Ronald S. Gass
Reinsurance and Insurance Arbitrator and Umpire
Reinsurance and Insurance Dispute Resolution Services Consultant

Certain Expert Testimony in D.J. Expense Litigation Inadmissible

In a dispute over declaratory judgment expenses ("d.j. expenses"), the U.S. District Court for the District of Kansas excluded certain testimony prepared by the opposing reinsurance experts primarily because their opinions constituted inadmissible legal conclusions.

The cedent's expert was initially challenged by the reinsurer as being unqualified to testify about industry custom in this area because his opinions were not based on education (no college degree but had attended management seminars and other educational programs) and his specific reinsurance claims experience was "limited" (employed for 13 years by a reinsurer). Citing its "important gate-keeping function" regarding the admissibility of expert opinion in light of the U.S. Supreme Court's controversial Daubert decision, the court ruled that this expert's more than 40 years of claims background and experience qualified him as an expert under the applicable Federal Rule of Evidence because he possessed "specialized knowledge" gained through his "experience, training, or education."

In federal courts, an expert may testify in the form of an opinion or inference, even if it embraces an ultimate fact issue, but may not apply the law to the facts of the case to form legal conclusions. The court reserved judgment, due to other pending mentions, on whether the reinsurance agreement was sufficiently ambiguous such that expert testimony about those ambiguities would be admissible; hence, it did not strike at this juncture either experts' testimony regarding their interpretations of the disputed contract.

However, the court did strike portions of both experts' reports as improper concerning the following three disputed issues:

(1) The experts' understanding of the legal terms "waiver" and "estoppel" in light of the cedent's allegation that the reinsurer had previously paid d.j. expenses on at least three other occasions (conclusions of law), although testimony regarding industry custom and practice concerning the payment of d.j. expenses may be admissible;

(2) The experts' opinions about whether the reinsurer breached its duty of utmost good faith and fair dealing (the question of legal duty is a question of law and the opinions were an impermissible attempt to apply the law to the facts to form a legal conclusion); and

(3) The cedent's expert's opinion about the reinsurer's actions to keep itself informed about the underlying d.j. actions and its failure to advise the cedent that it did not believe that the reinsurance agreement covered d.j. expenses (matters within the normal experiences and qualifications of lay jurors which will enable them to draw their own conclusions based on the evidence).

Employers Reinsurance Corp. v. Mid-Continent Casualty Co., Civil Action No. 01-2058-KHV, 2002 U.S. Dist. LEXIS 9705 (D. Kan. May 1, 2002).


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