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Essex Insurance Co. v. The Structural Shop, Ltd.

United States District Court, N.D. Illinois, Eastern Division

May 22, 2017

ESSEX INSURANCE COMPANY, Plaintiff,
v.
THE STRUCTURAL SHOP, LTD., and BLUE MOON LOFTS CONDOMINIUM ASSOCIATION, Defendants.

          MEMORANDUM OPINION AND ORDER

          John Z. Lee United States District Judge

         In September 2002, Blue Moon Lofts Condominium Association (“Blue Moon”) sued The Structural Shop, Ltd. (“TSS”) and others in the Circuit Court of Cook County for damages related to allegedly defective condominium improvements. Blue Moon eventually obtained a default judgment against TSS. And TSS's insurer, Essex Insurance Company (“Essex”), refused to indemnify TSS for the judgment. Blue Moon then settled its claims against TSS, and in doing so, received an assignment of TSS's rights in its insurance policy with Essex.

         Essex initiated this action against TSS and Blue Moon, seeking a declaratory judgment that it has no duty to indemnify TSS for the Cook County default judgment. In turn, Blue Moon has asserted a counterclaim for a declaratory judgment to the contrary and has asserted a number of affirmative defenses, including that Essex should be estopped from denying coverage, that Essex waived its right to assert coverage defenses, and that its refusal to settle Blue Moon's case against TSS constituted bad faith. In support of its affirmative defenses, Blue Moon has proffered the expert testimony of Olie R. Jolstad. In response, Essex has provided its own expert, William T. Cormack.

         Each side has moved to bar the other's expert, and for the reasons that follow, the motions [123] [131] are granted in part and denied in part.

         Legal Standard

         The admissibility of expert testimony is governed by Federal Rule of Evidence (FRE) 702 and the Supreme Court's seminal decision in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). See United States v. Parra, 402 F.3d 752, 758 (7th Cir. 2005) (“At this point, Rule 702 has superseded Daubert, but the standard of review that was established for Daubert challenges is still appropriate.”). FRE 702 permits testimony by an expert-i.e., someone with the requisite “knowledge, skill, experience, training, or education”-to help the trier of fact “understand the evidence or [ ] determine a fact in issue.” Fed.R.Evid. 702. An expert witness is permitted to testify when (1) “the testimony is based on sufficient facts or data, ” (2) “the testimony is the product of reliable principles and methods, ” and (3) the expert “has reliably applied the principles and methods to the facts of the case.” Id.

         Daubert tasks the district court with serving as the evidentiary gatekeeper, ensuring that FRE 702's requirements of reliability and relevance are satisfied before allowing the finder of fact to hear the testimony of a proffered expert. See Daubert, 509 U.S. at 589; see also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147- 49 (1999). District courts have broad discretion in determining the admissibility of expert testimony. See Gen. Elec. Co. v. Joiner, 522 U.S. 136, 142 (1997); Lapsley v. Xtek, Inc., 689 F.3d 802, 810 (7th Cir. 2012).

         In deciding whether to admit expert testimony, district courts employ a three-part framework, ascertaining whether: (1) the expert is qualified by knowledge, skill, experience, training, or education; (2) the reasoning or methodology underlying the expert's testimony is reliable; and (3) the expert's testimony will assist the trier of fact in understanding the evidence or determining a factual issue. See Bielskis v. Louisville Ladder, Inc., 663 F.3d 887, 893-94 (7th Cir. 2011). The proponent of the expert bears the burden of demonstrating that the expert's testimony satisfies the Daubert standard by a preponderance of the evidence. Lewis v. CITGO Petroleum Corp., 561 F.3d 698, 705 (7th Cir. 2009).

         Additionally, while “[a]n opinion is not objectionable just because it embraces an ultimate issue, ” Fed.R.Evid. 704, expert opinions that “merely tell the jury what result to reach” are inadmissible, id. 1972 advisory committee notes. Moreover, “Rule 704 . . . does not provide that witnesses' opinions as to the legal implications of conduct are admissible.” United States v. Baskes, 649 F.2d 471, 479 (7th Cir. 1980); see also Haley v. Gross, 86 F.3d 630, 645 (7th Cir. 1996) (suggesting that it would be “improper[]” for an expert witness to “tell[] the jury why the defendants' conduct was illegal” or “testify regarding the dictates of [the] law”). Accordingly, “expert testimony as to legal conclusions that will determine the outcome of the case is inadmissible.” Good Shepherd Manor Found., Inc. v. City of Momence, 323 F.3d 557, 564 (7th Cir. 2003). Experts “cannot testify about legal issues on which the judge will instruct the jury.” United States v. Sinclair, 74 F.3d 753, 758 n.1 (7th Cir. 1996).

         Analysis

         I. Olie R. Jolstad

         Essex seeks to exclude the testimony of Blue Moon's expert, Olie R. Jolstad. Blue Moon proffers Jolstad's testimony as “permissible opinions on the insurance industry standards involved in the underlying matter.” Blue Moon's Resp. Essex's Mot. Bar 2, ECF No. 127. Specifically, Jolstad's report contains three opinions: (1) “Essex failed to promptly and thoroughly investigate the claim/underlying lawsuit”; (2) “Essex knew, or should have known, consistent with industry custom and practice that it needed to promptly issue a reservation of rights (ROR), and/or file a declaratory action. It's [sic] failure to do so caused prejudice to TSS”; (3) “Essex engaged in unfair claims handling practices and/or breached its duty by failing to settle or negotiate a settlement of the case, and/or to advise its insured of the risk and consequences of not settling the case. This unreasonable delay and conduct was prejudicial to TSS.” Essex's Mem. Supp. Mot. Bar, Ex. A (“Jolstad Report”), at 9, 13, 16, ECF No. 124-1. Jolstad supports these general opinions with additional opinion testimony, as discussed in greater detail below.

         Essex seeks to bar all of Jolstad's testimony, arguing in pertinent part that “[t]he proffered opinions usurp this Court's role in deciding the legal standards which govern this case, and, should this matter proceed to trial, would usurp the jury's role in deciding the ultimate legal and factual questions.” Id. at 3. For its part, Blue Moon counters that Jolstad's opinions “are not legal opinions, nor do they provide conclusions on the ultimate issues, ” but instead discuss relevant customs, practices, and standards in the insurance industry. Blue Moon's Resp. Essex's Mot. Bar at 2.

         Having reviewed Jolstad's report, the Court concludes that his testimony consists of some of both. Accordingly, while the Court will not permit Jolstad to testify as to the law that governs this case or the legal implications of Essex's conduct, it will permit Jolstad to testify as to customs, practices, and standards in the insurance industry and whether Essex's conduct met those standards. Fed. Ins. Co. v. Arthur Andersen, LLP, No. 1:03CV01174, 2006 WL 6555232, at *3 (N.D. Ill. Jan. 18, 2006) (explaining that “[e]vidence relating to the insurance industry's custom and practice of claims handling” is relevant and helpful to the jury, but barring testimony “as to the ultimate issues of whether [an insurer] breached its duty”); see also Kearney v. Auto-Owners Ins. ...


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