A United States District Court in Louisiana found that an expert opinion that relates to when an insurance claim is made and the applicability of policy exclusions is inadmissible in coverage litigation, although expert opinions that relate to insurance industry custom and practice are permissible. Foundation Health Servs., Inc., et al. v. Zurich Am. Ins. Co., Civil Action No. 15-59-JJB-EWD, 2016 U.S. Dist. LEXIS 49390 (M.D. La. April 13, 2016).
The dispute arose from an underlying investigation by the Department of Health and Human Services which led to the Department of Justice asserting a claim against the plaintiffs for worthless services. Plaintiffs reached a settlement with the government and sought recovery from their insurer for their defense costs and other losses associated with the settlement. The two central issues in the insurance coverage case were (1) whether a claim was first made during the policy period and (2) whether the insurer was reasonable in concluding that a “professional services” exclusion applied to preclude coverage and whether the insurer breached its obligation of good faith in declining coverage. In order to support their position plaintiffs retained an expert to testify as to whether the insurer “met its obligations and responsibilities in connection with the claim at issue under custom and practice of the industry.” Id. at 4. The insurer moved to exclude such testimony on the grounds that it was an impermissible legal conclusion.
Applying Rules 702 and 704 of the Federal Rules of Evidence, the Court found that the conclusions the expert reached with regard to the applicability of certain exclusions “cross into the realm of making legal conclusions” and are, therefore, inadmissible. Id. at 6. The Court also ruled that the expert’s legal conclusions as to when a claim occurred was a question of law for the court, explaining that “an expert may be allowed to testify regarding insurance industry standards for claims adjusting, but not the ultimate legal conclusions that an insurance company is acting in good faith.” Id. The Court thus only allowed the expert’s testimony that pertained to the industry custom and practices as they related to the insurer’s duties during the claims adjustment process.
The takeaway here is that expert testimony on insurance industry custom and practice will be admissible, but once it crosses the line into drawing legal conclusions as to the application of exclusions or coverage, courts will not allow such testimony.