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Modern Automotive Network, LLC v. Eastern Alliance Insurance Co.

United States District Court, M.D. North Carolina

September 23, 2019

MODERN AUTOMOTIVE NETWORK, LLC Plaintiff,
v.
EASTERN ALLIANCE INSURANCE COMPANY d/b/a EASTERN ALLIANCE INSURANCE GROUP, EASTERN ADVANTAGE ASSURANCE COMPANY, d/b/a EASTERN ALLIANCE INSURANCE GROUP, and ALLIED EASTERN INDEMNITY COMPANY d/b/a EASTERN ALLIANCE INSURANCE GROUP Defendants.

          MEMORANDUM OPINION AND ORDER

          LORETTA C. BIGGS, UNITED STATES DISTRICT JUDGE

         Before the Court are Defendants’ Motion for Summary Judgment, (ECF No. 32), Plaintiff’s Motion to Strike, (ECF No. 35), and Defendants’ Motion in Limine, (ECF No. 49). For the reasons stated below, the Court will grant Defendants’ motion for summary judgment and motion in limine; and will grant in part and deny in part Plaintiff’s motion to strike.

         I. BACKGROUND

         This action arises out of an insurance dispute between Plaintiff, Modern Automotive Network, LLC (“Modern”) and Defendants, Eastern Alliance Insurance Company (“EAIC”), Eastern Advantage Assurance Company (“EAAC”), and Allied Eastern Indemnity Company (“AEIC”), each individually and collectively d/b/a Eastern Alliance Insurance Group (“Eastern”). Modern obtained a workers’ compensation insurance policy (the “Policy”) from EAIC for the period from January 1, 2015 to January 1, 2016. (ECF No. 4-1 at 2.) Under the Policy, EAIC had the “right and duty to defend” any claim against Modern that is covered by the Policy. (Id. at 8.) EAIC also had “the right to investigate and settle these claims, proceedings or suits.” (Id.) The Policy had a $250, 000 deductible for each claim, and a yearly aggregate deductible of $425, 000. (Id. at 24.) The parties also entered into a Deductible Reimbursement and Security Agreement (“Deductible Agreement”), which set out the terms by which Eastern would pay for the claims and Modern would reimburse Eastern for the deductible amount. (See ECF No. 4-2.) Modern’s claims in this lawsuit arise out of Eastern’s handling of three workers’ compensation claims: “Mr. G, ” “Mr. H, ” and “Mr. S.” (See ECF No. 4.)

         Because all final settlements of any workers’ compensation claims must be approved by the North Carolina Industrial Commission, [1] Eastern hired a North Carolina law firm, McAngus Goudelock & Courie (“McAngus”), to draft the settlement agreement for Mr. H’s claim and to obtain approval from the Industrial Commission for the settlement of that claim. (See ECF No. 33-2 ¶ 3.) Eastern also engaged McAngus to handle some portion of Mr. S’s claim.[2] (See ECF No. 39-3 at 17, 24.) After the settlements for these claims had been finalized, Modern, on September 30, 2016, asked McAngus to provide it copies of the file for Mr. H’s claim, (ECF No. 39-4 at 20), and later requested copies of Mr. S’s file, (ECF No. 39 at 20–21; ECF No. 39-4 at 5). Modern also requested that Eastern provide its files on all three claims. (ECF No. 39-4 at 21.) The files appear to have been provided to Modern sometime between January 12, 2017 and March 3, 2017. (See Id . (Modern requesting all three files) and id. at 22 (McAngus providing Mr. H’s file to Modern pursuant to a subpoena).)

         Defendants now move for summary judgment on all of Plaintiff’s claims which include state law claims of breach of contract, negligent claims handling, and unfair and deceptive trade practices. (See ECF No. 32 at 1–2.) Because Plaintiff has moved to strike certain evidence from consideration by this Court in resolving the summary judgment motions, the Court will first address Plaintiff’s motion to strike. See Jarrell-Henderson v. Liberty Mut. Fire Ins. Co., No. 2:07cv432, 2009 WL 347801, at *6 (E.D. Va. Feb. 10, 2009) (“Preliminarily, the court must decide Plaintiff’s motion to strike the affidavit of [a witness], offered in support of [Defendant’s] response to Plaintiff’s motion for summary judgment.”).

         II. PLAINTIFF’S MOTION TO STRIKE

         Plaintiff’s motion to strike seeks to have this Court strike the declarations of Thomas A. French, (ECF No. 33-1), and Jack S. Holmes, (ECF No. 33-2). (ECF No. 35.)

         A. Declaration of Thomas A. French

         Thomas A. French is a Pennsylvania attorney who represented Eastern in connection with this matter. (ECF No. 36 at 3; ECF No. 33-1 ¶¶ 2, 5.) Modern argues that the Court should strike Mr. French’s declaration which was submitted as part of Eastern’s summary judgment filings because he was not listed on Eastern’s initial disclosure of potential witnesses, pursuant to Federal Rule of Civil Procedure 26(a)(1), and because he was listed as one of Eastern’s counsel of record at the time his declaration was filed. (ECF No. 36 at 3–6.) Eastern responds that the Court should consider French’s declaration because Modern knew that French was “mentioned by name in its Complaint, ” and further knew that “he had information relevant and material to the lawsuit.” (ECF No. 43-2 at 2.) In addition, Eastern also argues that French’s tardy withdrawal as counsel of record was a “good faith mistake.” (Id. at 3.)

         When a party “fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence . . . at a trial, unless the failure was substantially justified or is harmless.” Fed.R.Civ.P. 37(c)(1). Rule 37(c)(1) provides trial courts wide discretion to remedy violations of Rule 26(a) or Rule 26(e). See Id . In exercising its “broad discretion, ” a trial court may determine whether a party’s violation of Rule 26(a) was “substantially justified or harmless” by considering:

(1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party’s explanation for its failure to disclose the evidence.

S. States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 597 (4th Cir. 2003).

         Considering the factors outlined by the Fourth Circuit, Eastern’s failure to list Mr. French as a potential witness does not appear to be “substantially justified or harmless.” See S. States, 318 F.3d at 597. Modern’s claim that it was surprised when Mr. French’s declaration was submitted as a part of Eastern’s summary judgment filings, (ECF No. 36 at 4), was reasonable since French at the time of the filing remained counsel of record and as such could not, consistent with Rules of Professional Conduct, also serve as a witness in the case.[3] See N.C. Rules of Prof'l Conduct 3.7(a) (attorneys are not allowed to serve as witnesses in a trial in which they are also an advocate). Further, when Modern reached out to Eastern’s counsel in September 2018-weeks before Mr. French submitted his declaration-to determine whether Eastern intended to call French as a witness, Eastern failed to respond. (ECF No. 35-4 at 2, 5.) Modern has thus shown that it was substantially surprised when Eastern filed the French declaration while he remained counsel of record. In addition, Modern has shown that it was harmed by Eastern’s failure to comply with Rule 26, which caused it to lose the opportunity to depose Mr. French. (See ECF No. 46 at 1–2.) Further, Eastern’s “explanation for its failure to disclose” Mr. French as a potential witness in its Rule 26 disclosures is not persuasive. See S. States, 318 F.3d at 597; (see ECF No. 43 at 2–3). Nor can this Court conclude that Mr. French remaining as counsel of record until after the declaration was filed, was merely a “good faith mistake.” (See ECF No. 43 at 3.)

         This Court, having determined that Modern has demonstrated that Eastern’s violation of Rule 26(a) in this instance was neither justified nor harmless will, in its discretion, strike the declaration of Thomas A. French, (ECF No. 33-1).

         B. Declaration of Jack S. Holmes

         Modern next argues that the Court should strike the declaration of Jack Holmes, (ECF No. 33-2). (ECF No. 35 at 1.) Mr. Holmes was an attorney at McAngus who handled Mr. H’s claim before the Industrial Commission. (ECF No. 33-2 ¶¶ 2–3.) Although Mr. Holmes was listed in both parties’ initial disclosures of potential witnesses, (ECF No. 35-3 at 4; ECF No. 43 at 3), Modern argues that Mr. Holmes, in his declaration, provided expert testimony, which was not disclosed. (ECF No. 36 at 10–11.) Eastern argues in response that Mr. Holmes’s testimony was not expert testimony because it was “based on his personal experience and involvement with Mr. H’s claim.” (ECF No. 43 at 4.)

         Federal Rule of Evidence 702 governs testimony by expert witnesses that is based on “scientific, technical, or other specialized knowledge.” Fed.R.Evid. 702(a). Rule 701, however, allows a lay witness to give opinion testimony that is “rationally based on the witness’s perception” and helpful to determining a fact in issue, so long as it is not based on the same “scientific, technical, or other specialized knowledge” covered by Rule 702. Fed.R.Evid. 701. “And while the line between the two . . . can be ‘a fine one, ’ the key to Rule 701 lay opinion testimony is that it must arise from the personal knowledge or firsthand perception of the witness.” Lord & Taylor, LLC v. White Flint, L.P., 849 F.3d 567, 575 (4th Cir. 2017) (quoting United States v. Perkins, 470 F.3d 150, 155 (4th Cir. 2006)). For example, in MCI Telecommunications Corp. v. Wanzer, the Fourth Circuit held that a bookkeeper should be allowed to testify regarding a projection of profits that she prepared “predicated on her personal knowledge and perception.” 897 F.2d 703, 706 (4th Cir. 1990); see also Bluiett v. Pierre M. Sprey, Inc., No. AW-05-1244, 2009 WL 10685350, at *4 (D. Md. Jan. 27, 2009) (“[W]itnesses with technical or other specialized knowledge can provide testimony under Rule 701 under circumstances where the testimony is directly related to the factual matter before the Court and not based on expertise.”).

         Mr. Holmes, in his declaration, stated that he reviewed Mr. H’s file, including his medical records and other materials sent by Mr. Berger, Eastern’s adjuster, for the purpose of preparing his filing for the Industrial Commission. (ECF No. 33-2 ¶¶ 4–6.) He also recounts his “experience of more than 30 years practicing worker’s compensation law, ” in which he had “seen mutually-agreed to settlements by unrepresented claimants, ” such as Mr. H, rejected by the Industrial Commission. (Id. ¶ 7.) Mr. Holmes then states that, after reviewing Mr. H’s file in conjunction with his work before the Industrial Commission, he “did not think that a $200, 000 settlement for Mr. H’s claim was unreasonable.” (Id. ¶ 8.) Mr. Holmes continues by stating what actions he would have taken if he thought the settlement was unreasonably low or too high. (Id. ¶¶ 9–10.)

         Mr. Holmes only testifies as to his opinions that were formed as part of his handling of Mr. H’s case before the Industrial Commission, because it is “part of [his] job to review the file and identify any issues” regarding the reasonability of the settlement. (ECF No. 33-2 ¶ 6.) Therefore, Mr. Holmes’s declaration testimony is based on his “personal knowledge and perception” of his experience in handling Mr. H’s case. See MCI Telecomms., 897 F.2d at 706. Because Mr. Holmes’s declaration offers lay witness opinion testimony pursuant to Rule 701, Eastern did not err by not designating him as an “expert” on their initial Rule 26 disclosures. See Indem. Ins. Co. of N. Am. v. Am. Eurocopter LLC, 227 F.R.D. 421, 423 n.2 (M.D. N.C. 2005) (“The failure to identify a witness as an expert does not preclude the witness from testifying as a lay witness.”). Accordingly, the Court will not strike the declaration of Jack Holmes.

         Modern’s motion to strike is therefore granted in part, as it relates to the declaration of Thomas French, (ECF No. 33-1), and denied in part, as it relates to the declaration of Jack Holmes, (ECF No. 33-2).

         III. EASTERN’S MOTION IN LIMINE[4]

         Eastern moves to exclude the testimony and report of William Senter, Modern’s expert witness regarding the handling of Mr. H’s claim, arguing that his report and testimony “are insufficiently reliable and are based on improper methodologies, ipse dixit, personal opinions, and the selective application of facts to the exclusion of contrary facts.” (ECF No. 49 at 1– 2.) Modern asserts that Mr. Senter is “phenomenally qualified” and that Eastern’s arguments regarding Mr. Senter’s reliability are more appropriate for cross-examination. (ECF No. 57 at 2–3, 11.)

         Federal Rule of Evidence 702 requires the trial judge to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993). This “gatekeeping” obligation applies to all expert testimony under Rule 702, and not just the scientific testimony at issue in Daubert. See Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 148 (1999). The judge’s evaluation of whether expert testimony is admissible under Rule 702 is “a flexible one, ” and the judge is given “broad discretion” in the determination of whether an expert’s testimony is reliable. See Oglesby v. Gen. Motors Corp., 190 F.3d 244, 250 (4th Cir. 1999); see also Kumho Tire, 526 U.S. at 152. “The proponent of the testimony must establish its admissibility by a preponderance of proof.” Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001) (citing Daubert, 509 U.S. at 592 n.10).

         “[W]here an expert relies on his experience and training and not a particular methodology to reach his conclusions, application of the Daubert analysis is unwarranted.” Freeman v. Case Corp., 118 F.3d 1011, 1016 n. 6 (4th Cir. 1997) (internal quotation marks and brackets omitted); see also Kumho Tire, 526 U.S. at 141 (“Daubert’s list of specific factors neither necessarily nor exclusively applies to all experts or in every case.”). “Experiential expert testimony . . . does not rely on anything like a scientific method” and thus its admissibility is not tied necessarily to its scientific testability. United States v. Wilson, 484 F.3d 267, 274 (4th Cir. 2007) (internal quotation marks omitted). When addressing an expert whose methodology is grounded in experience, courts use three factors: “1) how the expert’s experience leads to the conclusion reached; 2) why that experience is a sufficient basis for the opinion; and 3) how that experience is reliably applied to the facts of the case.” SAS Inst., Inc. v. World Programming Ltd., 125 F.Supp. 3d 579, 589 (E.D. N.C. 2015); see also Wilson, 484 F.3d at 274.

         William Senter is an attorney whose “primary areas of practice include plaintiff’s workers’ compensation, personal injury, mediations, and arbitration.” (ECF No. 50-1 at 2.) Mr. Senter has practiced law in North Carolina since 1975 and has “mediated in excess of 5, 000 cases as a plaintiff’s attorney or a mediator, ” with a majority of those cases being workers’ compensation cases. (Id.) He has represented “[p]robably” more than a hundred plaintiffs who had spine and neck injuries. (ECF No. 33-4 at 13.) Mr. Senter has not, however, “ever filed or defended an insurance bad faith case” and does not claim to be an expert in insurance claims handling. (Id. at 9.) He also does not claim to be an expert in “medical cost projecting.” (See Id . at 7–8.)

         Mr. Senter’s report offers opinions, according to Modern, “solely related to claim valuation and the Industrial Commission’s approval process.” (ECF No. 57 at 3–4.) The report states Mr. Senter’s opinion is that “[a] reasonable settlement range for Mr. H’s claim was between $75, 000 to $125, 000.” (ECF No. 50-1 at 1.) The report further reasons that Mr. Berger’s[5] initial estimate of Eastern’s “total exposure at $414, 470.50 was unrealistically high” and that “Mr. Berger’s settlement strategy was not designed to obtain the lowest settlement.” (Id.) The report concludes by stating that the “Industrial Commission rarely denies the approval of a submitted [settlement]” and that “[t]here [is] no harm to a future settlement in a case if the [Industrial Commission] rejects the initial propose[d] [settlement].” (Id.)

         Eastern argues that Mr. Senter’s report and testimony should be excluded “[b]ased on [his] lack of experience or knowledge about the handling of pro se claims, lack of experience in evaluating or forecasting medical costs, ” as well as his admissions that he is not an expert in insurance claims handling, medical forecasting, or insurance bad faith. (ECF No. 60 at 2-3.) This Court agrees.

         While Mr. Senter makes it clear that he is not an expert on insurance claims handling, much of his discussion concerning Eastern’s valuation of Mr. H’s claim involves many of the nuances of claims handling. (Id. at 3.) In explaining his conclusion that Mr. Berger’s valuation of Mr. H’s claim was too high, Mr. Senter suggests, among other opinions, that: (1) Mr. Berger should have looked into Mr. H’s prior medical history or pre-existing conditions to see whether the claim was compensable, or attributable to his on-the-job injury, (ECF No. 33-4 at 24–26); (2) Mr. H’s intention not to get the recommended spinal surgery right away should have lowered the settlement amount, (id. at 35–36); (3) Mr. H appeared motivated to settle the case, which could have led to a lower settlement amount, (id. at 39–40); and (4) Eastern should have “doctor shopped” to find a medical opinion that Mr. H’s surgery was not needed, (id. at 45–46). Mr. Senter’s opinions on Mr. H’s claim valuation seem to be inextricably tied to his opinions regarding the reasonableness of how Eastern handled Mr. H’s claim.[6] It is therefore unclear “how [Mr. Senter’s] experience le[d] to [certain] conclusion[s] reached” in light of his lack of experience in insurance claim handling. See SAS Inst., 125 F.Supp. 3d at 589.

         Eastern also argues that Mr. Senter’s experience cannot be reliably applied to the facts in this case because Mr. Senter lacks any experience dealing with pro se claimants before the Industrial Commission. (See ECF No. 60 at 2–3.) Mr. H’s pro se status is important, Eastern argues, because “the standards the Industrial Commission . . . applies to settlements, the timeline of settlement offers, the length of successful settlement negotiations, and other key factors are significantly altered in relation to pro se claimants acting without the safeguards of legal representation.” (Id. at 3.) In his deposition, Mr. Senter testified as to his lack of experience with pro se claimants:

Q. In your experience-well you wouldn’t have any experience representing pro se plaintiffs because they would have a lawyer.
But as a mediator have you ever mediated cases with pro se workers?
A. I have.
Q. And did ultimately the Commission approve the ...

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