Insurance Expert Not Allowed to Opine on Interdependency Risk

Plaintiff Williams International Co., LLC is suing Defendants Zurich American Insurance Company; XL Insurance America, Inc.; General Security Indemnity Company of Arizona (GSINDA); and Aviva Insurance Limited alleging breach of insurance contracts arising out of the non-payment of claims following a fire at a Williams manufacturing facility in Mexico.

Plaintiff filed a motion to strike the opinions of Defendants' proposed expert, Peter J. Kelly, and Defendants filed a motion to exclude the opinions and testimony of Plaintiff's proposed expert, Jeffrey M. Posner.

Insurance Expert Witnesses

Peter James Kelly is a senior insurance professional assisting management teams in strategy development and decision-making in the areas of technology and data.

Kelly holds a B.Sc. In Business Administration in Information Technology from Boston University and an M.B.A. in Finance from the Babson F.W. Olin Graduate School of Business.

Want to know more about the challenges Peter James Kelly has faced? Get the full details with our Challenge Study report.

Jeffrey Mark Posner has more than forty-five years of experience in the insurance, claims, brokerage and risk management areas. He has specialized in providing insurance and risk management consulting services to policyholders, insurers, brokers and the legal profession.

Gain a comprehensive understanding of Jeffrey Posner's qualifications and casework history with her Expert Witness Profile report.

Discussion by the Court

A. Plaintiff's Motion to Strike Opinions of Defendants' Proposed Expert Peter Kelly

Plaintiff's motion sought to exclude certain opinions of Peter Kelly, an underwriter with thirty-five years of experience in the insurance industry, which it argues are based on Kelly's personal interpretation of the insurance contract or are opinions about the parties' state of mind when entering the contract rather than his opinions about general custom and industry practice.

Defendants are correct that experts may testify about custom and practice in the insurance industry, as well as the meaning of any terms of art. However, as Plaintiff argues, Kelly's opinion at times goes beyond the scope of industry custom and practice. For example, in his report, Kelly explained that "based on his review of the US Quota Share Policies, the customs and practice of the industry and the materials provided by Counsel, Time Element losses experienced by Williams International Co., LLC that were caused by an event in a Prohibited Jurisdiction were not intended to be covered under the US Quota Share Policies," and that "given the rules of Special Coverage application...the most the US Quota Share Policies would indemnify Williams for would be $10 million, the sublimit of FINC (and DIC/DIL)." In so stating, Kelly offered his conclusion on the main issue in this case; whether Williams' losses are covered by the Time Element provision, affording coverage up to the full policy limit, or the more specific FINC or DIC/DIL sublimits, with coverage limited to $10 million.

In general, the portions of Kelly's opinion that interpret the contract "cross over the line between what can be fairly considered as expert opinion into territory which clearly constitutes a legal conclusion." Kelly may offer testimony on general industry custom and practice, but he may not offer his own interpretation of the meaning of the contract as between the parties.

Plaintiff also argued that Kelly's interpretation of key terms should be stricken, pointing specifically to his interpretation of the terms "Location" and "Insured Location." Defendant argued that Kelly's opinion merely seeks to provide context for the terms, such as that "the term 'the Location' must refer to the defined term 'Insured Location'; otherwise, 'the Location' would result in 'coverage stemming from anywhere in the world,' which no insurer in the industry would intend."

However, neither "Location" or "Insured Location" are terms of art that would require expert testimony, but instead are terms that are already defined by the contract, and which can be easily understood by a layperson. The "context" that Kelly seeks to provide on these terms is once again a conclusion regarding the scope of coverage provided in the Time Element provision. Therefore, Kelly's interpretations of the terms "Location" and "Insured Location" in the policies are inadmissible.

Plaintiff next took issue with the portion of Kelly's report that discusses rules of insurance policy interpretation, which it says are inadmissible legal conclusions and functions reserved for the Court. Insofar as these provisions provide Kelly's opinions on contract interpretation in general, Plaintiff is correct that this is a function reserved to the Court.

Finally, Plaintiff argued that Kelly's opinion regarding whether the parties intended for coverage to be available to Williams is impermissible because experts cannot testify as to state of mind. Plaintiff pointed to portions of Kelly's report in which he makes statements such as "the correspondence is clear that Aon fully understood the limitation of the coverage available in the US Quota Share Policies for any losses stemming from events in Mexico," and "a complete and exhaustive review of every piece of correspondence provided and every deposition makes it clear that the US Quota Share Insurers and Aon (acting in Aon's authorised capacity as agent for and advisor to the insured) had mutual and bilateral understanding that a maximum loss limit of $10 million would be a safety net for any losses sustained by Williams stemming from damage in Mexico because of the sub limits in the Special Coverage Section."

Defendants argued that Kelly's report does not opine on the parties' state of mind but instead merely summarizes the facts that he considered and that informed his opinions in order to "evaluate whether the parties' conduct was consistent with industry custom and practice."

Overall, Kelly may not interpret the language of the policies as between the parties, including the terms "Location" and "Insured Location" as they are used in the policies, or opine on the parties' intent, motive, or state of mind, and these opinions are therefore excluded. Although Plaintiff requests that the impermissible portions of Kelly's opinions be stricken, the Court will not engage in the exercise of reviewing Kelly's report line by line and striking any impermissible inclusions because "these line-by-line objections to testimony are more appropriately addressed at trial."

B. Defendants' Motion to Exclude the Opinions and Testimony of Plaintiff's Proposed Expert, Jeffrey M. Posner

Defendants' motion sought to exclude the opinion of Jeffrey Posner, who they say lacked the requisite specialized knowledge about commercial property insurance underwriting and brokering.

Posner is offered as an expert in insurance industry customs and practice, and his opinions are primarily that it is customary for commercial property insurance policies to include coverage for interdependency risk, which is "the risk that an event at one location can impact operations at another location," and that if insurers want to exclude or limit coverage, they must say so clearly and in writing.

First, Defendants argued that Posner cannot offer opinions on the custom and practices of the insurance industry as they relate to the underwriting and brokering of commercial property insurance policies because he "is not a current or former commercial property underwriter, nor has he ever worked as a commercial underwriter," he "has never been responsible for drafting insurance policy language," and he "has never worked as a broker to place commercial property insurance."

According to his report, Posner has fifty years of experience in the insurance, brokerage, and risk management fields, including placement of multi-national property and liability insurance programs covering international risks.

As chairman of the board of a captive insurance company that insured international risks, he was responsible for issuing more than 100 policies. It is true, as Defendants point out, that he was never an underwriter or broker for commercial property insurance.

However, despite not having worked as an underwriter or broker, Posner has experience in the insurance industry generally, including working with brokers to place insurance policies and management of underwriting and claims operations. His testimony on the customs and practices of the insurance industry in general may still prove helpful to the jury in understanding the type of policies and risks present in this case, and the general considerations present when assessing these risks. Therefore, rather than exclude his testimony in its entirety due to his lack of direct experience in underwriting and brokering, as Defendants request, to the extent that Posner's testimony strays beyond his qualifications Defendants may use cross-examination to expose his qualifications, or lack thereof, to testify in those areas.

Defendants argued in the alternative that Posner should not be able to provide his opinion on the interpretation of the contract as between the parties or on the parties' state of mind or intent. As discussed extensively above in relation to Defendants' proposed expert, Peter Kelly, these opinions are indeed impermissible.

Finally, Defendants argued that Posner's testimony should be excluded because it is unreliable and unsupported. They took specific issue with Posner's use of the term "interdependency risk," which they say does not appear in the Policies, and with his failure to consider all the relevant facts and materials available to him before rendering his opinion.

Related to Posner's use of the term "interdependency risk," Defendants argued on one hand that the concept is not rooted in any accepted authority in the insurance industry, but on the other hand acknowledge that the term shows up in the extrinsic evidence in relation to the risk the Guaymas facility posed. But Posner does not claim that the term appears in the policies; instead, he uses it to describe the general risk that a loss at one facility can pose to the operations of another. Defendants take issue with the fact that he offers no credible basis for this concept, such as a treatise, white paper, or industry guideline, but as Plaintiff points out, "Rule 702 expressly contemplates that an expert may be qualified on the basis of experience," and "in certain fields, experience is the predominant, if not sole, basis for a great deal of reliable expert testimony."

To the extent that Defendants take issue with Posner opining that the policies at issue clearly covered the "interdependency risk" stemming from the Guaymas facility or that the parties intended to cover the "interdependency risk," the Court has already explained that neither expert may offer testimony that interprets the policies or opines on the parties' state of mind, and therefore this testimony would be impermissible for that reason. The same applies to Defendants' argument that much of Posner's testimony interpreting the policies should be excluded because he failed to consider all of the policy language or factual record; any interpretation of the policies as between the parties is inadmissible, and it is therefore irrelevant whether his proposed interpretation is based on the policy language and underlying available facts. Insofar as Defendants claim that any of Posner's admissible opinions lack a reliable foundation, "vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence."

Held

The Court granted in part and denied in part, without prejudice, the Plaintiff's motion to strike the opinions of proposed expert Peter Kelly and Defendants' motion to exclude the opinions of proposed expert Jeffrey Posner.

Key Takeaway

Expert testimony as to intent, motive, or state of mind offers no more than the drawing of an inference from the facts of the case which is within the competence of the jury.

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