Monday, June 12, 2017

US District Court holds that cross-examination is proper remedy for biased experts testifying on behalf of insurer

Morningside operated a bakery inside a commercial condominium unit owned by Amaral Enterprises.  On February 19, 2013, water from a burst pipe allegedly caused a $1.5 million loss at the bakery.  Morningside and Amaral filed a claim with their insurer, Peerless Insurance. That claim proceeded to a reference proceeding, an arbitration required by Mass. Gen. Laws ch. 175 §99, ¶Twelvth in certain property loss claims.

In the meantime, on February 6, 2015 the plaintiffs sued Peerless in federal court, seeking a declaratory judgment that Peerless is obligated to cover the losses, for breach of contract, and for unfair claims settlement practices in breach of Mass. Gen. Laws ch. 93A.

On July 6, 2015, the referees returned an award of about $93,000.  After the award the plaintiffs moved to file a supplemental complaint in the federal court action, alleging additional violations of ch. 93A.  Specifically, the plaintiffs alleged that they were subjected to unfair claims settlement practices because at the reference proceeding Peerless called two witnesses it claimed were experts, but who were neither independent or objective.  One was a certified public accountant who has worked for Peerless and its parent company, Liberty Mutual, her entire career.  The other was a CPA who was in a business partnership with the attorney representing Peerless.

The plaintiffs also alleged that Peerless refused to resolve their claim and engaged in various acts of trickery or deceit, including harassing them with requests for false stipulations which could result in the plaintiffs waiving their claims, and falsely claiming it never received written discovery from the plaintiff.

The plaintiffs also sought a declaration that the reference proceeding statute violates Article 11 of the Declaration of Rights of the Massachusetts Constitution, which guarantees the right "to obtain right and justice freely, and without being obliged to purchase it, completely, and without any denial, promptly, and without delay; conformably to the laws."  I will discuss the "trickery and deceit" allegations and the constitutional argument in future posts.  

In Bearbones, Inc. d/b/a Morningside Bakery v. Peerless Indem. Ins. Co., 2016 WL 5928799 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts addressed the motion of the plaintiffs to amend the complaint.  It held that the proposed supplemental complaint did not set forth sufficient facts to support an inference that Peerless acted in an unfair, fraudulent, or deceptive manner in relation to testimony by its experts.  "There is nothing improper (or even unusual) about a company eliciting testimony from an employee about a transaction or occurrence in issue, including testimony that draws on that employees particular area of expertise, such as accounting."  The court held that the proper remedy for potential bias is cross-examination.  Similarly, an expert may be impeached with respect to his or her financial interests in the case.

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