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American Automobile Insurance Co. v. First Mercury Insurance Co.

United States District Court, D. New Mexico

September 30, 2017

AMERICAN AUTOMOBILE INSURANCE COMPANY, Plaintiff,
v.
FIRST MERCURY INSURANCE COMPANY; STANDARD E & S, LLC; ZIA TRANSPORT, INC.; BERGSTEIN ENTERPRISES, LTD., Defendants.

          MEMORANDUM OPINION AND ORDER

          M. CHRISTINA ARMIJO CHIEF UNITED STATES DISTRICT JUDGE

         THIS MATTER is before the Court on AAIC's Motion to Exclude Expert Testimony [Doc. 114] and First Mercury's Motion to Exclude Expert Testimony [Doc. 118]. The Court has considered the parties' submissions and the relevant law, and is otherwise fully informed. For the following reasons, the Court GRANTS in part and DENIES in part both Motions, and sets forth the permissible parameters of the experts' testimony.

         I. Background

         The details of the underlying action and insurance policies at issue are described more fully in this Court's rulings on the parties' cross motions for summary judgment. In March, 2010, Kevin Udy was killed in an accident in which his pickup truck collided with a trailer being hauled by a tractor driven by Monte Lyons. Lyons was an employee of Standard E & S, LLC (Standard) and the tractor and trailer were owned by Zia Transport, Inc. (Zia). A year later, the personal representative of Udy's estate, along with Udy's wife and eight children, filed a wrongful death action against Lyons, Standard, and Zia (the Udy Action). The plaintiffs also named Defendant Bergstein Enterprises, Ltd (Bergstein), the management company for Standard and Zia, as a defendant in the Udy Action. [Doc. 117-1 (Udy Action Complaint)]

         Three insurance policies are at issue. Two were issued by AAIC and one by First Mercury. First, the AAIC Standard Policy had a limit of $1 million and covered Standard as a named insured. Second, the First Mercury Policy was an excess policy and had a limit of $4 million. The AAIC Standard Policy was named as “underlying insurance” to the First Mercury Standard Policy. Third, the AAIC Bergstein Policy had a limit of $1 million and covered Bergstein as a named insured.

         Although the parties disagree as to whether AAIC properly tendered the policy limits on the AAIC Standard Policy to First Mercury, they agree that First Mercury took the lead in settlement negotiations with the Udy plaintiffs. [Doc. 116, ¶¶ 18-19, 21 (asserting that AAIC tendered its limits on the AAIC Standard Policy to First Mercury and that First Mercury “took control” of the negotiations); Doc. 131, ¶¶ 18-21 (disputing that AAIC properly tendered its limits but agreeing that First Mercury “took over the primary role” in negotiations); Doc. 116-2, Exh. H & I, pgs. 25-27] During the negotiations, First Mercury offered the Udy plaintiffs the $1 million available under the AAIC Standard Policy, but did not offer the entire $4 million available under the First Mercury Standard Policy. [Doc. 116, ¶ 27 (asserting these facts); Doc. 131, ¶ 27 (not disputing these facts); Doc. 116-2, Exh. J, pg. 29; Doc. 116-6, Exh. 133, pg. 20] No funds from the AAIC Bergstein Policy were offered during negotiations. [Doc. 131, pg. 11, ¶ Y (stating that AAIC offered the Bergstein Policy limit after the verdict); Doc. 138, pg. 6, ¶ Y (not disputing this assertion); Doc. 131-9]

         After a jury trial, judgment was entered against Standard, Zia, and Bergstein for a total of $58 million, including $30, 300, 000 against Standard and $22, 050, 000 against Bergstein. [Doc. 116, ¶ 29 (asserting these facts); Doc. 131, ¶ 29 (not disputing these facts); Doc. 116-3, Exhs. 1-2] The case was then settled for $43 million, which was paid as follows: $1 million by AAIC pursuant to the AAIC Standard Policy; $4 million by First Mercury pursuant to the First Mercury Standard Policy; $1 million by AAIC pursuant to the AAIC Bergstein Policy; $4 million by Commerce and Industry pursuant to an excess policy to the AAIC Bergstein Policy, which is not at issue here; and $33 million by First Mercury and its liability insurers. [Doc. 116, ¶ 30 (asserting these facts); Doc. 131, ¶ 30 (not disputing these facts)]

         AAIC filed a Complaint for Declaratory Judgment, Bad Faith, and Equitable Subrogation against First Mercury, Standard, Zia, and Bergstein, as well as the Udy plaintiffs. [Doc. 1] The Complaint alleged that First Mercury breached its duty of good faith and fair dealing by failing to settle with the Udy plaintiffs within policy limits, and that AAIC is entitled to equitable subrogation and declaratory relief. [Doc. 4] In its suit, AAIC seeks $1 million, which represents the amount of the AAIC Bergstein Policy that AAIC paid as a result of First Mercury's failure to settle the Udy Action within the limits of the AAIC Standard Policy and First Mercury Standard Policy. [Doc. 4, ¶¶ 30-32] In the First Amended Complaint for Declaratory Judgment, Bad Faith, and Equitable Subrogation (First Amended Complaint), AAIC dismissed the Udy plaintiffs, leaving First Mercury, Standard, Zia, and Bergstein as defendants. [Doc. 4] Standard, Zia, and Bergstein were then dismissed from the suit for failure to state a claim against them. [Doc. 33] Thus, First Mercury is the only remaining defendant. [Id.]

         First Mercury answered the First Amended Complaint and counterclaimed against AAIC, alleging that AAIC acted in bad faith by, inter alia, failing to notify First Mercury of the AAIC Bergstein Policy. [Doc. 13] First Mercury maintains that, if AAIC had disclosed the AAIC Bergstein Policy earlier in the negotiations, “the Udy Action likely would have settled prior to trial within policy limits.” [Doc. 13, ¶ 25] First Mercury seeks equitable and punitive damages. [Doc. 13, ¶¶ 28, 32] Both parties now move to exclude the other's expert witness. [Doc. 114, 118]

         II. Rule 702 and Expert Testimony

         Rule 702 imposes a special gatekeeping obligation on this Court to ensure that expert testimony is not admitted at trial unless it is both relevant and reliable. See Kumho Tire Co., Ltd v. Carmichael, 526 U.S. 137, 141 (1999); Daubert v. Merrell-Dow Pharm., Inc., 509 U.S. 579, 592-93 (1993). The relevance of such testimony also must be weighed against “the danger of unfair prejudice, confusion of the issues, or misleading the jury” as well as “considerations of undue delay, waste of time, or needless presentation of cumulative evidence.” Fed.R.Evid. 403.

         The Federal Rules of Evidence provide that:

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 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 (2000).

         “A two-part test applies to determine admissibility. First, the district court must determine “whether the expert is qualified ‘by knowledge, skill, experience, training, or education' to render an opinion.” Conroy v. Vilsack, 707 F.3d 1163, 1168 (10th Cir. 2013) (internal quotation marks and citation omitted); see Fed. R. Evid. 702). Second, the court “must satisfy itself that the proposed expert testimony is both reliable and relevant, in that it will assist the trier of fact, before permitting a jury to assess such testimony.” Id. (internal quotation marks and citation omitted).

         While the Court is not required to consider any particular set of factors or utilize a particular procedure in making such determinations with respect to expert testimony, the Court must make some kind of determination on the record in order to demonstrate that it has performed its gatekeeping function. See United States v. Velarde, 214 F.3d 1204, 1209 (10th Cir. 2000); Goebel v. Denver & Rio Grande W. R.R. Co., 215 F.3d 1083, 1088 (10th Cir. 2000). “The proponent of expert testimony bears the burden ...


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