Vertex Refining, NV, LLC v. National Union Fire Insurance Company of Pittsburgh, PA. et al

Filing 173

Assurance may raise these challenges with the court again before trial. Assurance's motion to bar [110, 114] is granted in part and denied in part, in accordance with this opinion. MEMORANDUM OPINION AND ORDER. Signed by the Honorable Rebecca R. Pallmeyer on 3/19/2019. Mailed notice. (etv, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
VERTEX REFINING, NV, LLC,
Plaintiff,
v.
NATIONAL UNION FIRE INSURANCE,
COMPANY OF PITTSBURGH, P.A., and
ASSURANCE AGENCY, LTD.,
Defendants.

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No. 16 C 3498
Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER
The facts of this case are laid out in the court’s memorandum opinion and order denying
Assurance’s motion for summary judgment. The court assumes the reader’s familiarity with those
facts.
Plaintiff Vertex has proffered David L. Stegall as an expert witness.

Stegall is “an

insurance and risk management consultant specializing in the customs and practices of the
property and casualty insurance industry.” (Stegall Report, Exhibit B to Assurance’s Motion to
Bar [110], at 1.) He holds several “professional designations,” in addition to having “held an
insurance agent’s license in all 50 states.” (Id. at 2.) These designations include “Chartered
Property & Casualty Underwriter (CPCU), Associate in Risk Management (ARM), Associate in
Reinsurance (ARc), and Registered Professional Adjuster (RPA).”

(Id.)

Over the last few

decades, he has also “been an insurance agent, an insurance agency owner, an insurance
broker, an insurance company underwriter[,] and a managing general agent.”
Stegall’s brief report presents two overarching opinions: (1) that Assurance was
authorized to “bind Vertex as a Lender’s Loss Payee by virtue of” the Certificate of Insurance
Clause contained in the underlying Policy; and (2) that Assurance did not meet the ordinary
standard of care in the insurance industry when it failed to notify the insurance company of
Vertex’s lender’s loss payee status. (Stegall Report, Exhibit B to Assurance’s Motion to Bar [110],
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at 5, 8.) For the reasons described below, Mr. Stegall is barred from providing testimony on
ultimate legal issues in the case, but he is permitted to testify on the narrow issues of custom,
practice, and the insurance industry standard of care.
Federal Rule of Evidence 702 and the framework laid out by the Supreme Court in Daubert
v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) govern the admissibility of exert
testimony. Rule 702 permits
[a] witness who is qualified as an expert by knowledge, skill, experience, training,
or education [to] testify in the form of an opinion or otherwise if:
(a)
the expert's scientific, technical, or other specialized knowledge will
help the trier of fact to understand the evidence or to determine a fact in
issue;
(b)
the testimony is based on sufficient facts or data;
(c)
the testimony is the product of reliable principles and methods; and
(d)
the expert has reliably applied the principles and methods to the
facts of the case.
FED. R. EVID. 702. Daubert explained that Rule 702 “assign[s] to the trial judge the task of
ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task
at hand.” 509 U.S. at 597. “To determine reliability, the court should consider the proposed
expert's full range of experience and training, as well as the methodology used to arrive a
particular conclusion.” United States v. Pansier, 576 F.3d 726, 737 (7th Cir. 2009).
Expert witnesses may not provide legal conclusions on ultimate legal issues. Good
Shepherd Manor Found., Inc. v. City of Momence, 323 F.3d 557, 564 (7th Cir. 2003) (affirming a
district court’s ruling “that expert testimony as to legal conclusions that will determine the outcome
of the case is inadmissible”). To the extent that Mr. Stegall’s report and proffered testimony draw
conclusions about Vertex’s status as a lender’s loss payee under the Policy, that testimony is
barred. BASF AG v. Great Am. Assur. Co., 522 F.3d 813, 818–19 (7th Cir. 2008) (“Under Illinois
law, the interpretation of an insurance policy is a question of law.”) Because the court has
resolved this question in favor of Vertex, however, at least at the summary judgment stage,
however, the issue is moot.

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Expert witnesses may testify to customary practices and standards of care in their
industries, so long as they meet the requirements of Rule 702 and Daubert. See Noffsinger v.
Valspar Corp., No. 09 C 916, 2012 WL 895496, at *7 (N.D. Ill. Mar. 15, 2012) (explaining that an
expert’s opinion “that defendants did not use reasonable care is not a bare legal conclusion; it is
an opinion of the standard of care in defendants' industry and his factual determination that they
failed to adhere to that standard”).

Assurance argues that Mr. Stegall fails to meet these

requirements because his opinions are formed through allegedly faulty methodology and are
unreliable. Specifically, Assurance contends that Mr. Stegall’s review of only four depositions—
all of Assurance employees—constitutes insufficient factual basis for his testimony.

Next,

Assurance claims that Mr. Stegall is not qualified to be an expert because he is not a licensed
insurance producer, rendering his testimony unreliable. More broadly, Assurance asserts that
“Mr. Stegall’s opinions are irrelevant because they fail to help the trier of fact to understand the
evidence or to determine a fact in issue.” (Assurance’s Motion to Bar [110], at 7 1 (capitalization
altered).)
The court disagrees, and Mr. Stegall will not be barred from testifying at this stage of the
proceedings. Mr. Stegall is qualified as an expert. He has broad experience in the insurance
industry, ranging over several decades, and he holds multiple certifications and designations
within the insurance industry. See Scottsdale Ins. Co. v. City of Waukegan, 689 F. Supp. 2d
1018, 1022 (N.D. Ill. 2010) (holding that an expert who was “a Chartered Property Casualty
Underwriter, Registered Professional Liability Underwriter, Associate in Claims, Associate in
Reinsurance, and Construction Risk Insurance Specialist with an MBA in management and
finance [was] qualified by knowledge, skill, experience, training, and education” to provide expert
testimony on whether an incident was covered by an insurance policy). The fact that Mr. Stegall

Assurance did not paginate its brief, so the court refers to the pagination generated
by the CM/ECF system upon filing.
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is not a licensed insurance producer does not trouble the court, especially given that Assurance
points to no legal support for this argument. To the extent that Assurance wishes to expose this
gap in Mr. Stegall’s resume, it is welcome to do so on cross-examination at trial. Nor does the
fact that Mr. Stegall reviewed just four depositions render his testimony unreliable, given the
narrow scope of his proffered opinions. In addition to the depositions of Assurance employees,
Stegall also reviewed the Amended Complaint, Assurance’s Answer, the Asset Purchase
Agreement, and the Assignment of Proceeds Agreement. (Exhibit B to Stegall Report, Exhibit B
to Assurance’s Motion to Bar [110], at 1.) Cf. Sommerfield v. City of Chicago, 254 F.R.D. 317,
320 (N.D. Ill. 2008) (striking an expert report, where the plaintiff’s expert relied entirely on the
Amended Complaint and summaries of eleven depositions created by the plaintiff’s attorney,
without reviewing any original deposition transcripts or any non-summarized depositions). The
narrow issues of custom, practice, and standard of care in the insurance industry, as they relate
to the addition of lender’s loss payees to insurance policies, should not require Mr. Stegall to
review depositions of officers and employees of Vertex and Omega. If Assurance wishes to point
out that Mr. Stegall did not review the deposition of the National Union underwriter, it is again
welcome to do so at trial. Finally, Mr. Stegall’s testimony regarding industry practices and
standards of care will assist the trier of fact in understanding whether Assurance’s policies for
adding lender’s loss payees, which Assurance did not follow, comport with industry standards.
Assurance may raise these challenges with the court again before trial. Assurance’s
motion to bar [110, 114] is granted in part and denied in part, in accordance with this opinion.
ENTER:

Dated: March 19, 2019

_________________________________________
REBECCA R. PALLMEYER
United States District Judge

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