Members of the American Association of Insurance Management Consultants have long been concerned about some insurance 'experts' that seem to be able to manufacture their own evidence in accordance with what needs to be said.
The use of expert witnesses in the insurance industry has increased during the past 20 years, as issues become more confusing to the average person (or juror, and perhaps even the judge). The expert’s job is to provide the fact-finders with relevant and reliable information upon which they can make their determination. Consider for a moment the image that the term 'expert witness' conveys to an average juror. The fact that a person has been presented as an 'expert' gives them a great deal of credence, even if their theories or techniques have no relevant or reliable foundation. Although the opposing attorney might attempt to cloud that expertise by showing that the expert is being paid for their testimony, the perception still persists.
In Daubert v. Merrell Dow Pharmaceuticals, Inc. (1993), the U.S. Supreme Court took aim at 'gunslinger' expert witnesses by ruling that Rule 702 of the Federal Rules of Evidence 'requires that scientific evidence be reliable and relevant.' The Daubert decision set three criteria for the admission of expert witness testimony: First, the witness must be qualified; second, the proposed testimony must be accepted scientific knowledge; and lastly, the testimony must assist the trier of fact to understand the evidence or to determine a fact at issue. The factors for the trial judge to consider in determining the relevance and reliability of evidence include:
- Whether the theory or technique has been or can be tested
- Whether the theory or technique has been subjected to peer review
- The technique’s known or potential rate of error
- The general acceptance of the theory or technique by the relevant scientific community.
In the same decision, the high court designated trial judges as 'gatekeepers' to ensure that any and all scientific testimony or evidence is reliable, as well as relevant.
Subsequent cases required experts to explain how and why they reached their conclusions. One case specifically held that 'all experts are subject to Daubert’s requirement that their testimony constitute general knowledge from their field.' The ruling went on to say that the Daubert factors might be used, in appropriate circumstances, to evaluate other kinds of expertise (for example, insurance actions regarding coverage and/or standards of care by agents and carriers, as well as insurance agency evaluations. So, what was Daubert all about?
The suit arose after two minor children were born with birth defects. The parents sued Merrell, alleging that because the mother ingested the anti-nausea drug Bendectin while pregnant, the drug caused the birth defects. Although all 30 studies of Bendectin’s effects had concluded that the drug wasn’t capable of causing birth defects, the parents hired eight experts to counter this chain of evidence.
The District Court granted the drug manufacturer’s motion for summary judgment because 'the plaintiffs failed to establish that the principle upon which their experts based their opinions were generally accepted by the relevant scientific community.'
The expert is there to assist the 'fact finder' — the judge or jury. The validity of the expert’s testimony depends on their professional background, education and experience, together with acceptable standards of peer review. Because the decision is often based on their testimony, they must provide relevant and reliable evidence.
Federal and state judges who are responsible for validating the credentials of expert witnesses must also ensure that their testimony transcends the cloudy arena of junk science. Courts throughout the nation have adapted the Daubert tests to cases other than medical/scientific actions.
One such Texas decision was the Robinson case, which involved the plaintiff’s allegation that the use of a particular insecticide damaged their orchard. The court applied the Daubert standards and added the following:
- The extent to which the technique relies upon the subjective interpretation of the expert; and
- The out-of court-uses of the theory or technique.
Another example of extending the Daubert standards is the 1998 Texas Supreme Court decision Gammill v. Williams Chevrolet, which resulted from the death of a child and severe injury to her sister. This was a products liability case against an auto dealer and the manufacturer of a vehicle that sustained a one-car accident.
The trial court granted a motion for summary judgment and the appeals court confirmed. The case then went to the Texas Supreme Court, which considered the testimony of two plaintiff witnesses. One expert was disqualified and the testimony of the second was ruled unreliable.
Federal and state courts have also ruled on the validity of expert witness testimony in insurance-related litigation. The United States Court of Appeal, Fifth Circuit, in an April 1997 ruling cited the testimony of two experts who evaluated the book of business of an insurance agency. In Vance Dunham, Debtor and Texas Truck Insurance Agency v. Harry Cure, Chapter 7 Trustee for Vance G. Dunham, Debtor, Appellee, the Court ruled that the Trustee’s expert presented impressive credentials, extensive involvement in the insurance industry, and substantial experience in valuing insurance agency businesses.
In contrast, the Court said the expert hired by Texas Truck had little experience in either the insurance industry or the valuation of insurance agency businesses. He didn’t hold an insurance license, and hadn’t worked in the insurance industry. He had no formal education in agency valuation, hasn’t written any articles on the subject, and had appraised only insurance agencies.
Vance Dunham proceeded from the bankruptcy court, which accepted the Trustee’s expert opinion, to a Federal Court, which once again accepted the method of agency evaluation that had been developed over many years. It then proceeded to the Fifth Court of Appeals who made the ruling cited above (the expert for the Trustee in Vance Dunham was Roy Phillips, one of the authors of this article).
The U.S. Supreme Court also ruled that evidence which isn’t grounded in scientific methodology and procedures is no more than subjective belief or unsupported speculation, represents unreliable evidence that doesn’t assist the trier of fact, and is therefore inadmissible. If this is the case, what benchmarks must an expert meet under the Daubert decision?
The Texas Supreme Court ruled that the trial court can consider many factors in making a threshold determination of admissibility of scientific testimony, including, but not limited, to:
- The extent to which the theory has been, or can be tested
- The extent to which the technique relies on subjective interpretation of the expert
- Whether theory has been subjected to peer review and/or publication
- The technique’s potential rate of error
- Whether the relevant scientific community has accepted the underlying theory or technique
- Non-judicial uses of the theory or technique.
The court added that the reliability of expert witness testimony applies to all scientific testimony — not just to novel or unconventional scientific evidence. The reliability of testimony pertaining to insurance industry standards can typically be established through applicable case law, the Insurance Code, and treatises, books, and articles on the subject, including industry education and training material. This standard clearly places a significant gatekeeper responsibility on the trial courts.
Another U.S. Supreme Court decision (Kumbo Tire Co. v Carmichael) held that the court should ensure that 'an expert, whether basing testimony upon professional studies or personal experiences, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.'
Moreover, another Texas case (Broders v. Heise) held that the expert’s knowledge must extend to the specific issue before the court that would qualify them to give an expert opinion on that particular subject.
So how do these standards for evaluating the testimony of expert witnesses impact insurance professionals?
In our opinion, they favor those professionals who provide relevant and reliable testimony to the fact finder concerning what they can support. On the other hand, 'experts' who are simply in the business of creating evidence will fail to measure up to the higher standards required — and won’t fare as well.
** As of December 1, 2000, Section 702 of the Federal Rules of Evidence 702 reads as follows:
'If scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training or education may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based on sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.'