Opinion
1:23-cv-04942 (AT) (SDA)
08-02-2024
American Empire Surplus Lines Insurance Company, Plaintiff, v. J.R. Contracting & Environmental Consulting, Inc., Defendant.
OPINION AND ORDER
STEWART D. AARON, UNITED STATES MAGISTRATE JUDGE
Pending before the Court is a motion by Plaintiff American Empire Surplus Lines Insurance Company (“AESLIC” or “Plaintiff”), pursuant to Rule 702 of the Federal Rules of Evidence and Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 579 (1993), to exclude the proposed expert opinions of Arthur R. Nelson (“Nelson”) offered in support of Defendant J.R. Contracting & Environmental Consulting, Inc. (“J.R.” or “Defendant”) (hereinafter, the “Daubert Motion”). (Pl.'s 5/22/24 Not. of Daubert Mot., ECF No. 59.)
The Honorable Analisa Torres referred the Daubert Motion to the undersigned as a non-dispositive motion. (Am. Order of Reference, ECF No. 54.) “Because Daubert motions are ‘nondispositive of the litigation,' they are routinely determined by magistrate judges, subject to ‘clear error' review by the district judge.” DoubleLine Cap. LP v. Odebrecht Fin., Ltd., No. 17-CV-04576 (DEH) (BCM), 2024 WL 1115944, at *3 n.4 (S.D.N.Y. Mar. 14, 2024) (quoting Israel v. Springs Indus., Inc., No. 98-CV-05106 (ENV) (RML), 2007 WL 9724896, at *2 (E.D.N.Y. July 30, 2007)) (cleaned up).
For the reasons set forth below, the Daubert Motion is GRANTED IN PART and DENIED IN PART.
BACKGROUND
I. The Parties
AESLIC is an insurance company. (Compl., ECF No. 1, ¶¶ 6-8.) J.R. is an abatement contractor doing business in New York and New Jersey. (O'Connor Decl., ECF No. 60, ¶ 3.) AESLIC issued to J.R. a commercial excess liability policy, bearing Policy No. XSE744014 (the “Policy”), for the period July 23, 2021 to July 23, 2022 (the “Policy Period”), with an aggregate excess limit of $2,000,000.00 with a premium charged to be computed as a percentage of J.R.'s gross receipts during the Policy Period.(Compl. ¶¶ 6-8; O'Connor Decl. ¶ 4; Nelson Exhibits, Ex. A - Policy, ECF No. 60-2, at PDF pp. 3-37.) Based on J.R.'s initial estimate of its gross receipts, AESLIC assigned an advanced premium in the amount of $594,000.00 (the “Advanced Premium”) to the Policy, which was subject to adjustment if an audit completed after the Policy Period reflected that the gross receipts exceeded J.R.'s initial estimate. (O'Connor Decl. ¶ 4; Palatucci Decl. ¶ 5; Policy § 2(B) at PDF p. 11.) J.R. paid the Advanced Premium. (Palatucci Decl. ¶ 5.)
The Policy is excess to an underlying policy of insurance, which was issued by James River Insurance Company (the “Underlying Policy”), which carried, among others, an aggregate policy limit of $4,000,000.00. (Palatucci Decl., ECF No. 66, ¶ 4.)
II. The Policy
The Policy at issue provides coverage in accordance with the following provisions:
We will pay those sums that the insured becomes legally obligated to pay as damages in excess of the total applicable limits of the Underlying Insurance set forth in the Declarations of this Policy, whether such limits are collectible or not. This insurance is subject to the applicable insuring agreements,
exclusions, conditions and terms of the Underlying Insurance, whether such insurance is collectible or not.(Policy § 1(A) at PDF p. 14.) The Policy, in relevant part, includes an absolute exclusion disclaiming any coverage related to claims arising out of any asbestos-related work (id. § 3(A)(1)-(2) at PDF p. 17), and by endorsement, an absolute silica exclusion (id. at PDF p. 28), a lead exclusion (id. at PDF p. 29), an exclusion for loss arising from mold, spores and fungus (id. at PDF p. 30), and a total pollution exclusion. (Id. at PDF p. 31; see also Palatucci Decl. ¶ 6.)
III. The Audit And Its Aftermath
Following the Policy's expiration, AESLIC engaged a forensic accounting firm, Matson Driscoll & Damico LLP (“MDD”), to perform an audit of J.R.'s financial records to determine its actual gross receipts during the Policy Period and issued its findings dated May 22, 2023 (the “Audit”). (Compl. ¶ 10; O'Connor Decl. ¶ 5; Palatucci Decl. ¶ 7; Nelson Exhibits, Ex. B -Audit Workpapers, ECF No. 60-2, at PDF pp. 39-58; Nelson Exhibits, Ex. C - Audit Endorsement, ECF No. 60-2, at PDF p. 60.) MDD considered bank statements, J.R.'s general ledger, employer's quarterly federal tax returns (Form 941), profit and loss statements and U.S. Corporate Income Tax Return for an S Corporation (Form 1120-S). (Audit Workpapers at PDF p. 39.) MDD concluded that J.R.'s gross receipts for the Policy Period were $8,192,315.00, which were $3,692,315.00 over J.R.'s initial estimate, which would result in J.R. owing an additional premium in the amount of $487,386.00 in connection with the Policy (the “Additional Premium”). (Audit Endorsement; Compl. ¶¶ 11-14; O'Connor Decl. ¶ 4; Palatucci Decl. ¶ 8.)
Since the Audit, AESLIC has yet to receive additional payment for the Additional Premium that AESLIC claims is owed. (Compl. ¶ 11-12.)
IV. Procedural History
On June 13, 2023, Plaintiff initiated this action. (See Compl.) In its Complaint, AESLIC seeks to recover from the Additional Premium that AESLIC contends is owed under the Policy. (Id. at PDF p. 6.) On August 22, 2023, the Court entered a Case Management Plan requiring that fact discovery be concluded by December 12, 2023 and expert discovery be concluded by January 26, 2024, and also requiring that the parties meet and confer 30 days prior to the expiration of fact discovery about a schedule for expert disclosures. (Case Mgt. Plan, ECF No. 22, ¶¶ 5, 7.) On November 28, 2023, the discovery deadlines were extended by 45 days. (11/28/23 Mem. End., ECF No. 35.)
On January 29, 2024, AESLIC filed a letter motion seeking to strike, as untimely in accordance with the Case Management Plan in this action, J.R.'s Amended Rule 26 Statement, which named Nelson as someone who may be called at trial and who would author a report, arguing that J.R. failed to timely meet and confer about a schedule for expert disclosures. (Pl.'s 1/29/24 Ltr. Mot., ECF No. 41.) J.R. responded, and asserted that its amended Rule 26 disclosure was premised on discovery of new information and its interpretation of a prior Order that extended the deadline to complete discovery. (Def.'s 1/29/24 Resp., ECF No. 42.) The next day, Judge Torres referred the letter motion to the undersigned, along with general pretrial supervision. (Order of Reference, ECF No. 43.)
On January 31, 2024, the Court denied AESLIC's request to strike J.R.'s amended Rule 26 disclosure. (1/31/24 Order, ECF No. 44.)
V. Nelson Report
On March 29, 2024, Nelson issued his report (the “Nelson Report”). (See generally Nelson Rpt., ECF No. 60-1.) Nelson's scope of work included:
1. Review and analysis of the [Policy], the [Underlying Policy], the Audit and all relevant related documented related to the instant dispute between AESLIC and J.R.;
2. Examination of the Auditor's workpapers and the means and methods employed by MDD in performing [the] same;
3. Application of relevant insurance regulations and standards of practice; [and]
4. Development of opinions related to the proprietary of the Audit and AESLIC's demand for Additional Premium based on, among other things, industry standards and practices, the manner in which the Audit was performed and relevant Policy terms.(Nelson Rpt. at PDF pp. 6-7.)
Based on his review of the Audit, Nelson opines:
I have reviewed the Audit and have concluded based on my more than 30 years' experience, participation in several hundred premium audits, and relevant knowledge in the insurance field that the Audit was not performed in accordance with industry standards and customary practices. Specifically, and as discussed in detail below, it appears the methodology employed by MDD in completing the Audit failed to account for, among other things, certain policy language and exclusions. Importantly, the “rules and rates” purporting to govern any audit performed in accordance with Section 2(B), along with the
term “gross receipts” - which serves as the basis for the entire Audit - are undefined.(Nelson Rpt. at PDF p. 21.) The Nelson Report identified and discussed the multiple problems, in his opinion, with the Audit and offered an alternative, adjusted audit yielding an earned premium of $241,840.00, which is less than the minimum premium of $594,000.00. (Nelson Rpt. at PDF pp. 36-37.)
On April 23, 2024, Nelson was deposed by AESLIC about his report. (Nelson Dep., ECF No. 60-3.)
VI. AESLIC's Daubert Motion
On May 22, 2024, AESLIC filed its Daubert Motion and its supporting papers. (See Daubert Motion; O'Connor Decl.; Pl.'s Mem., ECF No. 62.) On June 5, 2024, J.R. filed its opposition papers. (Palatucci Decl.; Myers Dep.; Def.'s Opp'n Mem., ECF No. 67.) On June 12, 2024, AESLIC filed its reply papers. (O'Connor Reply Decl., ECF No. 68; Pl.'s Reply, ECF No. 69.)
This case is not to be tried to a jury and will proceed by way of a bench trial before Judge Torres.(Case Mgt. Plan ¶ 2.)
Neither party addressed the fact that this case is proceeding by bench trial. (See generally Pl.'s Mem; Def.'s Opp'n Mem.)
LEGAL STANDARDS FOR EXPERT OPINIONS
Rule 702 of the Federal Rules of Civil Procedure, which concerns the admissibility of testimony by expert witnesses, states:
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if the proponent demonstrates to the court that it is more likely than not that:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert's opinion reflects a reliable application of the principles and methods to the facts of the case.Fed. R. Evid. 702. As provided in Rule 702, the proponent of expert testimony must establish admissibility by a preponderance of the evidence. See Bourjaily v. United States, 483 U.S. 171, 175-76 (1987). Nevertheless, Rule 702 “embodies a liberal standard of admissibility for expert opinions.” Nimely v. City of New York, 414 F.3d 381, 395 (2d Cir. 2005).
Rule 702 was amended effective December 1, 2023. “Nothing in the amendment imposes any new, specific procedures.” Fed.R.Evid. 702, Advisory Committee Notes, 2023 Amendments.
“The Rule 702 standard incorporates the principles enunciated in Daubert, 509 U.S. at 589, 597, in which the Supreme Court held that trial courts have a gatekeeping function to ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable, and in Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999), in which the Supreme Court held that Daubert's general gatekeeping obligation applies not only to testimony based on ‘scientific' knowledge, but also to testimony based on ‘technical' and ‘other specialized' knowledge.” Atl. Specialty Ins. v. AE Outfitters Retail Co., 970 F.Supp.2d 278, 284 (S.D.N.Y. 2023) (quoting Kumho Tire Co., 526 U.S. at 141 (citing Fed.R.Evid. 702)) (cleaned up).
“Daubert and its progeny . . . do not apply straightforwardly in the context of bench trials.” 720 Lex. Acquisition LLC v. Guess? Retail, Inc., No. 09-CV-07199 (AJN), 2014 WL 4184691, at *10 (S.D.N.Y. Aug. 22, 2014). In a jury trial, there may be some expert testimony that “is so unreliable that it is more likely to confuse the jury than to assist it,” Joseph S. v. Hogan, No. 06-CV-01042 (BMC) (SMG), 2011 WL 2848330, at *2 (E.D.N.Y. July 15, 2011), or the jury could be “bamboozled by technical evidence of dubious merit.” New York v. Solvent Chem. Co., No. 83-CV-1401C (JTC), 2006 WL 2640647, at *1 (W.D.N.Y. Sept. 14, 2006) (cleaned up). In contrast, where the case is proceeding by bench trial and “the Court is the factfinder, and there is no risk of jury confusion.” Simmons v. Garland, No. 21-CV-01728 (SJB), 2024 WL 1468239, at *3 (E.D.N.Y. Mar. 20, 2024); see also Joseph S., 2011 WL 2848330, at *3 (court may “take in the evidence freely and separate helpful conclusions from ones that are not grounded in reliable methodology.”); Victoria's Secret Stores Brand Mgmt., Inc. v. Sexy Hair Concepts, LLC, No. 07-CV-05804 (GEL), 2009 WL 959775, at *8 n.4 (S.D.N.Y. Apr. 8, 2009) (“In the context of a bench trial, . . . there is no possibility of prejudice, and no need to protect the factfinder from being overawed by ‘expert' analysis.”)
“While standards for admissible evidence are not out the window entirely in a bench trial, all doubts at a bench trial should be resolved in favor of admissibility.” Com. Funding Corp. v. Comprehensive Habilitation Servs., Inc., No. 01-CV-03796 (PKL), 2004 WL 1970144, at *5 (S.D.N.Y. Sept. 3, 2004) (internal quotation marks and citations omitted). “The risk of the admission of irrelevant evidence in a bench trial is that it will prolong the proceedings; the risk of its exclusion is that the Court will court error and make a decision on an incomplete record.” Howard Univ. v. Borders, No. 20-CV-04716 (LJL), 2022 WL 3568477, at *7 (S.D.N.Y. Aug. 17, 2022). Thus, “admission of evidence in a bench trial is rarely ground for reversal, for the trial judge is presumed to be able to exclude improper inferences from his or her own decisional analysis.” BIC Corp. v. Far Eastern Source Corp., 23 Fed.Appx. 36, 39 (2d Cir. 2001).
Often, courts reserve judgment on ruling on Daubert motions, Republic of Turkey v. Christie's Inc., 425 F.Supp.3d 204, 220-21 (S.D.N.Y. 2019), and later “deci[de] after the evidence is presented [at trial to determine] whether it deserves to be credited by meeting the requirements of Daubert and its progeny.” Tiffany (NJ) Inc. v. eBay, Inc., 576 F.Supp.2d 457, 457 n.1 (S.D.N.Y. 2007) (noting “[i]n the context of a bench trial where there is not a concern for juror confusion or potential prejudice, the court has considerable discretion in admitting the proffered testimony” and making any necessary Daubert determinations thereafter).
DISCUSSION
In determining the instant motion regarding Nelson, the Court considers below the following criteria for expert testimony, i.e., Nelson's qualifications as an expert, whether his opinions are based on sufficient facts or data, whether he used reliable principles and methods and whether his opinion is helpful to the trier of fact.
I. Qualifications
A. Parties' Positions
Plaintiff argues that Nelson does not meet Rule 702's requirements to qualify as an expert witness in any of the areas relevant to the analysis of claims in this action, which it avers, in relevant part, include:
1. insurance company claims handling as to the potential applicability of the cited exclusions contained in the insurance policies at issue here;
2. legal analysis of the issues involved in the interpretation of the various cited terms, provisions, and exclusions to the policies;
3. the appropriate inclusion of items as gross receipts in a premium audit done by a forensic accountant on a commercial excess liability policy;
4. coverage issues for New York Labor Law claims involving asbestos abatement contractors doing work in the New York construction market;
5. the excess and surplus lines insurance market in New York;
6. the exclusions to the subject policies for asbestos and professional liability;
7. the interpretation and applicability of the classification limitation endorsement to the commercial general liability policy here; and
8. the applicable standard to be applied in New York and New Jersey as to insurance policy interpretation.(Pl.'s Mem. at 6.) Plaintiff further argues that Nelson lacks the knowledge, skill, experience, training and education to opine in matters presented in the Nelson Report. (Id. at 7-8.)
Defendant opposes and asserts that Nelson was retained “to serve as an expert and opine one, among other things, the proprietary and accuracy of the Audit based on industry standards and customary practices” (Def.'s Opp'n Mem. at 3), and proffers that Nelson (1) is a “seasoned retail insurance broker” with over 30 years of experience in the insurance industry focusing on surety and workers' compensation insurance, (2) has experience reviewing and interpreting insurance policies in the context of post-policy premium audits, and (3) has participated in approximately 600-700 post-policy insurance premium audits over the course of his career. (Id. at 5-6.)
B. Legal Standards
“Rule 702 requires a trial court to make an initial determination as to whether the proposed witness qualifies as an expert.” Baker v. Urban Outfitters, Inc., 254 F.Supp.2d 346, 352 (S.D.N.Y. 2003). “The Second Circuit has interpreted Rule 702 to require that the district court first determine whether a proposed expert is qualified to provide an opinion, before then assessing the reliability and relevance of the expert's proffered testimony.” Lind v. United States, No. 20-CV-00574 (AMN) (DJS), 2024 WL 1345339, at *5 (N.D.N.Y. Mar. 29, 2024) (citing Vale v. United States, 673 Fed.Appx. 114, 116 (2d Cir. 2016); Nimely, 414 F.3d at 396-97).
“To determine whether a witness qualifies as an expert, the court must first ascertain whether the proffered expert has the educational background or training in a relevant field.” Crown Cork & Seal Co., Inc. Master Ret. Tr. v. Credit Suisse First Boston Corp., No. 12-CV-05803 (JLG), 2013 WL 978980, at *2 (S.D.N.Y. Mar. 12, 2013) (citation and internal quotation marks omitted). “Any one of the qualities listed in Rule 702-knowledge, skill, experience, training, or education-may be sufficient to qualify a witness as an expert.” Id. (citing Tiffany, 576 F.Supp.2d at 458). “Even if a proposed expert lacks formal training in a given area, he may still have ‘practical experience' or ‘specialized knowledge' qualifying him to given opinion testimony under Rule 702.” Lickteig v. Cerberus Cap. Mgmt., L.P., 589 F.Supp.3d 302, 328 (S.D.N.Y. 2022) (citation omitted). But “[i]f the witness is relying solely or primarily on experience, then [he] must explain how that experience leads to the conclusion reached, why that experience is a sufficient basis for the opinion, and how that experience is reliably applied to the facts.” Id. at 328-29 (quoting Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 691 F.Supp.2d 448, 473 n.148 (S.D.N.Y. 2010) (quoting Fed.R.Evid. 702 advisory committees note)).
Then, the Court must “compare the area in which the witness has superior knowledge, education, experience, or skill with the subject matter of the proffered testimony.” United States v. Tin Yat Chin, 371 F.3d 31, 40 (2d Cir. 2004) (citing United States v. Diallo, 40 F.3d 32, 34 (2d Cir. 1994)). “If the expert has educational and experiential qualifications in a general field closely related to the subject matter in question, the court will not exclude the testimony solely on the ground that the witness lacks expertise in the specialized areas that are directly pertinent.” In re Zyprexa Prods. Liab. Litig. v. Eli Lilly & Co., 489 F.Supp.2d 230, 282 (E.D.N.Y. 2007) (citation omitted). “Thus, an expert ‘should not be required to satisfy an overly narrow test of his own qualifications,' and the court's focus should be on ‘whether the expert's knowledge of the subject is such that his opinion will likely assist the trier of fact in arriving at the truth.'” Crown Cork, 2013 WL 978980, at *2 (quoting Johnson & Johnson Vision Care, Inc. v. CIBA Vision Corp., No. 04-CV-07369 (LTS) (HBP), 2006 WL 2128785, at *5 (S.D.N.Y. July 28, 2006)). “Assertions that the witness lacks particular educational or other experiential background, go to the weight, not the admissibility, of [the] testimony.” Zyprexa Prods., 489 F.Supp.2d at 282 (cleaned up).
C. Application
The Court finds that Nelson is qualified as an expert (but not as to legal conclusions, see Discussion Section III.C., infra). Nelson graduated Rutgers University in 1981 with a degree in Economics and has since continued his education by way of 440 credits in “insurance disciplines.” (Nelson Rpt. at PDF p. 38.) Nelson's professional experience began in 1981, more than 40 years ago, when he launched his career as an underwriter for an insurance company, after which he was a manager, a licensed producer, and most recently as a licensed principal with Atlantic Surety & Insurance Agency. (Id.) Nelson has been a member of five professional associations: PIA,New Jersey Bond Underwriters Association, American Subcontractors Association, Utility & Transportation Contractors Association and BigI NJ. (Id.)
Nelson supplies “PIA” as a professional association, but does not supply the full name of the organization. The Court presumes that Nelson refers to the National Association of Professional Insurance Agents. See About PIA, Professional Insurance Agents (2024), https://pia.org/about.php [https://perma.cc/5K54-ZESY].
Nelson supplies “BigI NJ” as a professional association, but does not supply any additional information about the organization. BigI N.J. appears to be a local association of the Independent Insurance Agents & Brokers of America based in New Jersey. Who We Are, BigI N.J. (2024), https://www.biginj.org/Connect/Pages/WhoWeAre/default.aspx [https://perma.cc/4ABF-2Q43].
Nelson's self-identified “client services” include: risk transfer analysis; risk management analysis; premium audit preparation; premium audit appeals; obtaining quotes, analyzing coverage and making recommendations to the client; collecting, reviewing and analyzing premium basis sales and payroll information and discussing insurance implications with client management; providing coverage advice to client management on claims activities; reviewing certificates of insurance for compliance with subcontract agreements; and reviewing subcontractor insurance policies and advice management of deficiencies. (Nelson Rpt. at PDF p. 38.) As of February 2024, Nelson had not previously provided testimony in court cases. (Id. at PDF p. 39.)
Nelson testified during his deposition that, over the past 10 years, he estimated assisting on between 600 and 700 audits, and within the last four years where he was the only employee working for his company, estimated working on between 30 and 40 audits. (Nelson Dep. at 26.) Nelson's work with respect to the insurance industry relates to a variety of insurance products, including general liability, workers' compensation, property and insurance bonds. (Id. at 12-14.) His audit work initially encompassed post-audit evaluations, which included reviewing why his clients were charged certain premiums and appeal audits, where necessary. (Id. at 27-29.) Later, as Nelson explains, his same clients started seeking his assistance for pre-audit work to avoid subsequent appeals. (Id. at 12-14.) The specific subject areas of his audits included general liability, workers' compensation, automobile and marina. (Id. at 26.) Nelson's role included estimating what the premium should equal, reviewing the work papers of auditors to check for mistakes that the auditor may have made, and subsequent conferrals with the insurance company to re-open the audit, where applicable. (Id. at 29.) In short, Nelson would “give the insurance company the information they think that [the insurance company] overlooked, and then the insurance company adjusted the audit from there.” (Id. at 29.)
The Court finds that Nelson possesses “a specialized knowledge [that] will help the trier of fact to understand the evidence or to determine a fact,” Fed.R.Evid. 702(a), to serve as an expert in this case with respect to insurance and the general administration and/or consulting on audits with insurance companies. The record reflects that Nelson possesses extensive experience with insurance products and their interaction with audits spanning more than 30 years.(See Nelson Rpt. at PDF p. 38; see generally Nelson Dep.) Thus, particularly given the “liberal view” taken by the Second Circuit “of the qualification requirements of Rule 702,” In re Rezulin Prods. Liab. Litig., 309 F.Supp.2d 531, 559 (S.D.N.Y. 2004), Defendant has established Nelson is qualified to render appropriate opinions for the purpose for which he was retained, i.e., the “propriety and accuracy of the Audit based on industry standards and customary practices.” (See Def.'s Opp'n Mem. at 3.)
While Plaintiff argues that experience alone is not sufficient for Nelson to serve as an expert in this action (Pl.'s Mem. at 4-13), Plaintiff itself in a different case previously relied on an expert with a similar background. See Am. Empire Surplus Lines Ins. Co. v. B&B Iron Works Corp., No. 18-CV-06384 (WFK) (ST), 2022 WL 4085732, at *3 n.1 (E.D.N.Y. Aug. 19, 2022) (court finding expert met Daubert standard who opined on accuracy of an audit at issue, and who worked in insurance industry since 1970, finding that “his analysis of the audit is reliably based upon that experience”), report & recommendation adopted, 2022 WL 4079590 (E.D.N.Y. Sept. 6, 2022); see also Expert Decl., E.D.N.Y. No. 18-CV-06384, ECF No. 4612.
II. Existence Of Sufficient Facts Or Data And Reliable Principles And Methods
A. Parties' Positions
Plaintiff argues that Nelson's opinions are not based upon sufficient facts or data, are not well-grounded and are purely speculative. (Pl.'s Mem. at 13-14.) Defendant opposes on the ground that Nelson relied on personal experience of his trade and used reliable principles and methods for his opinions. (See Def.'s Opp'n Mem. at 15-19.)
B. Legal Standards
In determining the reliability of an expert's testimony or report, courts should consider “the indicia of reliability identified in Rule 702, namely, (1) that the testimony is grounded on sufficient facts or data; (2) that the testimony is the product of reliable principles and methods; and (3) that the witness has applied the principles and methods reliably to the facts of the case.” Amorgianos v. Nat'l R.R. Passenger Corp., 303 F.3d 256, 265 (2d Cir. 2002) (citing Fed.R.Evid. 702). Often, this is reflected by means of a technical theory that has been tested, subject to peer review and publication, has a known or potential rate of error with some controlling standards and is generally accepted in the scientific community. See id. at 266. However, these factors do not constitute a “definitive checklist or test.” Kumho Tire Co., 526 U.S. at 150. “[T]he inquiry is a flexible one and must be ‘tied to the facts of a particular case' with attention to ‘the nature of the issue, the expert's particular expertise, and the subject of his testimony.'” Conn. Gen. Life Ins. Co. v. BioHealth Lab., Inc., No. 19-CV-01324 (JCH), 2024 WL 2106557, at *2 (D. Conn. Mar. 28, 2024) (quoting Kumho Tire Co., 526 U.S. at 150).
“There is no separate Rule 702 issue stemming from the fact that ‘the relevant reliability concerns focus upon personal knowledge or experience.'” Nicholas v. Bratton, 376 F.Supp.3d 232, 290 (S.D.N.Y. 2019) (quoting Kumho Tire Co., 526 U.S. at 150). “[C]ourts recognize that experts of all kinds tie observations to conclusions through the use of what Judge Learned Hand called general truths derived from . . . specialized experience.” Id. (cleaned up). A proffered expert recounting his experience concerning the use of terms in the industry is “testable” under Daubert “in the sense that industry practice is provable (or disprovable) by equivalent testimony by experienced participants in the industry.” Seneca Ins. Co. v. Wilcock, No. 01-CV-07620 (MHD), 2007 WL 415141, at *9 (S.D.N.Y. Feb. 5, 2007). The proffered expert's “methodology employed [must be] rooted in the experts' practical experience.” Mahoney v. JJ. Weiser & Co., Inc., No. 04-CV-02592 (VM) (HBP), 2007 WL 3143710, at *6 (S.D.N.Y. Oct. 25, 2007) (citing Crowley v. Chait, 322 F.Supp.2d 530, 539 (D.N.J. 2004)); see also SR Int'l Bus. Ins. Co., Ltd. v. World Trade Ctrs. Props., LLC, 467 F.3d 107, 132-34 (2d Cir. 2006) (holding district court acted within its discretion to permit expert to testify on custom and practice in property insurance industry).
C. Application
The Court finds that Nelson's opinions, as permitted herein, are based upon sufficient facts and reliable principles and methods drawn from his background, including a wealth of practical-based, relevant experience. Nelson demonstrated that he reached his conclusions based on his experience. See Mahoney, 2007 WL 3143710, at *6. He did so. (See, e.g., Nelson Dep. at 17 (confirming experience working for insurance companies), 47 (confirming experience with contractors involved in New York construction market), 97-98 (explaining understanding of “gross receipts” based on experience).) Nelson confirmed as much during his deposition:
Q [Counsel for AESLIC]: . . . Sir, is your expert report and the conclusion reached therein based on your 30-plus years['] experience in the insurance industry as set forth in the [curricula vitae] attached to your report?
A [Nelson]: It is, yes.
Q [Counsel for AESLIC]: And did you use and rely on that experience in creating this [Nelson Report]?
A [Nelson]: I did.(Nelson Dep. at 112-13.)
Plaintiff argues that Nelson's prior experience does not align with the facts of this case, noting that Nelson “admittedly never worked in evaluating coverage for claims made under commercial general liability policies in New York, for an abatement contractor, involving the potential applicability of the exclusions to the Policy.” (Pl.'s Mem. at 28.) This argument is misplaced. “[Q]uibble[s]” with Nelson's experience on the specific issues in this case are “properly explored on cross-examination and [go] to his testimony's weight and credibility-not its admissibility.” See McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1043 (2d Cir. 1995).
Based on the foregoing, that “the test of reliability is ‘flexible,'” Kumho Tire, 526 U.S. at 141, and that there will be a bench trial in this case, and taking into account the “liberal standard of admissibility for expert opinions” under Rule 702, Nimely, 414 F.3d at 395, the Court finds that Nelson's opinions, as permitted herein, are based upon sufficient facts and reflect a reliable application of reliable principles and methods to the facts of the case.
III. Helpful To The Trier Of Fact
A. Parties' Positions
Plaintiff maintains that Nelson's knowledge would not help the trier of fact and moves to strike any of Nelson's opinions regarding legal issues or conclusions. (Pl.'s Mem. at 7-13, 29-31.) In response, Defendant argues that Nelson's opinions will be helpful and that they “do not render an ‘legal interpretation' or a ‘legal conclusion' as [Plaintiff] suggests.” (See Def.'s Opp'n Mem. at 10, 20.)
B. Legal Standards
The third step in the Court's analysis under Rule 702 is to assess whether an expert's knowledge more likely than not will “help the trier of fact to understand the evidence or to determine a fact in issue.” Fed.R.Evid. 702; see also Scott v. Chipotle Mexican Grill, Inc., 315 F.R.D. 33, 43 (S.D.N.Y. 2016) (quoting S.E.C. v. Tourre, 950 F.Supp.3d 666, 674 (S.D.N.Y. 2013). “To be admissible, a district court must conclude that proposed testimony will assist the trier of fact.” Lickteig, 589 F.Supp.3d at 329 (citing In re Rezulin Prods. Liab. Litig., 309 F.Supp.2d at 540). Rule 702's requirement that the proffered testimony assist the trier of fact “goes primarily to relevance” because if it “does not relate to any issue in the case[,] it is not relevant and, ergo, non-helpful.” Daubert, 509 U.S. at 591 (internal quotation marks and citations omitted). The Second Circuit has instructed “trial court[s] [to] look to the standards of Rule 401 [of the Federal Rules of Evidence] in analyzing whether proffered expert testimony is relevant.” Amorgianos, 303 F.3d at 265. Rule 401 of the Federal Rules of Evidence defines evidence as “relevant” if “(a) it has any tendency to make a fact more or less probably than it would be without the evidence; and (b) the fact is of consequence in determining the action.” Fed.R.Evid. 401(a)-(b).
“In deciding whether expert testimony will be helpful to the fact-finder, the Court must determine whether the testimony ‘usurp[s] either the role of the trial judge . . . or the role of the [fact-finder] in applying that law to the facts before it.” Scott, 315 F.R.D. at 48 (quoting United States v. Lumpkin, 192 F.3d 280, 289 (2d Cir. 1999)).
By attempting to opine on questions of law, the expert is not considered helpful to the trier of fact because “an expert is . . . barred from giving ‘testimony on issues of law.'” Navigators Ins. Co. v. Goyard, 608 F.Supp.3d 44, 48 (S.D.N.Y. 2022) (quoting United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991)); see also Scott, 315 F.R.D. at 48 (quoting Highland Cap. Mgmt. L.P. v. Schneider, 379 F.Supp.2d 461, 470 (S.D.N.Y 2005)) (“courts exclude expert testimony that provides legal opinions, legal conclusions, or interprets legal terms; those roles fall solely within the province of the court.”) (cleaned up). “The rule prohibiting experts from providing their legal opinions or conclusions is ‘so well-established that it is often deemed a basic premise or assumption of the evidence law - a kind of axiomatic principle.'” In re Initial Pub. Offering Sec. Litig., 174 F.Supp.2d 61, 64 (S.D.N.Y. 2001) (quoting Thomas Baker, The Impropriety of Expert Witness Testimony on the Law, 40 U. Kan. L. Rev. 325, 352 (1992)); accord Dooley v. United States, 577 F.Supp.3d 229, 232-34 (S.D.N.Y. 2021).
C. Application
Having found that Nelson possesses the qualifications to serve as an expert in this case and that he employed reliable principles and methods under Rule 702 (see Discussion Sections I-II, supra), and having considered the content of the Nelson Report, the Court finds it is more likely than not that Nelson, at the very least, will help Judge Torres to understand the evidence and perhaps will help Judge Torres to determine a fact in issue; however, Nelson should not be permitted to testify regarding legal conclusions, and the legal conclusions that are set forth in the Nelson Report must be excluded, for the reasons explained below.
“‘Insurance policies are, in essence, creatures of contract, and, accordingly, subject to principles of contract interpretation.'” Starr Indem. & Liab. Co. v. Excelsior Ins. Co., 516 F.Supp.3d 337, 345 (S.D.N.Y. 2021) (quoting Porco v. Lexington Ins. Co., 679 F.Supp.2d 432, 435 (S.D.N.Y. 2009)) (cleaned up). The “interpretation of an insurance agreement is a question of law,” High Point Design, LLC v. LM Ins. Corp., 911 F.3d 89, 93 (2d Cir. 2018), as to which expert testimony is not permitted. See Marx & Co., Inc. v. Diners' Club, Inc., 550 F.2d 505, 510 (2d Cir. 1977); see also Navigators Ins. Co., 608 F.Supp.3d at 48-49 (striking expert report because “the interpretation of an insurance policy is itself a ‘question of law,' even if [the expert] did not cite to the legal principles that necessarily govern any interpretation of the provisions of an insurance policy”); Thor Equities, LLC v. Factory Mut. Ins. Co., 627 F.Supp.3d 330, 342 (S.D.N.Y. 2022) (precluding expert's “conclusions as to what the policy covers” as “not admissible” after expert opined throughout report what policy covered); Liberty Media Corp. v. Vivendi Universal, S.A., 874 F.Supp.2d 169, 178 (S.D.N.Y. 2012) (question of contract interpretation is for factfinder rather than experts); Am. Nat'l Fire Insur. Co. v. Mirasco, 265 F.Supp.2d 240, 252 (S.D.N.Y. 2003) (excluding testimony regarding “the nature, scope and coverage contemplated by” insurance policy because such testimony “impermissibly invade[d] the province of the trier of fact”).
While Rule 704 of the Rules of Evidence provides that “[a]n opinion is not objectionable just because it embraces an ultimate issue,” the Second Circuit has held that Rule 704 “was not intended to allow experts to offer opinions embodying legal conclusions.” United States v. Scop, 846 F.2d 135, 139 (2d Cir. 1988), rev'd in part on other grounds, 856 F.2d 5 (2d Cir. 1988). “In other words, Rule 704 does not alter the rule that opinions which merely tell the [factfinder] what result to reach are impermissible.” Actors Fed. Credit Union v. CUMIS Ins. Soc., Inc., No. 11-CV-02129 (AJN), 2012 WL 13070024, at *2 (S.D.N.Y. Sept. 18, 2012). Any expert opinions or testimony on legal questions or conclusions should be stricken. See Highland Cap., 379 F.Supp.2d at 470 (quoting Roundout Valley Cent. Sch. Dist. v. Coneco Corp., 321 F.Supp.2d 469, 480 (N.D.N.Y.2004)) (expert may not “provide legal opinions, legal conclusions, or interpret legal terms; those roles fall solely within the province of the court”).
Here, portions of the Nelson Report and related deposition testimony improperly reach legal conclusions. For example, the Nelson Report contains legal conclusions regarding interpretation of policy language, including the following:
• Discussion of New York courts', New Jersey courts' and industry's interpretation of “arising out of” language and comment on why Plaintiff chose to use such language (Nelson Rpt. at PDF p. 13);
• “Coverage Analysis Conclusion” finding that the “insurance coverage scheme . . . provides extremely limited and inadequate coverage for
the operations of [J.R.]” and commenting on the instances of limited coverage (id. at PDF p. 14); and
• Discussion of how “[a]ny liability” will be interpreted. (Id. at PDF p. 26.) Similarly, Nelson's deposition testimony reflects legal conclusions, including the following:
• In response to the question “After everything given in your report, it's your opinion that most of J.R.'s work and projects would not be covered under the [Underlying] policy[,]” Nelson answered “Absolutely.” (Nelson Dep. at 107); and
• In response to the question “What else in your view should have been deducted from the receipts[,] Nelson answered “Those things that are not covered. For instance, general construction is not covered, total demolition. (Id. at 103).
The Nelson Report also contains reference to “Expert Commentary” consulted by the insurance industry, which cites a case from the Tenth Circuit Court of Appeals. (Nelson Rpt. at PDF p. 12.)
This case is analogous to American Home Assurance Co. v. Merck & Co., 462 F.Supp.2d 435 (S.D.N.Y. 2006). In American Home, an expert's report “proffer[ed] his readings of [three insurance policy clauses].” Id. at 448. The court determined that the expert report “clearly impinge[d] upon the province of the Court, in so far as [the expert] essentially proffer[ed] his own version of contract[] interpretation.” Id. The court stated: “Although claiming that he cannot ‘speak to the legal interpretation,' his opinion [was] in fact precisely that, despite [the expert's] attempt to frame his interpretation as merely ‘a matter of claim adjusting practice.'” Id.
Here, Nelson provides his interpretation of the Policy, which is impermissible. In opposition to Plaintiff's motion to exclude, Defendant argues that Nelson's opinions are based upon his experience in the insurance industry, as well as “standard customs and practices in the insurance industry.” (Def.'s Opp'n Mem. at 20.) “Even if [an expert's] testimony is couched in terms of industry practices, the expert still may not, under any circumstances, opine on the ultimate legal issue in the case.” Media Sport & Arts s.r.l. v. Kinney Shoe Corp., No. 95-CV-03901 (PKL), 1999 WL 946354, at *3 (S.D.N.Y. Oct. 19, 1999) (citing Bilzerian, 926 F.2d at 1295).
In sum, although Nelson shall not be permitted to testify about his interpretation of the Policy, and any other legal conclusions, the Court finds that it is more likely than not that Nelson is qualified to serve as an expert, that his opinions are based on sufficient facts, that he applied reliable principles and methods and that his opinions will help Judge Torres to understand the evidence. Thus, Nelson may provide testimony about the insurance industry and audits, and may provide his opinion regarding premiums due under the Policy based upon a hypothetical set of facts. See Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996) (expert testimony may be premised upon assumptions and contentions challenging those assumptions shall be assessed on their weight, not admissibility); see also AU New Haven, LLC v. YKK Corp., No. 15-CV-03411 (GHW) (SN), 2019 WL 1254763, at *17 (S.D.N.Y. Mar. 19, 2019) (permitting expert opinion premised on hypothetical license to contrast against license at issue, leaving plaintiffs free to challenge that client would not have agreed to proposed terms); Utica Mut. Ins. Co. v. Fireman's Fund Ins. Co., 238 F.Supp.3d 314, 343 (N.D.N.Y. 2017) (where testimony is not based on “unrealistic assumptions[,]” criticisms go to the weight of the evidence and counsel “is free to present those challenges through cross-examination and introduction of its own expert witness”). Because Judge Torres will serve as the factfinder, there is no risk of jury confusion and she will be in the best position to assess what weight, if any, to give to Nelson's testimony in those areas that do not impinge on the province of the Court.
CONCLUSION
For the foregoing reasons, the Daubert Motion is GRANTED IN PART and DENIED IN PART.