Nevels v. Deerbrook Insurance Company
Filing
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MEMORANDUM OPINION & ORDER: Deerbrook's motion in limine, R. 35 , is GRANTED IN PART and DENIED IN PART. Signed by Judge Amul R. Thapar on 12/16/11.(SYD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
LONDON
CECIL C. NEVELS, III,
Plaintiff,
v.
DEERBROOK INSURANCE CO.,
Defendant.
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Civil No. 10-83-ART
MEMORANDUM OPINION &
ORDER
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Cecil C. Nevels, III, retained David L. Huff as an expert in bad faith law and
insurance claims handling. Based on Mr. Huff’s testimony at the Daubert hearing, he
may opine on what Deerbrook Insurance Company’s initial settlement offer to Nevels
should have been, but he cannot take the next step and state that Deerbrook acted in
bad faith. This is because Mr. Huff does not sufficiently understand Kentucky bad
faith law. Additionally, Mr. Huff cannot opine on what a Pulaski County jury would
have awarded Nevels in his third-party insurance claim. Thus, Deerbrook’s motion in
limine to exclude Mr. Huff’s testimony is granted in part and denied in part.
BACKGROUND
In October 2005, Cecil Nevels and Patrick Scott were driving southbound on
U.S. Highway 27 while Michael Melton was travelling northbound in a pickup truck
hauling a utility trailer loaded with lumber. R. 16-1 at 3. According to Melton, a
vehicle pulled out of a gas station in front of him, causing him to brake suddenly and
lose control of the trailer. Id. The trailer shifted left and entered the southbound lane.
Id. Lumber from the trailer struck Scott’s left-front tire, causing his vehicle to cross
into the northbound lane. Id. at 3–4. Scott then collided with a third vehicle driven
by Robert Coffey. Id. at 4.
Shortly after the accident, both Nevels and Scott sought medical treatment and
attorney representation. Id. at 5. The third driver, Coffey, settled his claims with
Melton’s insurance company, Deerbrook Insurance Company, within a month. Id.
Deerbrook, Nevels, and Scott corresponded over the next several months. Id. at 5–6.
In May 2006, Deerbrook received notice through Scott’s insurance company of a
Personal Injury Protection (“PIP”) lien for Nevels’s medical expenses. Id. at 6–7. In
August 2006, Deerbrook received a demand package from Nevels’s attorney that
included a letter describing Nevels’s treatment for severe headaches and upper back,
neck, and right elbow pain. R. 18-1 at 29–30. It also included a copy of the police
report, a copy of the PIP ledger indicating a $10,500 lien amount, and medical
records. R. 16-1 at 7.
Armed with this information, Deerbrook evaluated Nevels’s claim using
software known as Colossus. Id. at 8. According to Deerbrook, Colossus reported a
settlement amount between $4,900 and $6,200. Id. An adjuster contacted Nevels’s
attorney and made an initial settlement offer of $5,000. Id. In response, Nevels’s
attorney sent a demand letter for the policy limits of $25,000. Id. at 9–10. Nevels
filed suit shortly thereafter. Id.
Once Nevels filed suit, Deerbrook retained attorney Ed Henry. Id. at 10.
Henry spoke with Melton about the accident and determined that it was worthwhile to
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investigate whether another vehicle, a so-called “phantom vehicle,” pulled in front of
Melton. Id. Deerbrook began looking into the existence of a phantom vehicle despite
Coffey’s statements that he did not see another vehicle cause the accident, R. 18-7 at
3, and the police report’s indication that no one else witnessed another vehicle cause
the accident, R. 18-1 at 8. Henry finally deposed Coffey over a year later in January
2008. R. 16-1 at 4. But Coffey only confirmed that he did not see a phantom vehicle
and also added that he noticed Melton’s trailer weaving before the accident. Id. This
ended Henry’s belief that a jury could find in Melton’s favor and “influenced
Deerbrook’s view of the case.” Id. at 21.
In May 2008, Deerbrook, Nevels, and Scott mediated the claims. Id. at 15.
By that time, Nevels had submitted only two new pieces of information about his
damages: first, $770 in lost wages, submitted in May 2007, id. at 11, and second, a
$1,650 chiropractor bill, submitted on the day of mediation, id. at 15. At mediation,
Deerbrook settled with Scott for $25,000, the policy limits, but did not settle with
Nevels. Id. Soon after, Deerbrook produced another Colossus report that generated a
settlement range of $20,190 to $22,170. Id. Finally, in June 2008, Deerbrook settled
with Nevels for $21,700, the amount remaining under the policy limits. Id.
In October 2008, Nevels filed suit against Deerbrook for bad faith alleging that
the delay constituted a violation of the Kentucky Unfair Claims Settlement Practices
Act (“KUCSPA”). Compl., R. 1-1 ¶ 8. In support of his case, Nevels hired David L.
Huff as his expert on claims handling procedures and bad faith under Kentucky law.
R. 17-1 at 1. Based on Huff’s deposition, Deerbrook filed a motion in limine to
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exclude Huff’s testimony. R. 17. The Court held a Daubert hearing to gauge the
reliability of Mr. Huff’s testimony. R. 27. On completion of the hearing, the Court
dismissed Deerbrook’s motion in limine without prejudice and asked Deerbrook to
file a renewed motion in limine in order to address three specific issues. R. 33.
Those specific issues were: (1) whether Huff applied the proper legal standard when
he opined that Deerbrook acted in bad faith, (2) whether Huff’s testimony regarding
Deerbrook’s claims handling is unreliable because he did not review materials related
to Melton’s liability, and (3) whether Huff’s opinion about the value of Nevels’s
personal injury claim is admissible. R. 34 at 81-83. Deerbrook’s renewed motion in
limine raised no other issues. R. 35-1.
DISCUSSION
Rule 702 of the Federal Rules of Evidence provides a two-part test for
admitting expert testimony. The Court must determine first whether the expert is
qualified and his testimony is reliable, and second whether the testimony is relevant
and helpful to the trier of fact. See United States v. Jones, 107 F.3d 1147, 1156 (6th
Cir. 1997).
The party offering expert testimony has the burden to show by a
preponderance of the evidence that the expert’s testimony is admissible. Daubert v.
Merrell Dow Pharm., Inc., 509 U.S. 579, 592 n.10 (1993). The Supreme Court has
offered a number of factors that courts may consider to determine whether expert
testimony is admissible: whether the expert’s theory or technique is testable; whether
it has been subjected to peer review or publication; its error rate; and the its general
acceptance within the expert’s community. See id. at 593-94. But this fact-intensive
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inquiry is generally subject to the discretion of the trial court. See In re Scrap Metal
Antitrust Litig., 527 F.3d 517, 529 (6th Cir. 2008) (holding that the Daubert factors
are “not dispositive in every case”); see also Kumho Tire Co., Ltd. v. Carmichael, 526
U.S. 137, 150 (1999) (holding that “the gatekeeping inquiry must be tied to the facts
of a particular case, . . . depending on the nature of the issue, the expert’s particular
expertise, and the subject of his testimony”).
Based on his testimony at the Daubert hearing, Huff has extensive experience
and knowledge to opine on what Deerbrook’s initial settlement offer should have
been. But Huff cannot offer an opinion on whether Deerbrook acted in bad faith
because he has neither any expertise in nor a complete understanding of Kentucky
bad faith law. Additionally, Huff cannot opine on what a jury in Pulaski County
would have awarded Nevels because he has no basis for his opinion.
I. Huff Can Testify About the Propriety of the Initial Settlement Offer
At the Daubert hearing, Huff demonstrated that he is qualified to testify that
Deerbrook had the necessary information to settle with Nevels for the policy limits
from the start. See Huff Report, R. 18-6 at 2-3. Huff has extensive experience as a
claims adjuster, insurance defense attorney, and in-house counsel for an insurance
company. R. 36 at 3. Furthermore, his opinion is based largely on the observation
that Deerbrook had substantially the same information at the time it made its initial
$5,000 offer as it did when it settled with Nevels for $21,700 eighteen months later.
R. 18-6 at 3.
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But wait, says Deerbrook. Huff failed to review depositions or other evidence
related to Deerbrook’s investigation of Melton’s liability in the accident. See R. 34 at
39-40. Deerbrook claims that as a result, Huff’s opinion is unreliable because it is not
based on sufficient information. Id. at 11. Deerbrook’s investigation, however, had
nothing to do with their initial offer. Rather, Huff believes that Deerbrook pegged
Melton for 100% liability at the outset and had all of the information necessary to
settle for the policy limit. R. 18-6 at 3. There is no question that Huff’s many years
processing and supervising insurance claims make him qualified to render this
specific opinion. Further, there is plenty of evidence in the record to support this
theory. Deerbrook’s own claim file noted that Melton was 100% liable for the
accident. R. 36-5 at 184, 186-87. Moreover, at the time Deerbrook made the initial
offer, it was not truly concerned with the phantom driver. Although Melton claimed a
phantom driver caused the accident, the police report included in the claim file shows
that no witnesses could confirm that a phantom driver was involved. R. 18-1 at 8.
And Deerbrook interviewed Coffey soon after the accident who also stated that he did
not see a phantom driver. R. 18-7 at 3. Melton’s liability only came up after
Deerbrook’s attorney, Ed Henry, insisted on further investigations. R. 35-1 at 14.
But this was after Deerbrook made its initial settlement offer. Id. And, after a year of
investigating, Henry only confirmed what Deerbrook initially logged in the claim
file—that no jury would find in Melton’s favor. R. 16-1 at 21.
Because the investigation was immaterial to his opinion, Huff was not required
to review information about it in order to testify. See Beck v. Haik, 377 F.3d 624, 636
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(6th Cir. 2004) (agreeing with the district court that certain issues not relevant to the
case were properly excluded from considering whether expert testimony was
admissible), overruled on other grounds, Adkins v. Wolever, 554 F.3d 650 (6th Cir.
2009).
II. Huff Cannot State Whether Deerbrook Acted in Bad Faith and Cannot State
What a Pulaski County Jury Would Have Awarded Nevels
Although Huff can state that Deerbrook should have offered the policy limits
at the outset, he cannot testify that Deerbrook’s failure to do so means that it acted in
bad faith. Additionally, Huff cannot state that Deerbrook should have offered the
policy limits because a Pulaski County jury would have awarded Nevels an equivalent
amount.
A. Huff Has No Basis to State What a Pulaski County Jury Would Have
Awarded Nevels
Deerbrook argues that Huff cannot opine on what Deerbrook should have
offered Nevels at the outset because he has no basis to testify as to what a Pulaski
County jury would have awarded Nevels. Deerbrook is correct that Huff cannot
testify about what a Pulaski County jury would award, but it is not true that Huff is
limited to this method of proving settlement value.
According to Deerbrook,
Manchester Ins. & Indem. Co. v. Grundy, 531 S.W.2d 493 (Ky. 1976), limits proof of
settlement value to what “a jury in the same community probably would have
awarded at the time of the trial on liability.” Id. at 501. This is not true. As Judge
Van Tatenhove explained in Scott v. Deerbrook Ins. Co., 714 F. Supp. 2d 670 (E.D.
Ky. 2010), Grundy involved a first-party bad faith claim, which differs from this
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third-party bad faith claim. Id. at 673 n.1. The focus in a third-party claim is whether
the claimant received a just settlement in a timely fashion, not whether the claimant is
exposed to a verdict in excess of his policy limits. Therefore, what a jury would
award a claimant is simply one way to value the plaintiff’s claim, but it “is not the
only evidence a jury can and should consider.” Id. Huff is perfectly capable of
testifying that Deerbrook should have offered the policy limits at the outset because it
had all the necessary information.
But Huff cannot substantiate his opinion by testifying as to what a Pulaski
County jury would have awarded Nevels. Huff has experience in claims adjusting,
insurance defense, and as an in-house counsel for an insurance company, but at the
Daubert hearing, Huff could not identify any case during his career in Pulaski County
or the surrounding area. R. 34 at 22-24, 49-50. He also could not recall any Pulaski
County verdicts reported in the Kentucky Trial Reporter despite claiming he relied
extensively on this resource. Id. at 48-49. Given this lack of support, it is unclear
what Huff relied on when he stated that Pulaski County is “middle of the road” in
terms of jury verdicts, id. at 49-50, and that a Pulaski County jury would have
awarded Nevels at least $25,000, id. at 18. Daubert and its progeny make it clear that
“[p]roposed [expert] testimony must be supported by appropriate validation.” 509
U.S. at 591. Here Huff offers no method of validation and thus no way for his
opinion to be verified, replicated, or discredited.
In short, Deerbrook has no
meaningful way to engage in cross-examination. See Gen. Elec. Co. v. Joiner, 522
U.S. 136, 146 (1997) (“[N]othing in either Daubert or the Federal Rules of Evidence
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requires a district court to admit opinion evidence that is connected to existing data
only by the ipse dixit of the expert. A court may conclude that there is simply too
great an analytical gap between the data and the opinion proffered.”). As Deerbrook
readily admits, an expert does not need to be a Pulaski County trial lawyer. R. 35
at 1. But an expert must be able to verify his conclusions in specific examples or
research. Huff has offered no such support. Thus, he may not testify about what a
Pulaski County jury would have awarded Nevels.
B. Bad Faith Requires Outrageous Conduct
Huff cannot opine on whether Deerbrook acted in bad faith because his
testimony demonstrates that he does not understand Kentucky bad faith law. Huff
insisted in his deposition and at the Daubert hearing that an insurer’s conduct does
not need to be considered “outrageous” to constitute bad faith. R. 35-4 at 56-57;
R. 34 at 14. Instead, Huff believes that there are “two standards”: conduct “can
either be [1] outrageous or [2] it can be a reckless indifference to the rights of the
claimant.” R. 34 at 14. He is incorrect. In Kentucky, an insurer’s conduct must be
outrageous to constitute bad faith. The Kentucky Supreme Court has stated that in
order to sustain a bad faith cause of action, “there must be evidence sufficient to
warrant punitive damages.” Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993). And
punitive damages are warranted where there is proof of bad faith “sufficient for the
jury to conclude that there was ‘conduct that is outrageous, because of the defendant’s
evil motive or his reckless indifference to the rights of others.’” Id. (quoting Fed.
Kemper v. Hornback, 711 S.W.2d 844, 848 (Ky. 1986)). Nevels, like Huff, insists
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that reckless indifference is a standard of proof, R. 36 at 5, but Wittmer makes it clear
that reckless indifference is merely evidence of outrageous conduct. In fact, courts
since Wittmer have consistently required outrageous conduct in order to demonstrate
bad faith. See, e.g., Hamilton Mut. Ins. Co. of Cincinnati v. Buttery, 220 S.W3d 287,
293 (Ky. App. 2007) (“A cause of action for a violation of the UCSPA may be
maintained only where there is proof of bad faith of an outrageous nature.”); United
Servs. Auto. Ass’n v. Bult, 183 S.W.3d 181, 186 (Ky. App. 2003) (“Evidence must
demonstrate that an insurer has engaged in outrageous conduct toward its insured.”).
Only one court—in an unpublished opinion—explicitly held that “outrageous conduct
is not required to prove bad faith.” Hamilton Mut. Ins. Co. of Cincinnati, Ohio v.
Barnett, 2008 WL 3162321 (Ky. App. Aug. 8, 2008). But under Kentucky State
Rules of Civil Procedure 76.28(4)(c), Barnett is not binding precedent because it is
unpublished.
Rather, the several published opinions that address the issue are
controlling law. See, e.g., Buttery, 220 S.W.3d at 293; Bult, 183 S.W.3d at 186.
Because Huff presumed that bad faith could be proven without demonstrating
outrageousness of some form, he is not qualified to express an opinion as to whether
Deerbrook acted in bad faith. Indeed, Huff is not prepared to say that Deerbrook’s
conduct was outrageous. Huff’s Dep., R. 35-4 at 4-5 (Dep. pp. 56-57) (“That’s not
the word [outrageous] I’m comfortable using at this time.”); Huff’s Daubert Test.,
R. 34 at 14 (“And I didn’t think the conduct was outrageous, and I said so. I wasn’t
comfortable with that word.”).
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Nevels asserts that even if Huff misunderstands bad faith law, Huff’s
testimony should still be admitted because it only affects his credibility and not his
qualifications. R. 36 at 6 (citing Morales v. Am. Honda Motor Co., 151 F.3d 505, 516
(6th Cir. 1998)). But this is plainly incorrect. Misstatements of the law are “no more
admissible through ‘experts’ than are falsifiable scientific theories.” Hebert v. Lisle
Corp., 99 F.3d 1109, 1117 (Fed. Cir. 1996). Further, Huff’s opinion about bad faith
goes to the ultimate issue in this case.
By attempting to testify about whether
Deerbrook acted in bad faith, Huff’s mistaken legal opinions would be not only
unreliable, but prejudicial.
CONCLUSION
Accordingly, it is ORDERED that Deerbrook’s motion in limine, R. 35, is
GRANTED IN PART and DENIED IN PART.
This the 16th day of December, 2011.
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