This is an insurance bad faith case stemming from Westfield’s handling of a first-party property insurance claim following a fire.
Plaintiffs JME Investments, LLC (“JME”) and Hiway Bar, LLC (“Hiway Bar”) (together, “Plaintiffs”) filed claims after a kitchen fire damaged their property on July 12, 2020. The fire burned a building owned by JME. Constructed in the 1890s, the building had been leased to Hiway Bar since 2018 for $4,000 per month. Hiway Bar operated a restaurant and bar on the ground floor and leased the three residential apartments on the second floor, particularly to tourists and hunters during the hunting season.
Defendant Westfield Insurance Company insured the building for $625,500. However, JME later admitted that it “woefully” underinsured the property. Still, the parties agreed that Westfield has paid Plaintiffs over $900,000 on their claims arising from the fire loss.
Plaintiffs retained Damian J. Arguello to evaluate and opine as to whether Westfield’s handling of Plaintiffs’ insurance claims was consistent with industry standards. Arguello submitted two expert reports: an initial affirmative report on March 10, 2023, followed by a supplemental report on May 15, 2024, which addressed specific issues raised in Westfield’s counterclaims.
Subsequently, Westfield filed a motion to exclude the opinions and testimony of Damian J. Arguello.
Law And Legal Expert Witness
Damian J. Arguello is an insurance coverage attorney, expert witness, and former adjunct law professor whose legal practice focuses on representing and counseling commercial policyholders, business and trial attorneys, and insurance agents and brokers regarding insurance issues.
In his consulting and expert witness practice, Arguello also draws from his pre-law school experience as a claims adjuster for several insurance companies and as a claims manager and errors & omissions risk manager for a major insurance brokerage to consult and deliver testimony on insurance company claims handling and insurance agent/broker professional liability.
Arguello’s insurance industry experience also includes reengineering an insurance company’s claims best practices in conjunction with consultants with McKinsey & Company.
Discussion by the Court
Defendant’s Arguments
Arguello submitted an initial report in connection with the Plaintiff’s common law bad faith claim. Westfield contended that this report was littered with factual inaccuracies and improper legal conclusions considering various opinions in the report were highly unreliable, prejudicial, and unhelpful to the jury. Moreover, Westfield challenged Arguello’s supplemental report in which, according to Westfield, Arguello improperly speculated about Westfield’s motivation for asserting its counterclaims, including that Westfield filed the counterclaims to “distract the factfinder’s attention from Westfield’s deficient claim handling,” and that Westfield sought to “perpetuate this litigation by raising its counterclaims extremely late in the litigation.”
As required by the Court’s Uniform Practice Standards, Westfield recited the ten opinions in Arguello’s affirmative report that it considered improper due in part to the “litany of factual errors” predicating these opinions. After analyzing the ten opinions, the Court declined to exclude them at that time. The Court had already outlined the numerous factual disputes in this matter. Westfield was free to challenge any perceived factual errors through cross-examination of the expert. The Court emphasized that its role as a gatekeeper under Daubert “is not intended to serve as a replacement for the adversary system.”
Helpfulness to the Trier of Fact
Westfield challenged Arguello’s claims-handling opinion, in which he stated, “in my opinion, Westfield’s handling of JME’s and Hiway’s claims failed to meet applicable standards of care for a reasonable insurer under the facts and circumstances of this loss.” The Court permitted Arguello to testify, consistent with his expertise in the insurance industry, about the relevant insurance industry standards concerning an insurer’s duty to investigate claims, including whether Westfield’s conduct was consistent with that of a reasonable insurer. However, Arguello may not go any further by testifying that Westfield’s handling of Plaintiffs’ claim was unreasonable.
The Court emphasized that expert testimony must assist the jury, as required by Federal Rule of Evidence 702(a). To ensure testimony remains helpful, “an expert may not state legal conclusions drawn by applying the law to the facts, but an expert may refer to the law in expressing his or her opinion.” The Court acknowledged that “the line between a permissible opinion on an ultimate issue and an impermissible legal conclusion is not always easy to discern.” In this instance, the Court found that Arguello’s challenged opinion goes right up to that line but does not cross the thin line.
Legal Conclusions
Westfield challenged seven opinions from Arguello’s supplemental report, because they apparently constituted improper legal conclusions. For example, Arguello stated, “[i]n my opinion, the available evidence doesn’t support Westfield’s counterclaims.” In another instance, he opined, “in my opinion, Plaintiffs provided ample cooperation with Westfield’s investigation”.
It was noted that Plaintiffs did not address any of these seven opinions with specificity in their response. Instead, Plaintiffs asserted high-level arguments that Arguello’s opinions were “properly grounded in the standard of care for insurance claims handlers and were relevant to the determination of materiality.” Plaintiffs added that this post-litigation conduct was relevant to Westfield’s on-going duty of good faith and fair dealing.
While the Court acknowledged that an insurer’s “duty of good faith and fair dealing continues unabated during the life of the insurer-insured relationship, including through a lawsuit or arbitration between an insured and the insurer,” Arguello’s opinions, especially his opinion that the evidence does not support Westfield’s counterclaims, were improper because this type of testimony will invade the province of the jurors, who will be tasked with evaluating whether the evidence supports Westfield’s counterclaims.
Reliability
The Court questioned Arguello’s ability to speculate as to Westfield’s rationale and motivation for filing its counterclaims, concluding that such testimony would be inherently unreliable. Further, the Court was well-informed of the timing of Westfield’s counterclaims when it determined that good cause existed to permit Westfield leave to amend its answer to bring the counterclaims. He appeared to question the Court’s ruling, which was another reason his counterclaims opinions were impermissible
Held
The Court granted in part and denied in part Westfield’s motion to exclude opinions and testimony of Damian J. Arguello.
Key Takeaways:
Westfield challenged Arguello’s expert opinions, arguing they contained factual inaccuracies, improper legal conclusions, and speculative reasoning. The Court ruled as follows:
i) Testimony on Industry Standards – Arguello could testify about the relevant insurance industry standards concerning an insurer’s duty to investigate claims but could not state that Westfield’s claim handling was unreasonable.
ii) Opinions on Counterclaims – The Court rejected Arguello’s opinion that “the available evidence doesn’t support Westfield’s counterclaims,” determining that such testimony would improperly invade the jury’s role in evaluating the evidence.
iii) Speculation on Westfield’s Motives – The Court found Arguello’s testimony questioning Westfield’s rationale and motivation for filing counterclaims inherently unreliable.
Case Details:
| Case Caption: | JME Investments, Llc Et Al V. Westfield Insurance Company |
| Docket Number: | 1:22cv1012 |
| Court: | United States District Court for the District of Colorado |
| Order Date: | January 30, 2025 |
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