’s expert report challenged by American
Family’s Motion to Strike are numbered here in the order in which they appear in the
Motion to Strike, and are cited to Professor Allen’s expert report, attached as Exhibit 1
[#198-1]. For purposes of reference in this order, hereinafter the court cites to the
portions of testimony by the numbered paragraphs in this background section (i.e.,
“Opinions 1-40”). During oral argument, counsel for American Family suggested that it
sought to exclude all similar conclusions reflected in the report but that were not
specifically identified. Such broader relief was not requested in its Motion to Strike
[#198], and this court will therefore focus and rule only on the discrete portions identified
in the Motion to Strike.
3

In resolving the objections to specific expert opinions in this Order, the court refers to
each by number assigned in this list. For instance, this first challenged expert opinion is
referred to as “Opinion No. 1.”
4

5.

Mr. Fleming’s unsupported approach of concluding that Giday was a
resident because he was at the Turner household and in their care at the
time of his alleged injury is simply incorrect, self-serving, in violation of the
rights and interests of the Turners, in violation of the broad duty to defend,
in violation of the requirement to construe exclusions narrowly, and in
violation of basic insurance industry standards. [Id. at 10].

6.

There was no way American Family could meet its burden of showing that
baby Giday was unequivocally the resident of the Turner household at all
times material to the claim, a burden that had to be met in order for it to
deny a defense and coverage under the Intra-Insured exclusion. [Id.].

7.

Reliance on the Business Pursuits exclusion, like the reliance on the IntraInsured exclusion, was improper and contrary to insurance industry
standards. [Id.].

8.

It was unreasonable and contrary to insurance industry standards for
American Family to reject, disavow, and thus fail to meet its duty to
defend... [Id. at 11].

9.

American Family acted in violation of its quasi fiduciary duties, acted
unreasonably, and breached its duty to defend by wrongfully denying this
claim, rejecting its duty to defend and to afford coverage.... [Id. at 12-13].

10.

Under these circumstances, and without conducting any further
investigation from which it could adequately assess its obligations,
American Family’s failure to settle the claims against the Turners within
policy limits despite the opportunity to do so was wrongful. [Id. at 13].

11.

American Family acted in violation of the CUCSPA by misrepresenting
policy provisions. [Id. at 14].

12.

American Family also acted in violation of subsection III of the CUCSPA
by failing to implement reasonable standards for the prompt investigation
of claims arising under its insurance policies. [Id.].

13.

American Family acted unreasonably and contrary to insurance industry
standards by failing to timely acknowledge and accept its duty to defend.
[Id.].

14.

American Family also acted in violation of subsection IV of the CUCSPA
by refusing to pay claims without conducting a reasonable investigation
based upon all available information. [Id.].

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15.

As a practical matter, liability claims against the insured can seldom be
denied in full, including a refusal to defend. [Id. at 7-8].

16.

In this case, if American Family had properly considered the Amended
Complaint, it would have noted that the Turner’s custody of Giday was
temporary. [Id. at 8].

17.

Giday’s relationship with the Turners was clearly temporary from the face
of the operative pleading. In fact, it was a relationship that never should
have happened. [Id. at 9].

18.

Additionally, any injury or exacerbation of an injury due to Ms. Turner’s
failure to follow the physician’s Emergency Room directive was clearly
after Giday was ordered to be returned to his parents, thus ending any
possibility of residency. The face of the Amended Complaint therefore
shows that Giday was not a resident of the Turner household at the time
of his alleged injury. [Id. at 9].

19.

At bottom, the allegations of the Amended Complaint gave rise to the
possibility that Giday’s erroneous five-night stay with the Turners did not
make him a resident of their household for the purposes of the policy’s
Intra-Insured exclusion. [Id.].

20.

The removal of Giday from his parents’ home by DHS was temporary as a
matter of law. [Id.].

21.

There was never a long-term or permanent foster care relationship
between Giday and the Turners, nor any intention that he live there as a
member of their household. [Id.].

22.

Not only was it unlikely that Giday was a resident, it was instead a near
certainty that he was not a resident of the Turner household. [Id. at 9-10].

23.

The Amended Complaint, however, contained no allegations from which
American Family could ascertain the Turner’s motivations for becoming
foster parents and therefore no allegations from which it could determine
with certainty that they were driven by profit. [Id. at 10].

24.

I would note that under federal law, payments received by foster parents
for a qualified foster care placement agency are not considered income
and are not reported on a tax return. [Id. at 11].

25.

Further, the Turners’ alleged liability was based on negligence and
negligence/res ispa loquitur, and not on any contractual liability, thus
proving the inapplicability of the contractual liability exclusion. [Id. at 13].

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26.

American Family was required, by law and insurance industry standards,
to determine if it was possible that Giday was not a resident of the Turner
household and provide a defense if that possibility existed. [Id. at 9].

27.

Insurers can consider extraneous evidence, evidence outside the
complaint, but only for an inclusionary purpose (finding coverage) and not
for an exclusionary purpose (defeating coverage). [Id. at 8].

28.

Terms undefined in the policy must be given their ordinary meaning and
when the terms are incorporated in an exclusion, they must be construed
narrowly so as to favor coverage according to insurance industry
standards and Colorado case law. [Id.].

29.

If American Family questioned the residency status of Giday, it could have
explored beyond the Amended Complaint, not in order to deny the claim,
but to find clarification in order to provide a defense. [Id. at 9].

30.

Most importantly, even without any information beyond the operative
complaint, American Family was required by law and insurance industry
standards, to determine if it was possible that Giday was not a resident of
the Turner household and provide a defense if that possibility existed.
[Id.].

31.

Typically, the insurer either must, or out of an abundance of caution
should, elect to defend a claim so that more information can be
accumulated during the litigation process, information that can then be
used to make an informed decision regarding indemnity, including
settlement of the claim. [Id. at 7].

32.

Further, considering evidence outside the complaint, evidence that can
and should be considered in order to affirm the duty to defend, there was
clearly not a profit motive and thus no business pursuit.” [Id. at 11].

33.

Additionally, even if the American Family policy is in excess over any
coverage purchased by SKSF, it still contains a duty to defend that is not
cancelled or voided by other insurance. The duty to defend is a joint and
several duty, D.R. Horton, et al v. Mountain States Mutual Casualty
Company, U.S. Dist. Ct. for the Dist of Co., 2014 U.S. Dist. LEXIS
132563, and the fact that one insurer may be defending does not erase or
cancel another insurer’s duty to defend if such a duty is included in the
insurance policy as it is here. [Id. at 12].

34.

If the allegation of employment alone satisfied the Business Pursuits
exclusion, the additional language requiring that the employment be “profit
motivated” would be rendered meaningless in contravention of Colorado

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law. Stated differently, the definition of “business” contemplates that some
business is “profit motivated” and some is not. [Id. at 11].
35.

Both overlooked the critical issue if Giday’s residency at the time of the
denial and during their deposition testimonies. [Id. at 8].

36.

Colorado courts have held that the determination of whether a person is a
resident of a named insured’s household is a fact specific inquiry. [Id.].

37.

First, the policy’s definition of “business” is directly linked to the insured’s
intent/motivations. [Id. at 10].

38.

In Colorado, the standard and custom in the insurance industry is to
defend almost all tendered claims due to the extraordinary broad nature of
the defense obligation and the high cost to the insurers that improperly fail
to defend their insured. [Id. at 7].

39.

Regardless, it should have been reasonably apparent to American Family
that providing foster care to children is much more likely to be a
humanitarian activity than it is to be profit- motivated for purposes of the
exclusion. [Id. at 10].

40.

If American Family had asked Ms. Turner why she was providing foster
care she would have told them, consistent with her application to become
a foster parent, that she and her husband were “unable to have more
children,” and “their desire was to help out young children.” [Id.].
ANALYSIS

I.

Standard of Review
As the Supreme Court held in Daubert, a trial court is obliged to act as

“gatekeeper” of proffered expert testimony for relevance and reliability pursuant to Rules
401 and 702 of the Federal Rules of Evidence.
Pharmaceuticals, Inc., 509 U.S. 579, 589–95 (1993).

Daubert v. Merrell Dow
Daubert’s “gatekeeping”

requirement applies not only to expert testimony based on scientific knowledge and
principles, but also to all other expert testimony premised on “technical” or “other
specialized” knowledge. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999)
(quotation omitted). On proper challenge, it is the proponent’s burden to establish the
8

admissibility of the proffered expert testimony at issue. United States v. Nacchio, 555
F.3d 1234, 1241 (10th Cir. 2009).
When Rule 702 is read in conjunction with Rule 704, expert testimony is not
proper “when the purpose of testimony is to direct the jury's understanding of the legal
standards upon which their verdict must be based.” Specht v. Jensen, 853 F.2d 805,
810 (10th Cir. 1988). Thus, “[w]hile testimony on ultimate facts is authorized under Rule
704 ... testimony on ultimate questions of law is not favored.” Id. at 808. Therefore,
“[t]he expert can refer to the law in expressing his opinion, but he may not tell the jury
what legal standards must guide their verdict.”

MCC Mgmt of Naples, Inc. v. Int'l

Bancshares Corp., 468 Fed. App’x. 816, 821 (10th Cir. 2012) (emphasis in original); see
also United States v. Dazey, 403 F.3d 1147, 1171 (10th Cir. 2005) (“[A]n expert may not
simply tell the jury what result it should reach without providing any explanation of the
criteria on which that opinion is based or any means by which the jury can exercise
independent judgment.” (citation omitted)). In addition, an expert may not ordinarily
“state legal conclusions drawn by applying the law to the facts,” as such testimony is
typically not helpful to the finder of fact. A.E. By & Through Evans v. Indep. Sch. Dist.
No. 25, 936 F.2d 472, 476 (10th Cir. 1991); Okland Oil Co. v. Conoco Inc., 144 F.3d
1308, 1328 (10th Cir. 1998) (“Generally, an expert may not state his or her opinion as to
legal standards nor may he or she state legal conclusions drawn by applying the law to
the facts.”).
Even when the court is satisfied that the expert opinion is not an impermissible
legal opinion or conclusion, Rule 702 also requires that any proffered expert testimony
be “help[ful] [to] the trier of fact to understand the evidence or to determine a fact in

9

issue.” Fed. Rule Evid. 702(a). In the context of insurance coverage dispute actions,
the Tenth Circuit has repeatedly recognized that trial courts have the discretion to
exclude expert testimony regarding the “industry standard,” absent an adequate
showing of helpfulness to the factfinder. North American Specialty Ins. Co. v. Britt
Paulk Ins. Agency, Inc., 579 F.3d 1106, 1112 (10th Cir. 2009) (because a properly
instructed jury is generally capable of determining issues involved in cases “alleging bad
faith denial and investigation of insurance claims,” expert testimony seeking to
“compare[] the insurance company’s actions to the industry standard” may be properly
excluded on the ground that it would not “assist the trier of fact”) (citing Thompson v.
State Farm Fire & Cas. Co., 34 F.3d 932, 941 (10th Cir. 1994) (holding same)).
II.

Application to Defendant’s Motion to Strike
In urging the court to deny Defendant’s Motion to Strike, Plaintiffs note that

expert testimony in a bad faith action as to relevant industry custom and practice is not
per se barred by Rules 702 and 704, and in a number of cases, both within and outside
this jurisdiction, has been held to be admissible. [#217 at 3-7]. Plaintiffs further contend
that Professor Allen’s opinions are ones related to the ultimate issue of fact, because he
“does not simply instruct the jury what result to reach. Instead he analyses [sic] the
particular facts in light of his knowledge of industry standards and offers opinions.”
[#217 at 6].
Having reviewed Professor Allen’s report, the court respectfully disagrees. In
some places, Professor Allen’s opinions can only be described as pronouncements of
law. For example, Opinion No. 24 states “I would note that under federal law, payments
received by foster parents for a qualified foster care placement agency are not

10

considered income and are not reported on a tax return.” In another example, Opinion
No. 28 states “[t]erms undefined in the policy must be given their ordinary meaning and
when the terms are incorporated into an exclusion, they must be construed narrowly so
as to favor coverage according to insurance industry standards and Colorado case law.”
[Id. at 8].

Professor Allen himself acknowledges that there is “substantial overlap

between industry standards and the law because the standard is to never act in
violation of the law.”

[Id. at 4]. To the extent such overlap exists, it is the province of

the trial court to instruct the jury as to issues of law. As the Specht court recognized,
“our system reserves to the trial judge the role of adjudicating the law for the benefit of
the jury.” Specht, 853 F.2d at 808.
In addition, many of Professor Allen’s challenged opinions are simply directions
to the jury on how to rule that do not even refer to, let alone explain, industry standards.
For instance, Opinion No. 20 states “[T]he removal of Giday from his parents’ home by
DHS was temporary as a matter of law.” [#198-1 at 9]. That statement does not
articulate an industry standard. Rather, it is a statement directing the factfinder to a
specific legal conclusion.

Similarly, Opinion No. 32 declares “[f]urther, considering

evidence outside the complaint, evidence that can and should be considered in order to
affirm the duty to defend, there was clearly not a profit motive and thus no business
pursuit.” [Id. at 11]. Professor Allen is clearly directing the jury to conclude that the
business pursuit exception should not legally apply.
Moreover, there are two opinions offered by Professor Allen that do not appear
based on his expertise, and are therefore, improper and unduly prejudicial. Opinion 39,
which states that foster care is “much more likely to be a humanitarian” rather than

11

profit-driven activity, and Opinion 40, which states that Ms. Turner would have informed
American Family that she wished to help out young children through such care if
American Family had inquired as to her motivations, raise a different issue. The court is
unable to discern how his experience with the insurance industry as articulated in his
report could provide any basis for either opinion, or how Ms. Turner’s motivation is at all
probative of American Family’s contractual obligations and/or bad faith. Accordingly,
the court finds that Professor Allen cannot testify to challenged Opinions 39-40.
Finally, I find that the majority of the challenged testimony, even assuming that
the proffered opinions are considered to go to ultimate issues of fact rather than law, is
not helpful to a properly instructed jury. See, e.g., Expert Opinion No. 27 [#198-1 at 8]
(opining that “[i]nsurers can consider extraneous evidence, evidence outside the
complaint, but only for an inclusionary purpose (finding coverage) and not for an
exclusionary purpose (defeating coverage)”) & Expert Opinion No. 25 (opining that
because “the Turners[’] alleged liability was based on negligence and negligence/res
ispa loquitur, and not on any contractual liability,” the relevant policy’s contractual
liability exclusion was not applicable). Plaintiffs bear the burden of establishing the
admissibility of Professor Allen’s opinions, including showing that it would be helpful to
the finder of fact. Nacchio, 555 F.3d at 1241.
In applying these standards, the court finds that Plaintiffs have failed to meet
their burden of demonstrating the admissibility and/or the helpfulness of Expert Opinion
Nos. 1-6, 9-12, 14, 16-18, 20-25, 27-28, 32-34, 36-37, and 39-40. These challenged
opinions are stricken from Professor Allen’s Report.

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Expert Opinions 7, 8, 13, 15, 19, 26, 29-31, 35, and 38 appear based on industry
customs and practices that Professor Allen has become acquainted with by virtue of his
relevant experience as an insurance educator and consultant, except with respect to
Opinion Nos. 26, 30, and 38, any reference to “the law” or in the case of No. 38, to “the
extraordinary broad nature of the defense obligation,” must be stricken. In addition, to
the extent that at trial, Plaintiffs fail to establish that these opinions are based on an
industry standard voluntarily observed by the industry separate from controlling law,
American Family may renew its objection to such opinions for the trial court to then
determine whether such opinions are admissible.

See Turner v. State Farm, Civil

Action No. 13-cv-01843-MSK-NYW, 2015 WL 3526995, *4 (D. Colo. June 4, 2015).
CONCLUSION
Based on the court’s review of the papers and supporting evidence, the oral
arguments, and application of the pertinent case law, IT IS HEREBY ORDERED that:
(1)

The Motion to Strike [#198] Professor Allen’s expert report is GRANTED
IN PART and DENIED IN PART;

(2)

Opinions 1-6, 9-12, 14, 16-18, 20-25, 27-28, 32-34, 36-37, and 39-40 are
stricken, and Professor Allen is precluded from testifying as to these
Opinions;

(3)

The Motion to Strike is DENIED as to challenged Opinions 7, 8, 13, 15,
19, 26, 29-31, 35, and 38, except with respect to Opinion Nos. 26, 30, and
38, any reference to “the law,” or “the extraordinary broad nature of the
defense obligation,” must be stricken; and

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(4)

American Family may renew its objections to Opinions 7, 8, 13, 15, 19, 26,
29-31, 35, and 38, if the proffer at trial reveals that such “industry
standards” are simply restatements of controlling law, rather than
standards voluntarily observed by the industry separate from controlling
law.

DATED August 21, 2015.

BY THE COURT:

/s/ Nina Y. Wang
United States Magistrate Judge

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