Carithers et al v. Mid-Continent Casualty Company
Filing
134
ORDER denying 107 Mid-Continent's Motion for Summary Judgment; denying 106 Motion to Exclude Expert Testimony of Douglas McIntosh; denying without prejudice 132 Motion to Strike, Exclude, and/or Preclude Mid-Continent from Relying on t he Mediation Statement; deferring ruling on 96 Motion to Compel discovery. Not later than 8/9/2019, the Carithers shall file a proposed discovery plan (including deadlines) for their pattern and practice claim and a separate memorandum, not to exce ed ten pages, discussing whether the Court should bifurcate their pattern and practice claim from the current bad faith claim. Mid-Continent shall respond by 9/3/2019. See Order for details. Signed by Judge Timothy J. Corrigan on 7/16/2019. (JJB)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
JACKSONVILLE DIVISION
HUGH A. CARITHERS and
KATHERINE S. CARITHERS, As
the assignee of Cronk Duch Miller &
Associates, Inc., Cronk Duch
Architecture, LLC, Cronk Duch
Craftsman, Cronk Duch Partners,
LLC, Cronk Duch Holdings, Inc.,
and Joseph S. Cronk,
Plaintiffs,
v.
Case No. 3:16-cv-988-J-32MCR
MID-CONTINENT CASUALTY
COMPANY,
Defendant.
ORDER
In a previous insurance coverage case, the Eleventh Circuit held that
insurer Mid-Continent Casualty Company’s refusal to defend its insured was
incorrect. In this subsequent insurance bad faith action, Defendant MidContinent seeks summary judgment, arguing that although its decision to deny
a defense was incorrect, the greater weight of district court cases at the time
supported its decision, and therefore, that decision cannot constitute bad faith
as a matter of law. In addition to Mid-Continent’s Motion for Summary
Judgment, (Doc. 107), this case is also before the Court on Mid-Continent’s
Motion to Exclude Expert Testimony of Douglas McIntosh, (Doc. 106), and
Plaintiffs Hugh and Katherine Carithers’ Motion to Compel Discovery, (Doc.
96). The motions have been fully briefed, (Docs. 99; 104; 111; 115; 121; 122; 124;
125), and on May 2, 2019, the Court held a hearing on the motions, the record
of which is incorporated herein. (Doc. 126). After the hearing, Mid-Continent
filed the Carithers’ mediation statement from the underlying action in support
of its Motion for Summary Judgment. (Doc. 127). The Carithers, at the Court’s
direction, responded, (Doc. 131), and then filed a motion to strike the mediation
statement. (Doc. 132).
I. BACKGROUND
In 2011, the Carithers filed an action in state court (“Underlying Action”) 1
against their homebuilder, Cronk Duch, 2 for construction defects in their home.
(Doc. 107-1). In August 2011, Cronk Duch tendered the Carithers’ amended
complaint to its insurance company, Mid-Continent. (Doc. 107-2 at 193). After
multiple levels of review, Mid-Continent determined that based on the
allegations of the amended complaint, it was not required to defend Cronk
Carithers v. Cronk Duch Architecture, LLC, No. 16-2011-CA-2429 (Fla. 4th
Cir. Ct. May 10, 2011).
1
In the Underlying Action, the Carithers sued several Cronk Duch entities and
Joseph Cronk individually. Unless otherwise noted, the entities and Mr. Cronk will be
collectively referred to as Cronk Duch.
2
2
Duch. (Doc. 107 at 3–4). Cronk Duch then provided Mid-Continent with the
third amended complaint, which was reviewed and similarly denied. (Docs. 107
at 5–7; 107-2 at 194–201, 204–205).
The third amended complaint alleged that “[a]ll of the foregoing defects
were latent, and were discovered by the Carithers in 2010. They could not have
been discovered by reasonable inspection in a prior year.” (Doc. 107-2 at 217).
Mid-Continent had insured Cronk Duch beginning on March 9, 2005, with
Cronk Duch’s last policy expiring on October 6, 2008. (Doc. 50-1 at 3). Relying
on the “manifestation” trigger—an insurance coverage legal theory wherein
damage does not “occur” until it is evident—Mid-Continent determined that it
had no duty to defend Cronk Duch because the damage to the Carithers’ home
did not “manifest” until after Mid-Continent’s final policy had expired. (Doc.
107-2 at 91); see also Doc. 50-1 at 4 (“Based on the pleadings, all of the Plaintiff’s
loss and damages occurred after the expiration of the last Mid-Continent
Casualty policy.”).
Cronk Duch hired its own counsel and consented to a judgment in the
Underlying Action of $91,872 plus prejudgment interest of $5,856.84 and costs
of $524, for a total of $98,252.84. 3 (Docs. 50-2; 50-3 at 5). Cronk Duch then
The Final Judgment in the Underlying Action contains an error. (Doc. 50-2).
The Final Judgment lists the damages for different items and adds them to be $98,872.
However, if you add the damages, the correct amount is $91,872.00. This is correctly
stated in the subsequent paragraph of the Judgment, which after adding prejudgment
3
3
assigned its claims against Mid-Continent to the Carithers, except for
attorney’s fees and costs of $12,737.46—the amount Cronk Duch had accrued
in defending the Carithers’ suit against it. (Doc. 50-3). Hugh Carithers avers
that before the consent judgment was entered, he and his wife would have
settled for $25,000 or less had Mid-Continent or Cronk Duch ever made such
an offer. (Doc. 115-3 at 3).
Under Cronk Duch’s assignment of rights, the Carithers sued MidContinent for breaching its duty to defend and indemnify, and Mid-Continent
removed the action to federal court (“Coverage Action”). Amended Complaint,
Carithers v. Mid-Continent Cas. Co. (Coverage Action), No. 3:12-CV-890-J34TEM (M.D. Fla. Aug. 7, 2012), ECF No. 17. In that case, the Carithers
advocated for the injury-in-fact trigger—an alternative insurance coverage
legal theory where damage “occurs” when there is actual damage irrespective
of when it is discovered—while Mid-Continent argued that the manifestation
trigger applied. Coverage Action, 2013 WL 11320043, at *2 (M.D. Fla. Dec. 6,
2013). Judge Magnusson granted the Carithers’ motion for summary judgment
on the duty to defend, holding that damage “‘occurs’ at the moment that there
is actual damage and the date of discovery is irrelevant.” Id. (quotation marks
omitted) (quoting Axis Surplus Ins. Co. v. Contravest Constr. Co., 921 F. Supp.
interest and costs, yields a total of $98,252.84. Id.
4
2d 1338, 1346 (M.D. Fla. 2012)). After a bench trial on the duty to indemnify,
Judge Magnusson held that the damage occurred in 2005, “almost immediately
after construction was complete,” and therefore, Mid-Continent had a duty to
indemnify Cronk Duch. Coverage Action, 2014 WL 11332308, at *2–4 (M.D. Fla.
Mar. 11, 2014). The court entered judgment in favor of the Carithers, with
damages of $98,252.83 and attorney’s fees incurred by Cronk Duch of
$13,342.46, both plus prejudgment interest. Judgment, Coverage Action, Doc.
130.
Mid-Continent appealed the rulings on the duty to defend and indemnify.
The Eleventh Circuit affirmed on the duty to defend, stating:
Given the uncertainty in the law at the time, Mid-Continent did
not know whether there would be coverage for the damages sought
in the underlying action because Florida courts had not decided
which trigger applies. Mid-Continent was required to resolve this
uncertainty in favor of the insured and offer a defense to Cronk
Duch.
Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240, 1246 (11th Cir. 2015).
Further, the Eleventh Circuit held that injury-in-fact was the appropriate
trigger for this case. Id. at 1247. However, the court reversed Judge
Magnusson’s damages calculation and remanded for a new determination of
damages. Id. at 1251.
After the Eleventh Circuit rendered its opinion but before the mandate
issued, the Carithers filed a Civil Remedy Notice (“CRN”) in accordance with
5
Florida Statute § 624.155, alleging bad faith by Mid-Continent, and other
violations of Florida law. (Doc. 50-8). Mid-Continent did not pay the amounts
allegedly owed but responded to the CRN by claiming it had not acted in bad
faith. Id.
After the mandate issued, Judge Magnusson entered an amended
judgment for property damage of $26,684.77 plus interest, and attorneys’ fees
incurred by Cronk Duch in the Underlying Action of $13,342.46 plus interest.
Coverage Action, Doc. 163. On September 14, 2015, Mid-Continent paid the
amended final judgment in full. Id., Doc. 175. The district court then granted
the Carithers’ motion for attorney’s fees in the Coverage Action, awarding a
total of $323,047.35 in fees and costs, which Mid-Continent timely paid. Id.,
Docs. 173 & 175.
On August 3, 2016, the Carithers filed this action, alleging multiple
violations of Florida Statute § 624.155, including a claim for bad faith and that
Mid-Continent’s actions in denying coverage for the Underlying Action were
part of a general business practice—making it liable for punitive damages. (Doc.
1). Mid-Continent moved to dismiss the complaint, (Doc. 14), which the Court
granted without prejudice, (Doc. 44). In its ruling, the Court limited discovery
to the Cronk Duch claim only, and requested briefing on damages. Id. On
September 25, 2017, the Carithers filed an Amended Complaint, (Doc. 50), and
6
Mid-Continent again moved to dismiss, (Doc. 62). The Court denied this motion
but maintained its bifurcation of discovery. (Doc. 76).
II. MOTION FOR SUMMARY JUDGMENT
By virtue of the assignment from Cronk Duch to the Carithers, the
Carither stand in the shoes of Cronk Duch, Mid-Continent’s insured. Insurers
in Florida are obligated to act in good faith toward their insureds in handling
claims. Bos. Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980).
Statutory bad faith is “[n]ot attempting in good faith to settle claims when,
under all the circumstances, [the insurance company] could and should have
done so, had it acted fairly and honestly toward its insured and with due regard
for her or his interests.” § 624.155(1)(b)1, Fla. Stat. (2018). In determining
whether an insurer acted fairly and honestly toward its insured, the fact finder
considers:
(1) whether the insurer was able to obtain a reservation of the right
to deny coverage if a defense were provided; (2) efforts or measures
taken by the insurer to resolve the coverage dispute promptly or in
such a way as to limit any potential prejudice to the insureds; (3)
the substance of the coverage dispute or the weight of legal
authority on the coverage issue; (4) the insurer’s diligence and
thoroughness in investigating the facts specifically pertinent to
coverage; and (5) efforts made by the insurer to settle the liability
claim in the face of the coverage dispute.
Laforet, 658 So. 2d at 63 (citing Robinson v. State Farm Fire & Cas. Co., 583
So. 2d 1063, 1068 (Fla. 5th DCA 1991)).
7
Although
Mid-Continent
raises
several
potentially
convincing
arguments, a determination of bad faith is made by analyzing the totality of the
circumstances, and the Florida Supreme Court has said time and again, “it is
for the jury to decide whether the insurer failed to ‘act in good faith with due
regard for the interests of the insured.’” Harvey v. GEICO Gen. Ins. Co., 259 So.
3d 1, 7 (Fla. 2018) (quoting Bos. Old Colony, 386 So. 2d at 785); see also, e.g.,
Berges v. Infinity Ins. Co., 896 So. 2d 665, 680 (Fla. 2004); Campbell v. Gov’t
Emps. Ins. Co., 306 So. 2d 525, 530 (Fla. 1974). Because Mid-Continent has
failed to prove that it is “entitled to judgment as a matter of law,” its Motion for
Summary Judgment will be denied. Fed. R. Civ. P. 56.
III. MOTION TO STRIKE MEDIATION STATEMENT
Two days after the Court held a hearing on the pending motions, MidContinent filed a Notice of Filing Carithers’ Mediation Statement in Support of
[Mid-Continent’s] Motion for Summary Judgment, (Doc. 127), which contained
the Carithers’ mediation statement in the Underlying Action, which states:
“Prior to litigation, Plaintiffs sought to settle this matter for the amount of
$90,000. They would no longer be willing to settle this action for that amount,
and Defendants have made no settlement offer whatsoever.” (Doc. 127-1 at 5).
Mid-Continent filed the mediation statement to rebut Hugh Carithers’s
affidavit—the only evidence of damages—that he and his wife would have
settled the Underlying Action for $25,000.
8
The Court directed the Carithers to file a statement explaining the
difference between Hugh Carithers’s affidavit, (Doc. 112-3), and the mediation
statement. (Doc. 130). The Carithers filed a response, (Doc. 131), and a separate
motion to strike the mediation statement, (Doc. 132). In their response to the
mediation statement, the Carithers argue that the mediation statement is
privileged under Florida Statute 44.405 and Middle District of Florida Local
Rule 9.07(b) and is “inadmissible as having little to no evidentiary value”
because it represents posturing by the party. (Doc. 131 at 2–3). However, the
Carithers’ motion to strike the mediation statement only argues that the
mediation statement should be struck because Mid-Continent’s disclosure of it
was untimely. (Doc. 132).
The parties’ treatment of the mediation statement, and their arguments
for and against striking it, are confounding. Although mentioned in the
response to Mid-Continent’s filing of the Mediation Statement, the Carithers’
Motion to Strike fails to reference Florida Statute § 44.405, which potentially
precludes Mid-Continent from disclosing the Mediation Statement. More
perplexing is the Carithers’ argument that they are prejudiced by MidContinent not providing them a document that their own counsel created and
that they knew Mid-Continent possessed. (Doc. 96-2 at 2 (Mid-Continent
9
asserting in its privilege log the mediation privilege for “Plaintiffs’ Mediation
Statement in liability action”)); (Doc. 127-1). 4
Mid-Continent’s actions are equally perplexing. It claims that it
previously refused to disclose the mediation statement based on Florida’s
mediation privilege. (Doc. 127 at 1 n.1). However, that privilege, codified in
Florida Statute § 44.405, states that “[a] mediation participant shall not
disclose a mediation communication to a person other than another mediation
participant or a participant’s counsel.” § 44.405. Mid-Continent refused to be a
“mediation participant,” and, obviously, the Carithers were “mediation
participant[s].” Thus, the Court does not understand Mid-Continent’s legal
basis for withholding production of the mediation statement.
Nonetheless, the mediation statement, although potentially available for
cross examination of the Carithers at trial, 5 only further evidences the
existence of factual disputes concerning the damages at issue. Thus, the Court
does not need to rely on it in ruling on Mid-Continent’s motion for summary
judgment. However, because the Carithers’ only asserted basis to strike the
Attorney Robert Warren created the mediation statement and was the
Carithers’ counsel in the Underlying and Coverage Actions. Although not officially
listed on the docket as representing the Carithers in this action, Mr. Warren was
present at counsel table during the hearing on the pending motions. (Doc. 126).
4
While normally a mediation statement is privileged, when the very issue is
the amount the Carithers would have accepted to settle the Underlying Action, the
mediation statement may be probative, non-privileged evidence.
5
10
mediation statement is that it was not timely disclosed—even though they
created the document, knew Mid-Continent had it, and it was responsive to
Hugh Carithers’s recently filed affidavit—the Court will deny their motion to
strike. If the Carithers wish to renew their motion to strike before trial based
on different reasoning, they may do so.
IV. MOTION TO EXCLUDE MCINTOSH
Mid-Continent seeks to exclude the Carithers’ expert, Douglas McIntosh,
arguing that he is unqualified, and that his opinions are unreliable and
unhelpful to the jury. (Doc. 106 at 2). By contrast, the Carithers assert that
McIntosh is qualified, his opinions are based on his relevant experience and
review of the case, and his testimony will be helpful to the jury. (Doc. 111 at 2–
4).
Federal Rule of Evidence 702 governs the admissibility of expert
testimony and requires judges to act as the gatekeeper to ensure that expert
testimony “is not only relevant, but reliable.” Daubert v. Merrell Dow Pharm.,
Inc, 509 U.S. 579, 589 (1993); see also Kumho Tire Co. v. Carmichael, 526 U.S.
137, 147 (1999) (holding that Daubert’s gatekeeping obligation applies to all
expert testimony). The party offering the expert testimony bears the burden of
demonstrating admissibility by a preponderance of the evidence, and this
burden is “substantial.” Cook ex rel. Estate of Tessier v. Sheriff of Monroe Cty.,
11
402 F.3d 1092, 1107 (11th Cir. 2005). To be admissible, the proponent of the
expert testimony must satisfy three requirements:
First, the expert must be qualified to testify competently regarding
the matter he or she intends to address. Second, the methodology
used must be reliable as determined by a Daubert inquiry. Third,
the testimony must assist the trier of fact through the application
of expertise to understand the evidence or determine a fact in
issue.
Kilpatrick v. Breg, Inc., 613 F.3d 1329, 1335 (11th Cir. 2010). If the testimony
satisfies these three requirements, it must then still satisfy Rule 403. United
States v. Frazier, 387 F.3d 1244, 1263 (11th Cir. 2004) (en banc).
A. McIntosh’s Qualifications
Mid-Continent contends that McIntosh is unqualified “to render an
opinion on the good faith handling of a construction defect property damage
claim[]” because he:
(1) has never worked for or overseen the operations of an insurance
company; (2) has, at best, limited experience handling construction
defect property damage claims; (3) has no reported decisions on the
trigger of coverage; and (4) has never authored a claims manual or
developed procedures for handling responses to CRN’s under the
facts similar to the ones of this case. . . .
(Doc. 106 at 11). The Carithers assert that McIntosh’s experience is sufficient
for him to testify as an expert.
The first prong requires that an expert be qualified to testify competently
regarding the matter he intends to address, and this can be demonstrated in
several ways. See Fed. R. Evid. 702. Rule 702 allows a witness to qualify as an
12
expert based upon his knowledge, skill, experience, training, or education. Id.;
see Frazier, 387 F.3d at 1260–61.
McIntosh is qualified to render opinions regarding whether MidContinent’s handling of Cronk Duch’s claim complied with industry standards
and customs, as well as general information about the insurance industry. See
Frazier, 387 F.3d at 1260–61. McIntosh has practiced law in Florida for more
than thirty-six years, and for the last twenty-five years has focused on providing
legal advice to insurance companies related to claims handling. (Doc. 106-1 at
2). In so doing, he has “actively assisted claims handlers such as those involved
in this case[] with meeting the good faith obligations of their employer as an
insurer under Florida law.” Id. Although he has never been employed by an
insurance company, he adjusts claims for insurance companies weekly,
typically in situations where a claimant has made threats or overtures about
bringing a bad faith action. (Doc. 106-2 at 198–99). These claims have included
construction defect property damage claims and claims where the appropriate
trigger was a question. Id. McIntosh has advised insurers what trigger should
apply under a specific policy. Id. at 200. Further, McIntosh has audited claims
and given opinions to insurers on whether the proper trigger was applied. Id. at
202. Additionally, McIntosh is a Certified Instructor through the Florida
Department of Insurance in courses dealing with ethics, bad faith, and claims
handling. Id.; (Doc. 106-2 at 41–42).
13
B. Reliability of McIntosh’s Opinions
Next, the Carithers must demonstrate that McIntosh’s opinions are
reliable. Frazier, 387 F.3d at 1261. The reliability prong is distinct from an
expert’s qualifications; thus, an expert can be qualified but his opinions
unreliable. Id. “[A] basic foundation for admissibility [is] that ‘[p]roposed
[expert] testimony must be supported by appropriate validation—i.e., “good
grounds,” based on what is known.’” Id. (second and third alterations in
original) (quoting Daubert, 509 U.S. at 590). “Exactly how reliability is
evaluated may vary from case to case, but what remains constant is the
requirement that the trial judge evaluate the reliability of the testimony before
allowing its admission at trial.” Id.
An expert who relies upon his experience as the foundation for his
opinions must explain how his experience supports his opinions. See Hughes,
766 F.3d at 1329 (citing Frazier, 387 F.3d at 1265). The proponent of the expert
testimony has the burden of explaining how the expert’s experience “led to the
conclusion he reached, why that experience was a sufficient basis for the
opinion, and just how that experience was reliably applied to the facts of the
case.” Frazier, 387 F.3d at 1265.
McIntosh has shown that he relied on his experience in formulating his
opinions, e.g., Doc. 106-2 at 45, 95, 105, 113, 182, 192, and there is not “too great
an analytical gap” between the opinions offered and his experience, see Joiner,
14
522 U.S. at 146. It logically follows that someone who adjusts claims weekly,
has advised insurance companies on proper claims handling for more than
twenty-five years, and audits claims files and provides opinions to insurers
about whether the proper trigger was applied will be able to rely on that
experience to formulate an opinion about whether Mid-Continent properly
handled Cronk Duch’s claim.
That McIntosh cannot disclose specific legal advice he gave clients does
not render his expert opinions unreliable. See Doc. 106 at 13 (arguing that
McIntosh’s opinions are unreliable because he asserted the attorney client
privilege in response to certain questions regarding advice he has given clients).
However, the Court will look carefully upon any assertion of the attorney client
privilege. It appears that McIntosh can testify about his experience specific to
the issues without disclosing protected confidential communications. 6 Further,
any limitations McIntosh places on his testimony can be considered by the jury
in determining its weight.
C. Helpfulness of McIntosh’s Opinions
The final requirement that the Carithers must demonstrate is that the
proffered expert testimony will assist the trier of fact. Frazier, 387 F.3d at 1262.
For example, without invading the attorney client privilege, McIntosh can
answer generally whether he has ever advised clients regarding the appropriate
trigger of coverage differently than his opinions in this case and why.
6
15
“By this requirement, expert testimony is admissible if it concerns matters that
are beyond the understanding of the average lay person. Proffered expert
testimony generally will not help the trier of fact when it offers nothing more
than what lawyers for the parties can argue in closing arguments.” Id. at 1262–
63 (citations omitted). “[W]here the ‘weight of legal authority on the coverage
issue’ and the reasonableness of the coverage decision are at issue, we would
expect [expert] opinions considering, applying, and clarifying such legal
authority to be relevant.” Garcia v. GEICO Gen. Ins. Co., 807 F.3d 1228, 1235
(11th Cir. 2015) (citation omitted).
McIntosh’s opinions about different trigger theories and how the weight
of legal authority informs an insurer’s decision whether to provide a defense are
not within the common knowledge of the average juror. Id. McIntosh is
permitted to testify as an expert, and Mid-Continent may object at trial to
specific opinions that it believes are unfounded.
V. CONCLUSION
Accordingly, it is hereby
ORDERED:
1.
Mid-Continent’s Motion for Summary Judgment, (Doc. 107), is
DENIED.
2.
Mid-Continent’s Motion to Exclude Expert Testimony of Douglas
McIntosh (Doc. 106) is DENIED.
16
3.
The Carithers’ Motion to Strike, Exclude, and/or Preclude Mid-
Continent Casualty Company from Relying on the Mediation Statement (Doc.
132) is DENIED without prejudice.
4.
Not later than August 9, 2019, the Carithers shall file a proposed
discovery plan (including deadlines) for their pattern and practice claim and a
separate memorandum, not to exceed ten pages, discussing whether the Court
should bifurcate their pattern and practice claim from the current bad faith
claim.
5.
Not later than September 3, 2019, Mid-Continent shall file
separate responses, not to exceed ten pages, to the Carithers’ proposed pattern
and practice discovery plan and their memorandum on whether the Court
should bifurcate the case.
6.
The Carithers’ Motion to Compel, (Doc. 96), is DEFERRED. The
Court will rule on the motion after receiving briefing on the Carithers’ pattern
and practice discovery plan and bifurcation.
DONE AND ORDERED in Jacksonville, Florida this 16th day of July,
2019.
TIMOTHY J. CORRIGAN
United States District Judge
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jb
Copies:
Counsel of record
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