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Fidelity National Financial, Inc. v. National Union Fire Insurance Co.

United States District Court, S.D. California

March 28, 2014

FIDELITY NATIONAL FINANCIAL, INC., CHICAGO TITLE INSURANCE CO., and CHICAGO TITLE CO., Plaintiffs,
v.
NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURG, PA, et al., Defendants.

ORDER RE: DAUBERT MOTIONS

GONZALO P. CURIEL, District Judge.

The parties challenge the admissibility of four expert witnesses.[1]

District courts act as the gatekeeper for expert testimony by carefully applying Federal Rule of Evidence 702 to ensure evidence is "not only relevant, but reliable." Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579, 589 (1993); accord Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137, 147 (1999) ( Daubert imposed a special "gatekeeping obligation" on trial judge); Estate of Barabin v. AstenJohnson, Inc., 740 F.3d 457, 463-64 (9th Cir. 2014) (en banc).

The expert must be qualified by "knowledge, skill, experience, training, or education" on the proposed subject matter. Daubert, 509 U.S. at 592 ("an expert is permitted wide latitude to offer opinions, including those that are not based on firsthand knowledge" because Rule 702 "is premised on the assumption that the expert's opinion will have a reliable basis in the knowledge and experience of his discipline").

An expert witness may testify "if (1) the testimony is based upon 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." Fed.R.Evid. 702; see Cooper v. Brown, 510 F.3d 870, 880 (9th Cir. 2007) (proponent of evidence bears burden of proving testimony satisfies Rule 702). In undertaking this "daunting task, " the trial judge "must strike the appropriate balance between admitting reliable, helpful expert testimony and excluding misleading or confusing testimony to achieve the flexible approach outlined in Daubert. " United States v. Cordoba, 104 F.3d 225, 228 (9th Cir. 1997) (citation omitted).

A. FNF's Motion to Exclude Dean Felton - Claims Handling Expert

Dean Felton is an insurance broker who wrote a text book about financial institution bonds ("FIB"). Watnick Decl., Ex. 1 at 1-2. Defendant National Union ("NU") hired Felton to give his expert opinion on a variety of topics, including the customs and "best practices" of fidelity bonds and the application of contested provisions of the insurance policy. Id. at 1.

Plaintiffs Fidelity National Financial, Inc., Chicago Title Insurance Co., and Chicago Title Co. (hereinafter "FNF") challenge several aspects of Felton's testimony.

1. Reliance on Excluded Documents

In March 2011, the Magistrate Judge held that NU could not use Christopher Money's activities as proof of NU's efforts to comply with its obligation to investigate FNF's claim. [Doc. No. 194] NU had initially retained Money as part of its coverage investigation, but NU immediately designated Money as an expert witness on damages. Id. at 2. NU contended it did not have to disclose evidence of Money's activities until the experts exchanged their reports. "Having taken this position in discovery, " the Magistrate Judge held that NU "may not offer the retention and efforts of Mr. Money at some later point in this litigation as evidence of its efforts to comply with its obligation to investigate Fidelity's claims." Because NU elected to offer Money's "expert analysis for purposes of defending the litigation[, his] efforts cannot be offered as evidence of National's ordinary business efforts to investigate and adjust Fidelity's claim." Id.

Felton submitted his initial report four months later, in July 2011. Watnick Decl., Ex. 1 (hereinafter "Initial Report").

In August 2011, NU tried to produce a claims analysis letter, but the Magistrate Judge excluded the coverage letter for all purposes. [Doc. No. 297 (Sept. 2011)]

Felton submitted his rebuttal report in January 2012. Watnick Decl., Ex. 7 (hereinafter "Rebuttal Report"). FNF took Felton's deposition in February 2012. Watnick Decl., Ex. 2 (hereinafter "Depo.").

FNF contends that Felton's rebuttal report violates the Magistrate Judge's orders. First, Felton relies on Money's invoices and reports as proof that NU conducted an adequate investigation of the amount of FNF's loss. Rebuttal Report at 48 (¶ 6) (opining that NU promptly investigated the claim, Felton cites "[t]he Money' invoices" and "[t]he Money' Report of July 15, 2011" as evidence of "a quantum investigation by NU"). Second, Felton relies on the August 2011 coverage letter to support his opinion that "[t]he timing of this letter is reasonable given FNF's continued modifications of its claim." Id. at 3 (¶ 5), 41-42 (citing letter). FNF argues that Rule 702 requires an expert to base his opinion on "the facts of the case, " which means he cannot rely on facts that the court excluded as inadmissible. FNF argues the reliance on inadmissible documents infects Felton's opinion about NU's claims investigation.

This argument has merit. Felton may not rely on evidence that the Magistrate Judge excluded.

The Court rejects NU's contention that FNF's own experts first interjected Money's investigation. NU highlights Peter Haley's statement that "[i]n October 2008, National Union hired an accountant to review the escrow files in order to assist in quantifying the loss. The request for escrow files and this retention should have been done at least a year earlier, in October 2007." Watnick Decl., Ex. 3 at 4, 5, 18. NU also cites Paul Amoruso's observation that NU hired an "accountant." Watnick Decl. Ex. 4, at 13. Amoruso then criticizes the lack of investigation by the claims adjustor, who was only involved in administrative tasks. Id. at 20 ¶¶ 96-97. The Court concludes that these ungarnished factual statements do not, as NU argues, inappropriately interject Money's activities as an accounting expert into FNF's analysis. The Magistrate Judge issued both Orders before Felton prepared his reports, and NU is obligated to comply with those decisions.

Similarly, NU defends its use of the August 2011 coverage opinion letter because Amoruso (FNF's expert) commented that NU had promised to issue a coverage letter very soon. Watnick Decl. Ex. 4 at 10 ¶ g. Amoruso opines that NU acted in bad faith by waiting so long to issue a coverage opinion. Id. at 11 ("Even if National Union does finally issue a coverage opinion, it would be many years too late."). NU further contends FNF "falsely" asserted in its summary judgment motion that NU "never" issued a coverage determination. According to NU, the Court should not permit FNF to use evidence for its own benefit and then challenge the opponent's response. E.g., Mitchell v. Superior Ct., 37 Cal.3d 591, 609 (1984).

The chronology of events defeats this argument. Felton prepared his expert reports before FNF filed its summary judgment motion and the rebuttal reports were exchanged on the same day. The Court finds nothing in Amoruso's report or the summary judgment motion that would open the door to NU's use of inadmissible evidence. Accordingly, the Court concludes that the experts may not testify about evidence or documents that were excluded by the Magistrate Judge.

2. "Formal Proof of Loss" Opinion Contradicts California Regulation

As noted, Felton wrote a book about fidelity bonds in 1992. There, Felton stated that an insurance company does not have a duty to investigate until the insured submits a "properly executed proof-of-loss form." At his deposition, Felton defended the rule in Employee Dishonesty cases to protect against defamation claims. Depo. at 121-22.

The Court agrees with FNF that Felton's opinion requiring a "formal" proof of loss form contradicts California law. The Insurance Regulations define a "proof of claim" as "[a]ny evidence or documentation... that provides any evidence of the claim and that reasonably supports the magnitude or the amount of the claimed loss." Cal. Code Regs., tit. 10, § 2695.2. Felton agrees that "proof of loss" is the same as "proof of claim." Depo. at 225-26. Had Felton been the claims handler, he would have been bound to follow California's more lenient regulation. Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 318 (7th Cir. 1996) (expert cannot have a double standard for testimony versus professional work). Consequently, FNF correctly notes that Felton's ...


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