Plaintiff Oxnard Manor LP dba Oxnard Manor Health Center (“Plaintiff”) is a skilled nursing facility. As relevant herein, Defendant Hallmark Specialty Insurance Company (“Defendant”) issued a liability insurance policy to Plaintiff effective from June 1, 2017, to June 1, 2018. Defendant then issued a second liability insurance policy effective June 1, 2018, to June 1, 2019. The policies included coverage for professional liability.
This insurance coverage action arises from the apparent decision to wrongfully increase business profits at the expense of vulnerable patients’ care and rights through systematic understaffing and underfunding of residential medical care facilities, including the Plaintiff herein, Oxnard Manor LP, doing business as Oxnard Manor Health Center (“Plaintiff” or “Oxnard Manor”).
The parties each filed motions to exclude expert testimony pertaining to insurance claims handling practices, an issue critical to the Plaintiff’s claim for breach of the implied covenant of good faith and fair dealing.
Plaintiff moved to exclude the expert testimony of Burl Daniel, whom Defendant designated to rebut opinions offered by Plaintiff’s designated expert, Barry Zalma. Defendant, in turn, moved to exclude the expert testimony of Barry Zalma, whom Plaintiff designated to opine on insurance industry claims-handling custom and practice.
Insurance Expert Witnesses
Burl Daniel, CPCU, CIC, CRM entered the Insurance Industry in 1973 and was an Insurance Agency Principal for twenty four years. Attorneys representing policyholders, carriers and/or third parties engage him as a Property and Casualty Insurance Expert Witness.
He holds a BBA-Insurance from the University of Texas and professional designations of CPCU (Chartered Property Casualty Underwriter), CIC (Certified Insurance Counselor), and CRM (Certified Risk Manager), and licenses as a Property-Casualty Agent and Risk Manager. He has served as a corporate Insurance & Risk Manager, Adjunct Professor of Insurance with two Texas universities.
Barry Zalma has extensive experience in the insurance industry, first as a claims adjuster, then—for several decades thereafter—as an insurance coverage lawyer licensed to practice in California.
For more than 53 years as a claims person and insurance coverage attorney, Barry Zalma has represented insurers, advised insurers on claims handling, interpreted coverages and testified as an insurance coverage, insurance bad faith, insurance claims handling and insurance fraud expert on behalf of insurers and policy holders’ suing insurers.
Discussion by the Court
Plaintiff’s Motion to Exclude the Expert Testimony of Burl Daniel
Plaintiff made three arguments as to why Daniel’s testimony should be excluded: first, that his testimony was not based on sufficient facts or data; second, that his testimony was unreliable because it lacked a supporting methodology; and third, that he offered impermissible, non-rebuttal opinions outside the scope of Zalma’s testimony.
Burl Daniel’s Factual Bases
Plaintiff first contended that Daniel’s report should be excluded because Daniel purportedly largely relied on the deposition testimony of Defendant’s 30(b)(6) witness in formulating his opinions. Although far from clear from his rebuttal report, Daniel has attested under oath to considering over 21,000 pages of documents, and it is not the Court’s role to engage in credibility determinations.
In any event, as Plaintiff explained with respect to its own witness, Zalma, an expert’s purported failure to “address (or review)” material “that purportedly undermine[s] some of his opinions or assumptions does not make his testimony excludable” but instead provides “grounds for cross-examination.” The Court declined to exclude Daniel’s opinions on this basis.
Burl Daniel’s Methodology
Plaintiff also argued that Daniel lacked any “discernable methodology” for his opinions. In particular, Plaintiff noted that Daniel did not refer to “California insurance claims handling or investigation standards” and that he otherwise “lacked sufficient knowledge or experience” to support his conclusions.
As an initial matter, Daniel’s report does not make clear what bases he has to opine on California claims handling practices. Standing alone, Daniel’s curriculum vitae indicates that his experience as an insurance agent occurred within the state of Texas; although he has also worked as an insurance expert witness for approximately twenty years, the curriculum vitae does not make clear how this experience equips him to opine on California insurance custom and practice.
Notwithstanding, Daniel provided scant explanation or analysis to explain the basis of his opinions and did not indicate any methodology he used to arrive at his conclusions. Daniel concluded that Defendant’s investigation and analysis was reasonable under the circumstances of the claim as per insurance industry and California practice standards. Yet, Daniel did not provide any analysis to substantiate this conclusion.
In short, Daniel did not provide any explanation or analysis that could enable the Court to ensure that his expert opinion “both rests on a reliable foundation and is relevant to the task at hand.”
Legal Conclusions
Daniel’s opinions about Defendant’s claim handling process must be excluded for the additional reason that they encroach the role of the jury by reaching the ultimate issue in this case: whether Defendant acted in bad faith. Daniel’s opinions pertained to Plaintiff’s claim for breach of the implied covenant of good faith and fair dealing.
It would be proper for Daniel to offer testimony that could support his conclusion that “Hallmark met its duty of good faith and fair dealing.” It was, however, plainly improper for him to offer only that legal conclusion.
The Scope of Daniel’s Testimony
Plaintiff also argued that Daniel should be precluded from opining on certain warranties Plaintiff purportedly made in its insurance application on the grounds that this opinion fell outside the scope of Zalma’s report and was irrelevant.
The Court concluded that Daniel’s opinion “that the answers and information Robin provided on the application were warranties” and that “any inaccuracies or misrepresentations could serve as grounds to void coverage from inception,” is too generalized and speculative to be helpful to a jury.
Daniel did not set forth any facts that could support a conclusion that Defendant considered this issue in handling Plaintiff’s claim. Defendant contends in opposition that “[a] routine step in claims-handling, which necessarily includes analyzing the insurance policy, is reviewing the application.” While this may be so, Daniel simply concluded that Defendant’s investigation of Plaintiff’s claim was reasonable without analyzing the claims-handling process.
Defendant’s Motion to Exclude the Expert Testimony of Barry Zalma
Defendant advanced three arguments as to why Zalma’s testimony was not reliable: first, that his opinions lacked sufficient factual bases; second, that they lacked a reliable methodology; and third, that they were inadmissible legal opinions.
Zalma’s Factual Bases
Defendant challenged Zalma’s testimony on the grounds that he reviewed only twenty-two documents rather than “all documents produced in this action.” Defendant contended that “Zalma did not have all relevant documents and, therefore, all relevant facts.” The Court held that Zalma’s report indicates that he reviewed various documents, including certain of Defendant’s claim notes, internal best practices documents, the policies at issue in this action, and certain correspondence between the parties. Henceforth, it constituted grounds for cross-examining Zalma at trial, not excluding his testimony.
Defendant also contended that Zalma’s opinions are unreliable because, in preparing them, he viewed documents that Plaintiff purportedly did not provide to Defendant. In any event, as with the documents Zalma did not consider, to the extent this material undermines the credibility of Zalma’s opinions, Defendant may cross-examine him at trial on this matter.
Finally, Defendant raised various substantive criticisms of Zalma’s opinions. The Court held that Defendant’s arguments about Defendant’s choice of defense counsel, Plaintiff’s request for admission responses, Defendant’s investigation, and whether Zalma considered whether any exclusions might bar coverage “go to the weight of the testimony and its credibility, not its admissibility.”
Zalma’s Methodology
Defendant next contended that Zalma’s opinions lacked a reliable methodology because they incorporated standards set forth in California Fair Claims Settlement Practices Regulations and California Insurance Code. Defendant asserted that “Zalma’s opinions are almost entirely based on non-existent legal standards and legal standards that are expressly inapplicable to the case at bar.”
Zalma appeared to have Identified the Relevant Standards for Claims Handling
The Court noted that Zalma has extensive experience in the insurance industry, first as a claims adjuster, then—for several decades thereafter—as an insurance coverage lawyer licensed to practice in California. This experience forms “a sufficient foundation of reliability for his testimony.”
As for Zalma’s invocation of various California statutory provisions, the Court cannot conclude, as Defendant urges, that these provisions are entirely “inapplicable.”
First, Zalma opined—and Defendant did not dispute—that Defendant incorporated certain of the California Fair Claims Settlement Practices Regulations into its own Best Practices for Healthcare Claims. Second, relying on his industry experience, Zalma opined that it is the custom and practice of insurers doing business in California to treat these regulations as minimum standards for interactions with insureds. Zalma appeared to have identified the relevant standards for claims handling and applied those standards to the facts before him.
Defendant Mischaracterized One of Zalma’s Opinions
As for the two opinions Defendant contended were based on “non-existent/inaccurate legal principles,” Defendant mischaracterized one of Zalma’s opinions, which in fact stated that it is industry custom and practice to “[m]eet, and preferably exceed, the minimum standards,”not, as Defendant represents, “that an adjuster has the obligation to exceed standards.” To the extent Defendant disagrees with this aspirational statement, it may cross-examine Zalma about it at trial.
As for Zalma’s opinion regarding providing coverage “to the satisfaction of the insured,” in light of Plaintiff’s concession that Zalma “confirmed it was a misstatement,” the Court questions why the parties have engaged in motion practice regarding this issue. Because the parties and Zalma all agree that this specific opinion is erroneous, the Court concluded that it is unhelpful and irrelevant.
Defendant’s contention that Zalma’s “analysis and resulting opinions are based on an egregiously incomplete and incorrect factual foundation,” essentially repackages its prior argument that Zalma’s opinion must be excluded because he did not review certain purportedly relevant documents and did review certain other, purportedly irrelevant, documents. For the reasons already stated above, however, Rule 702 does not impose such a rigid requirement under these circumstances.
Held
The Court granted the Plaintiff’s motion to exclude the testimony of Burl Daniel in full. However, Defendant’s motion against Barry Zalma was granted only to the extent that it sought to exclude testimony that it is the custom and practice in the insurance industry to adjust claims “to the satisfaction of the insured.”
Key Takeaways:
- Daniel did not provide any analysis to substantiate this conclusion. His report failed to identify any purportedly reasonable actions Defendant took to investigate and analyze. As per Rule 702, his statement was merely conclusory absent an explanation of what steps Defendant took and when.
- Daniel simply concluded that Defendant’s investigation of Plaintiff’s claim was reasonable without analyzing the claims-handling process. Testimony that Defendant could theoretically have concluded the policy was void from inception and denied coverage to Plaintiff on that basis risks confusing the jury where there is no indication that Defendant ever considered doing so.
- Zalma relied on his extensive industry experience and invoked various California statutory provisions. According to the Court, Zalma appeared to have identified the relevant standards for claims handling and applied those standards to the facts before him.
Case Details:
| Case Caption: | Oxnard Manor Et Al V. Hallmark Specialty Insurance Company Et Al |
| Docket Number: | 2:23cv1322 |
| Court Name: | United States District Court, California Central |
| Order Date: | April 2, 2024 |
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