Claims practice experts can help explain why the conduct of an insurer is tantamount to "bad faith." As explained by Vivian Persand in Getting the Inside Scoop on Insurance Company Claims Practices, a good claims practice expert can help a policyholder attorney. Eventually, the same expert will write a report containing the findings and opinions regarding the claims activities and whether the insurer breached its obligation of "good faith." Whether that so called "bad faith" expert will be allowed to testify at trial is another matter altogether.

A recent case, Penford Corp. v. Nat’l Union Fire Ins. Co., 2010 U.S. Dist. LEXIS 60083 (N.D. Iowa June 17, 2010), demonstrates this frequent challenge regarding claims practice experts on various issues of testimony. Indeed, the policyholder and insurer challenged the ability of each others claim practice expert to testify.

Regarding the policyholder’s expert, the Court found the following:

The court finds that its previous rulings do not preclude Jolstad’s testimony on the issue of bad faith. Penford contends not only that Defendants acted in bad faith with regard to coverage, but also with respect to the timing of Defendants’ payments on amounts undisputedly due under the policy. In its previous ruling, the court held that the policy language was ambiguous. Defendants argue that this ruling somehow moots Penford’s bad faith claim, because Defendants’ refusal to pay in light of the ambiguous policy could not be in bad faith. The court disagrees. "’To establish a first-party bad-faith claim, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.’" Vos v. Farm Bureau Life Ins. Co., 667 N.W.2d 36, 51 (Iowa 2003)…Defendants have not cited any authority suggesting that the existence of ambiguous policy language is a reasonable basis to deny a claim and precludes Penford from asserting a bad faith claim.

…Penford also alleges that Defendants acted with bad faith in delaying payment of certain sums that Penford was undisputedly entitled to under the policy. Thus, Jolstad’s opinions are probative on the issue of whether Defendants acted in bad faith in handling Penford’s claims. See Fed. R. Evid. 401 ("’Relevant evidence’ means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence."). Accordingly, the court finds that its previous rulings do not bar Jolstad’s opinion testimony on the issue of bad faith.

Defendants also ask the court to bar Jolstad’s opinions regarding the timeliness of Defendants’ payments to Penford. First, Defendants claim that Jolstad’s opinion on this issue is based on nothing more than his "fertile imagination" and has "no basis in either the policy or the Iowa statutes." … Second, Defendants argue that his opinions on this issue are irrelevant because Penford cannot quantify any damages as a result of any delay in payment.

The court disagrees with Defendants claim that Jolstad’s opinion must be barred because it allegedly has no basis in the policy or Iowa statutes… Under Iowa law, a plaintiff may prevail on a bad faith claim if he or she can show that "the insurer ‘lacked a reasonable basis for denying or delaying payment of the claim.’" …Jolstad’s opinions are based on his extensive experience in the insurance industry, and his testimony as to whether Defendants conduct constituted bad faith–when judged against the customs, practices and standards of the insurance industry–will be helpful to the jury in assessing Penford’s bad faith claim. Defendants can appropriately test Jolstad’s opinions, and the basis for them, on cross-examination and through the presentation of contrary evidence, including their own bad faith expert, Peter Evans. (emphasis added)

I almost started laughing at the first part of the reasoning. An insurer acting in "good faith" is supposed to construe ambiguous language in favor of the policyholder and thus pay. Only if coverage is unambiguously excluded or not owed does an insurer escape that responsibility. This is what is taught to adjusters in basic claims school, although the insurance attorneys then try every means possible to prevent juries from learning of this duty.

Obviously, the second highlight was a preview of the Court’s ultimate holding on the admissibility of the expert testimony:

Penford argues that Evans’ bad faith opinions are unverifiable because they are not based on anything other than Evans’ "word" and are therefore inadmissible…The court disagrees. As with Penford’s expert, Jolstad, Evans’ opinions regarding Defendants’ alleged bad faith are based on his extensive experience in the insurance industry, particularly as a loss adjuster. The court finds Evans to be sufficiently qualified as an expert on the handling of insurance claims based on his knowledge, skill and experience … The court also declines to exclude Evans’ opinions based on Penford’s contention that they cannot be measured against any "authoritative body of governing principles." Penford’s arguments are appropriate subjects for cross-examination or the presentation of contrary evidence, such as opinion testimony from its own bad faith expert…

Penford also asks the court to bar Evans’ bad faith testimony because he purportedly failed to apply the appropriate standard for bad faith under Iowa law. As previously stated, a plaintiff may prevail on a bad faith claim if he or she can show that "the insurer ‘lacked a reasonable basis for denying or delaying payment of the claim.’"… Evans testified that the claims handling process should be judged by "objective standards of reasonableness."… He later described the standard as "promptness and reasonableness." … Evans’ report includes his opinion that Defendants did not "unreasonably" delay payments…The court finds that Evans’ opinion is sufficiently based upon the correct … standard for bad faith claims under Iowa law. Accordingly, Penford’s Motion is DENIED to the extent it seeks to bar Evans’ testimony regarding Penford’s bad faith claim.

Experts can help in discovery and at trial of bad faith cases. However, there is no certainty that a Court will allow all the evidence or opinions about insurance conduct to be explained by an expert at trial because those challenges are now the rule, rather than the exception. Accordingly, the lessons are:

  1. Retain experts who have experience in the industry,
  2. Retain experts who can help with discovery matters,
  3. Retain experts who have the time to write thorough and documented reports based on the legal claims conduct standards and burdens.

All this discussion of "bad" brings to mind a classic as the weekend nears: