Opinion
604411/05.
Decided May 25, 2010.
Philip Nemecek, Esq. and Michael I. Verde, Esq. of Katten, Muchen, Rosenman LLP for Plaintiffs, and David E. Potter, Esq. and Andrew M. Premisler, Esq. of Lazare, Potter Giacovas, LLP for Defendant.
Motion sequence numbers 011 and 012 are consolidated for disposition.
In motion sequence number 011, Defendant M.J. Oppenheim ("Oppenheim") in his quality as Attorney in Fact in Canada, for Lloyd's Underwriters ("Underwriters"), Members of Lloyd's, London, England moves to strike all references to accounting firm Clifton Gunderson LLP's ("Gunderson") statements and documents in the January 12, 2010 Expert Report of Navigant Consulting. Defendant further moves to preclude Plaintiffs Hudson Insurance Company ("Hudson") and Fairfax Financial Holdings Limited ("Fairfax") from presenting any evidence at trial concerning documents or information produced by or on behalf of Gunderson prior to the onset of this litigation.
In motion sequence number 012, Plaintiffs move to strike all references in Defendant's Expert Report of Joseph J. Floyd to Floyd's opinions on the issues of insurance coverage and fraud and to preclude Floyd from testifying or producing any evidence at trial concerning the issues of coverage and fraud.
Background
The facts of this matter are stated in the court's decision filed August 26, 2009 (the "August 2009 Order"), familiarity with which is presumed. The facts will only be discussed here in summary and as necessary for the pending motions.
This action relates to Plaintiffs' claim for insurance coverage under a Financial Institution Bond (the "Bond"), which is part of an insurance policy issued to Fairfax. The Bond was subscribed to severally by certain underwriters at Lloyds, London (the "Underwriters") and certain other domestic, foreign and London Market insurance companies. Hudson seeks indemnification under the Bond for losses allegedly incurred when one of Hudson's agents, D.S. Barkley Insurance Management, Inc. ("Barkley"), misappropriated over $3.5 million in premium payments from a Premium Trust Account that Barkley maintained for Hudson.
In 2004, Plaintiffs filed a related suit against Defendant in Arizona. The Underwriters retained counsel, and that counsel, in turn, hired Gunderson to assist in investigating the claim for insurance coverage. Defendant alleges that Gunderson provided to Plaintiffs documents and information that Gunderson generated during the course of its investigation of coverage. Defendant alleges that both parties agreed that the documents and information Gunderson provided, and the correspondence Gunderson exchanged, were confidential and provided for settlement purposes.
Plaintiffs served its expert report of Navigant Consulting ("Navigant"), Plaintiff's forensic accountant, on January 12, 2010 (the "Navigant Report"). Defendant argues that the Navigant Report improperly refers to statements made and materials provided by or to Gunderson during settlement negotiations.
I.Defendant's Motion to Strike and Preclude Gunderson Materials
Defendant moves to strike all references to Gunderson communications, actions and documents (the "Gunderson materials") in the Navigant Report. Defendant contends that the Gunderson materials were agreed to be for settlement purposes only and that their use is therefore precluded by CPLR § 4547. Defendant further seeks to preclude Plaintiffs from introducing at trial any evidence produced by Gunderson prior to the commencement of the instant suit.
Defendant primarily bases its argument on that portion of CPLR § 4547 which states that "[e]vidence of any conduct or statement made during compromise negotiations shall [] be inadmissible," CPLR § 4547. Defendant argues that § 4547, and applicable case law, hold that documents and communications generated for the purposes of settlement negotiations are inadmissible. On this basis, Defendant contends that the documents and communications generated by Gunderson in the course of its investigation upon insurance coverage were for purposes of the settlement negotiations and are therefore protected from further use.
Plaintiffs oppose Defendant's motion on two grounds. First, Plaintiffs claim that Defendant did not engage in bona fide settlement negotiations. Plaintiffs further claim that because the settlement discussions in the Arizona action did not result in a settlement offer or conclude in settlement, that the Gunderson materials do not fall within the protection afforded by CPLR § 4547.
Plaintiffs' first argument is without merit. CPLR § 4547 does not require settlement negotiations to come to fruition in order to afford the parties protection thereunder. To so hold would be to eviscerate the intent of the section to aid in the free exchange of information for purposes of resolving disputes prior to significant litigation. For similar reasons, the court will not entertain Plaintiffs' contention that Defendant did not attempt to settle the matter in good faith. CPLR § 4547 contains no language that one party must feel confident in the other party's attempts at settlement before protection is levied. The fact that the attempted settlement negotiations broke down is, like Plaintiffs' first argument, without effect.
Second, Plaintiffs argue that the Gunderson materials are discoverable, and therefore subject to permissible use, as the product of an insurance investigation.
CPLR § 4547 provides that "the provisions of this section shall not require the exclusion of any evidence, which is otherwise discoverable, solely because such evidence was presented during the course of compromise negotiations." Plaintiffs contend that the Gunderson materials are products of an investigation to determine whether to accept or reject insurance coverage, and, thus, result from the insurance organization's ordinary course of business. As documents and materials resulting from the ordinary course of business, Plaintiffs contend that the Gunderson materials are discoverable and therefore not afforded protection under CPLR § 4547. The court agrees.
Documents prepared in the ordinary course of an insurance company's investigation to determine whether to accept or reject coverage and to evaluate the extent of a claimant's loss are not privileged, and, therefore, [are] discoverable. In addition, such documents do not become privileged merely because an investigation was conducted by an attorney.
Brooklyn Union Gas Co. v. American Home Assur. Co., 23 AD3d 190, 191 (1st Dep't 2005) (internal quotation and citations omitted).
Plaintiffs have shown that Gunderson aided in investigating the claim of insurance coverage. See Affirmation of Mark A. Welshons in Opposition to Defendant's Motion to Strike ("Welshons Aff."), ¶ 23, Ex. 9 (Deposition Transcript of Jonathan Boyns, July 17, 2007, 29:20-30:7). Defendant itself has admitted that Gunderson's work was an investigation of the insurance claim. See Affirmation of David E. Potter in Support of Motion to Strike and Preclude ("Potter Aff."), ¶ 7. The court thus finds that the Gunderson materials are discoverable documents produced in the ordinary course of the Underwriters' business. Brooklyn Union Gas Co., 23 AD3d at 191; Bertalo's Restaurant Inc. v. Exchange Ins. Co., 240 AD2d 452, 454-55 (2d Dep't 1997). The Gunderson documents and communications are not subject to the protection afforded by CPLR § 4547 merely because they were produced during settlement negotiations. Defendant's motion to strike all references to Gunderson communications and activities in the Navigant Report and to preclude Plaintiffs from introducing at trial any evidence produced by Gunderson prior to the commencement of the prior suit is denied.
II.Plaintiffs' Motion to Strike and Preclude Floyd
Plaintiffs move to strike all references to insurance coverage and fraud by Defendant's expert Joseph J. Floyd in Defendant's Expert Report of Joseph J. Floyd In Response to the Expert Report of Scott E. Evans ("Floyd Report"). Plaintiffs also move to preclude Defendant from introducing testimony or evidence at trial from Floyd concerning the issues of insurance coverage and fraud.
Plaintiffs contend that the Floyd Report improperly makes "sweeping contentions" regarding whether Barkley's actions were fraudulent and whether the loss allegedly caused by Barkley's actions were covered under the Bond here at issue (Memorandum of Law in Support of Plaintiffs' Motion to Strike and Preclude Evidence ["Plaintiff's Moving Memo"], p 4). Plaintiffs argue that the issue of whether evidence of fraud exists and whether coverage exists is not properly within Floyd's purview, but is an issue to be decided by the jury.
Defendant opposes, and argues that Floyd does not opine upon the issue of coverage, but, rather, provides an opinion on the indicia of fraud and accounting found in this matter. Defendant argues that Floyd, as a Certified Fraud Examiner and a Certified Public Accountant, is well-qualified to testify upon these issues and that Floyd's opinions upon the alleged lack of fraud will be helpful to the jury.
As a general rule the admissibility of expert testimony on a particular point is addressed to the discretion of the trial court. The guiding principle is that expert opinion is proper when it would help to clarify an issue calling for professional or technical knowledge, possessed by the expert and beyond the ken of the typical juror. De Long v. Erie County, 60 NY2d 296, 307 (1983) (citations omitted); see Edgewater Apartments, Inc. v. Flynn, 216 AD2d 53, 54 (1st Dep't 1995).
Plaintiffs first argues that the Floyd Expert Report must be purged of any issues regarding insurance coverage. However, Plaintiffs admit that Floyd does not overtly opine upon this issue, but "implicitly offers his legal opinion that there is no coverage for Plaintiffs' claim." Reply Memorandum of Law in Further Support of Plaintiff's Motion to Strike and Preclude Evidence, p. 4. Plaintiffs do not point to any specific instance of Floyd referencing coverage, and, upon reviewing the Floyd Report, the court is likewise unable to find such opinion. Thus, the court holds that the Floyd Expert Report need not be purged of Floyd's opinions regarding coverage. The court further finds that Floyd is not an expert upon insurance coverage, and will not be allowed to testify regarding the specific issue of whether the alleged loss should be covered by the Bond.
Second, the court agrees that it is improper for Floyd to opine in his expert report or at trial as to the ultimate issue of whether fraud occurred. A jury is perfectly capable of determining this issue, and it is the function of the jury to so decide.
Floyd may opine, as he has, regarding his opinion on Barkley's activities. Floyd may testify as to how Barkley's activities compared to accepted accounting and remittance practices. In doing so, Floyd may thus provide a standard against which the jury may judge Barkley's activities. See Federal Deposit Ins. Co. v. St. Paul Fire and Marine Ins. Co., No. 3:95CV847(PCD), 2000 WL 306939 *5 (D. Conn. Feb. 2, 2000). Further, Floyd may state his opinion upon whether fraud occurred. He may not broach the next step, and state that fraud occurred as a matter of law. It is up to the jury to ultimately decide whether fraud occurred. Nevins v. Great Atlantic and Pacific Tea Co., 164 AD2d 807, 807-08 (1st Dep't 1990).
Upon further review of the Floyd Report, the court does not find the redactions to that report proposed by the Plaintiffs warranted. The court finds it clear that the report is Floyd's opinion based on his view of the facts and documents cited therein. The court therefore denies Plaintiffs' motion but for the limitation on Floyd's testimony at trial as stated above.
Accordingly, it is
ORDERED that Defendant's motion (motion sequence number 011) to strike all references to accounting firm Clifton Gunderson LLP's (statements and documents in the January 12, 2010 Expert Report of Navigant Consulting and to preclude Plaintiffs from presenting any evidence at trial concerning documents or information produced by or on behalf of Clifton Gunderson LLP prior to the onset of this litigation is denied; and it is further
ORDERED that Plaintiffs' motion (motion sequence number 012) to strike all references by Joseph J. Floyd in Defendant's Expert Report of Joseph J. Floyd on the issues of insurance coverage and fraud and to preclude Defendant's expert from testifying or producing any evidence at trial concerning the issues of coverage and fraud is denied except to the extent that Floyd is precluded from testifying at trial regarding insurance coverage and to the ultimate conclusion of law as to whether fraud occurred.
This constitutes the decision and order of the court.