National Union Fire Insurance Company OF Pittsburgh, PA. v. Porter Hayden Company (2014)

Our plain-English summary of National Union Fire Insurance Company OF Pittsburgh, PA. v. Porter Hayden Company (U.S. Bankruptcy Court, District of Maryland, March 31, 2014).

National Union Fire Insurance Company and American Home Assurance Company, excess insurers of Porter Hayden Company, were in a coverage dispute with Porter Hayden in bankruptcy court. The dispute concerned asbestos claims resolved by the Porter Hayden Bodily Injury Trust. No individual claimant's disease or exposure was described. The insurers offered two experts. Dr. Brown would have said the Trust paid many claims from people with no physical impairment and that its screening was unreliable. Dr. Mullin would have compared the Trust's claim values with what Porter Hayden had paid in the tort system, and allocated loss to the excess policies. Porter Hayden asked the court to exclude both. The court excluded Brown. He used what he called "essentially logic," reviewed no claims, could not identify a single improperly paid claim, and gave testimony a lay witness could give. The court excluded only the part of Mullin's testimony that applied the insurers' reading of Maryland's horizontal exhaustion rule, which the court had rejected earlier. It allowed his comparison of the Trust's values with historical tort payments. It held that Porter Hayden's bias objections went to weight, not admissibility.

We wrote this summary from the court's opinion with the help of AI. It is not the court's wording, and it is not legal advice. The full opinion is below.

The decision

• Court: U.S. Bankruptcy Court, District of Maryland
• Decided: March 31, 2014
• Stage: Discovery or evidence ruling
• State: Maryland

Outcome. The court granted Porter Hayden's motion to exclude the insurers' expert Brown, and granted in part and denied in part its motion to exclude the insurers' expert Mullin, excluding only his testimony on loss allocable to the excess policies.

What the court held. Expert testimony is excluded under Rule 702 when it rests on 'logic' and experience without reliable methodology or sufficient facts, or when it applies a legal rule the court has rejected. Challenges based on bias or data limits go to weight, not admissibility.

Issues decided: Expert Testimony, Insurance Coverage, Asbestos Trust Claims in Court.

The defendants

• Porter Hayden Company
• National Union Fire Insurance Company of Pittsburgh, Pa. (insurer)
• American Home Assurance Company (insurer)

Decisions this opinion cites

Earlier decisions in our library that the court cited:

• In re Armstrong World Industries, Inc. (U.S. District Court, District of Delaware, 2006). The district court overruled the Unsecured Creditors' Committee's unfair-discrimination objection and found $3.1 billion a reasonable estimate of Armstrong's asbestos personal injury liability, so the plan did not unfairly discriminate against unsecured creditors, a result favoring the debtor and asbestos claimants.
• In re Federal-Mogul Global, Inc. (U.S. District Court, District of Delaware, 2005). The court estimated Turner & Newall's pending and future asbestos personal injury and death liability at $9 billion in the United States and £229 million in the United Kingdom, largely adopting the asbestos claimants' expert over the Property Damage Committee's expert.

The court's opinion

The text below is Google Scholar's copy of the court's opinion, a public record. Numbers in brackets, such as [*921], mark where each page of the printed reporter begins.

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., etal.,

v.

PORTER HAYDEN COMPANY, etal.

Civil Nos. CCB-03-3408, CCB-03-3414.

March 31, 2014.

United States Bankruptcy Court, D. Maryland.

MEMORANDUM

CATHERINE C. BLAKE, Bankruptcy Judge.

Now pending before the court are two motions to exclude expert testimony filed by Porter Hayden Company ("Porter Hayden"). National Union Fire Insurance Company of Pittsburgh, Pa. and American Home Assurance Company (collectively, "the Insurers") offer as evidence the purported expert opinions of Dr. Michael A. Brown ("Brown") and Dr. Charles H. Mullin ("Mullin"). Brown intends to testify that: (1) the Porter Hayden Bodily Injury Trust ("the Trust") has resolved "unimpaired non-malignant claims," or claims from individuals without physical impairment,[1] that are not compensable in the tort system;[2] and (2) the Trust's screening procedures are unreliable, as it has likely paid claimants despite insufficient evidence of asbestos exposure. (See Brown's Rep., ECF No. 341-1, at 6-7.) Mullin intends to testify as to (1) how the Trust's valuation of claims compares to "historical" amounts paid by Porter Hayden in the tort system and (2) the loss allocable to Porter Hayden's excess insurance policies, which were issued by the Insurers. (See Mullin's Rep., ECF No. 347-1, at 7-8; see also Jan. 2, 2014, Mem., ECF No. 367, at 1-2 & n.1 (describing the difference between "primary" and "excess" insurance and explaining that Porter Hayden's coverage program included both primary and excess liability insurance).) The issues in this case have been fully briefed, and oral argument was held on November 20, 2013. For the reasons stated below, the court will grant Porter Hayden's motion to exclude the expert testimony of Brown, and will grant in part and deny in part the motion to exclude the expert testimony of Mullin.

ANALYSIS

Rule 702 of the Federal Rules of Evidence, which governs the admissibility of expert testimony, 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: (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 has reliably applied the principles and methods to the facts of the case.

The party seeking to introduce expert testimony has the burden of establishing its admissibility by a preponderance of the evidence. Daubert v. Merrell Dow Pharm., 509 U.S. 579, 592 n.10 (1993). A district court is afforded "great deference. . . to admit or exclude expert testimony under Daubert." TFWS, Inc. v. Schaefer, 325 F.3d 234, 240 (4th Cir. 2003) (citations and internal quotation marks omitted); see also Daubert, 509 U.S. at 592-95 ("The inquiry envisioned by Rule 702 is. . . a flexible one. . . ."). "In applying Daubert, a court evaluates the methodology or reasoning that the proffered scientific or technical expert uses to reach his conclusion; the court does not evaluate the conclusion itself," Schaefer, 325 F.3d at 240, although "conclusions and methodology are not entirely distinct from one another." General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997). In essence, the court acts as gatekeeper, only admitting expert testimony where the underlying methodology satisfies a two-pronged test for (1) reliability and (2) relevance. See Daubert, 509 U.S. at 589. A. Motion to Exclude Brown's Testimony

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. v. PORTER HAYDEN COMPANY, Bankr. Court, D. Maryl…

Porter Hayden argues that Brown's testimony must be excluded because: (1) he is not qualified; (2) even if he were qualified, he is unable to identify any claims that were not properly reviewed or should not have been paid by the Trust; and (3) he is unable to identify the methodology used to evaluate the Trust's procedures. The court need not delve into Brown's qualifications, as it determines his testimony is not based on reliable methodology or sufficient facts and does not constitute "scientific, technical, or other specialized knowledge" under Rule 702(a).[3] His testimony, in short, would not be helpful to the trier of fact.

The court agrees with Porter Hayden that, in reaching his conclusions, Brown did not use reliable methodology or sufficient facts. When asked to describe the "standards" used to determine the Trust's procedures are unreliable, Brown simply stated that he used "[e]ssentially logic." (See Dep. of Brown, ECF No. 341-2, at 47:14-17.) Indeed, although he concludes that the Trust's screening procedures are unreliable, he does not identify any claims that should not have been approved. Moreover, his report does not monetize the impact of the Trust's alleged failure to use reliable procedures. (Id. at 170:23-171:10.) Brown also admitted that, in determining the Trust has paid "thousands" of unimpaired nonmalignant claims, (Brown's Rep. at 6), he did not use quantitative analysis. (See Dep. of Brown, ECF No. 341-2, at 76:18-24.) Indeed, he did not review any Level I claims paid by the Trust, despite the fact that he had access to this information through the claims database. (Id. at 76:25-77:21; see also Dep. of Brown, ECF No. 352-1, at 81:3-82:3.)[4] Brown cannot identify a single Level I claim paid by the Trust that qualifies as an unimpaired nonmalignant claim. (Dep. of Brown, ECF No. 341-2, at 88:23-89:3.) Rather than describe the basis for his conclusions, Brown made sweeping statements regarding his confidence and experience. For example, when asked how he could determine the "majority" of Level I claims were from individuals without physical impairment, if he cannot make that determination as to any individual claim, Brown answered, "I suppose I am drawing in part on my experience." (Id. at 89:4-9.) He also stated, "I know the vast majority of [Level I] claims would be unimpaired nonmalignant claims by any reasonable definition." (Dep. of Brown, ECF No. 352-1, at 81:25-82:3; see also id. at 81:9-12 ("I would be extremely confident that the vast majority of claims in Category 1 . . . would not be considered impaired under any reasonable definition.").) The court cannot admit Brown's testimony based on his unsupported statement that he is relying on his "experience" when he has not established what that experience is and how it would assist him to form his opinion. Nor is Brown's confidence in his testimony a proper basis for admitting it. See Joiner, 522 U.S. at 146 (reasoning that the court need not accept the ipse dixit of the expert in deciding whether his testimony is admissible). His testimony, lacking proper support, amounts to mere speculation.

Moreover, Brown's testimony does not reflect "scientific, technical, or other specialized knowledge," as required by Rule 702(a). The Fourth Circuit has explained that expert testimony may be appropriate when, for example, it elucidates complicated evidence. See United States v. Benkahla, 530 F.3d 300, 309-10 (4th Cir. 2008). "Expert" testimony is not necessary, however, when facts are "common knowledge" or may be easily understood by the trier of fact. See Persinger v. Norfolk & Western Ry. Co., 920 F.2d 1185, 1188 (4th Cir. 1990).

Although the Insurers offer Brown's testimony for his expertise in statistical analysis, his report does not discuss statistical analysis, and he did not conduct such an analysis in concluding that thousands of claims presented to the Trust were noncompensable and that the Trust's procedures are unreliable. During the November 20, 2013, motions hearing, the Insurers clarified that Brown's testimony is meant to provide context for the Trust's system of evaluating and resolving claims.[5] But this testimony does not present any facts beyond the comprehension of the trier of fact. Rather, Brown provides an explanation that could be made by calling a nonexpert, fact witness. Indeed, there are other witnesses the Insurers may call to explain the Trust's procedures, such as Trustee T. Dennis Feeley. The court, therefore, does not find an expert is necessary. Porter Hayden's motion to exclude Brown's testimony will be granted.

B. Motion to Exclude Mullin's Testimony

According to Porter Hayden, Mullin's testimony must be excluded because: (1) his opinions relate to topics not relevant under Maryland law; (2) his testimony on unimpaired claims is based on Brown's inadmissible testimony; (3) his methodology is not reliable and cannot be tested or duplicated; (4) his methodology is biased and ignores certain factors; and (5) the Insurers cannot challenge the reasonableness of the Trust's settlement values.[6] While Porter Hayden's first argument provides a basis for excluding part of Mullin's testimony, none of the other arguments justify excluding the remainder of the testimony.

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. v. PORTER HAYDEN COMPANY, Bankr. Court, D. Maryl…

As an initial matter, the court agrees with Porter Hayden that, to the extent that Mullin relies on the Insurers' interpretation of the horizontal exhaustion rule[7] to decide the loss allocable to Porter Hayden's excess insurance policies, his testimony must be excluded. In its January 2, 2014, opinion, the court set forth its understanding of the horizontal exhaustion rule and, in so doing, rejected the Insurers' interpretation of the rule. (See ECF No. 367 at 5-6.) Mullin's report does not apply the horizontal exhaustion rule as explained in the court's January 2, 2014, opinion. Instead, it clearly applies the Insurers' interpretation in concluding that Porter Hayden probably cannot access its excess insurance. (See Mullin's Rep. at 8, 24-25 (suggesting that, because operations claims are not subject to an aggregate limit under Porter Hayden's primary insurance policy, excess insurance may never become available); see also Dep. of Mullin, ECF No. 343-3, at 13:9-14 (stating that Mullin relied on counsel for the Insurers for "the proper interpretation of Maryland law" and that he "executed the allocations [among primary and excess coverage] under that interpretation").) Accordingly, Mullin's testimony regarding the loss allocable to Porter Hayden's excess insurance policies will be excluded.

The court does not agree that Mullin's testimony on Level I unimpaired claims is based on Brown's inadmissible testimony. Although he does mention that Brown came to a similar conclusion, (see Mullin's Rep. at 9), Mullin does not rely on this conclusion but rather conducts an independent examination of the tort history of unimpaired claims and the percentage of those claims that have moved from the inactive docket to the active docket. The court will not exclude Mullin's testimony on Level I claims.

The court finds Mullin's methodology in comparing the Trust's valuation of claims to "historical" amounts paid by Porter Hayden in the tort system reliable. Mullin's report details the amounts Porter Hayden paid in the tort system for various types of asbestos claims, and then quite simply compares those amounts to the Trust's settlement values for those kinds of claims. Mullin's methodology is replicable; indeed, Porter Hayden submitted a rebuttal report from expert Christopher P. Makuc, in which he included charts recreating Mullin's valuation of the Trust's settlements. (Makuc's Rep., ECF No. 347-3, at 3.) Mullin's testimony regarding how the Trust's valuation of claims compares to amounts paid in the tort system will be admitted.

Finally, Porter Hayden's claim that Mullin's testimony is biased does not warrant the exclusion of his testimony. Porter Hayden argues that (1) Mullin ignored defense costs incurred in the tort system and (2) relied on a limited data sample in comparing the Trust's valuation of claims with tort settlements. Those arguments, although appropriate fodder for cross-examination, do not change the court's earlier conclusion that Mullin's methodology is reliable under Rule 702(c). See Daubert, 509 U.S. at 596; see also Synergetics, Inc. v. Hurst, 477 F.3d 949, 956 (8th Cir. 2007) (explaining that, "[s]o long as the methods employed are scientifically valid, . . . mere disagreement with the assumptions and methodology used does not warrant exclusion of expert testimony"). In other words, those arguments go only to the weight of Mullin's testimony, not its admissibility. See Mack v. AmerisourceBergen Drug Corp., 671 F. Supp. 2d 706, 712 (D. Md. 2009) (suggesting that bias may undermine the weight given—rather than the admissibility of—expert testimony). Thus, in sum, Porter Hayden's motion to exclude Mullin's testimony will be granted in part—as to his testimony regarding the loss allocable to Porter Hayden's excess insurance policies—and otherwise denied.

CONCLUSION

For the reasons stated above, Porter Hayden's motion to exclude Brown's testimony will be granted, and the motion to exclude Mullin's testimony will be granted in part and denied in part. A separate order follows.

[1] The Trust resolves asbestos claims against Porter Hayden pursuant to Trust Distribution Procedures ("TDP"), which use the following categories of claims: "Bilateral Asbestos-Related Non-Malignant Disease (Level I), Disabling Severe Asbestosis (Level II), Other Cancer (Level III), Lung Cancer (Level IV)[,] and Mesothelioma (Level V)." (Insurers' Corrected Mot. for Summ. J., ECF No. 345, at 8.) Brown asserts that Level I claims are mostly comprised of unimpaired nonmalignant claims. (See, e.g., Dep. of Brown, ECF No. 352-1, at 81:9-12.) [2] Brown explains that unimpaired nonmalignant claims are not compensable in the tort system because those claims are placed on the inactive docket and do not move to the active docket unless there is evidence of physical impairment.

[3] The court notes, however, that Brown has no medical experience, and so he is unable to determine whether any particular claimant is physically impaired. (See Dep. of Brown, ECF No. 341-2, at 73:6-16, 88:23-89:9.) Moreover, Brown has never been qualified as an expert witness in court. (See id. at 30:25-31:3.)

[4] The court agrees with Porter Hayden that the fact that Brown is opining about claims already paid and had access to the claims database makes this case entirely different from the two Delaware bankruptcy cases cited by the Insurers. See In re Armstrong World NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. v. PORTER HAYDEN COMPANY, Bankr. Court, D. Maryl…

Indus., 348 B.R. 111 (D. Del. 2006); In re Federal-Mogul Global, Inc., 330 B.R. 133 (D. Del. 2005). The experts in Armstrong and Federal-Mogul determined potential liability for pending and future asbestos claims, and so they had to estimate the number and value of those claims. Armstrong, 348 B.R. at 125-32; Federal-Mogul, 330 B.R. at 157-65. Here, by contrast, Brown did not need to estimate the number of different kinds of claims resolved by the Trust, as he had access to this information through the database. [5] The Insurers also stated at the motions hearing that Brown's testimony is meant "to compare the claims that Porter Hayden was paying in the tort system to the claims that are being paid now by the Trust." (See Nov. 20, 2013, Hr'g Tr. at 74:11-13.) But this comparison is made by Mullin, whose testimony, to the extent explained below, will be admitted. Accordingly, Brown's testimony on comparable tort claims is not necessary.

[6] The court need not respond to this fifth argument, which was rejected in another of its opinions.

[7] The horizontal exhaustion rule refers to Maryland law governing the allocation of liability among primary and excess liability insurers. See Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 145 Md. App. 256, 314-16, 802 A.2d 1070, 1104-05 (2002). NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. v. PORTER HAYDEN COMPANY, Bankr. Court, D. Maryl…

Sources

• The opinion on Google Scholar
• Maryland asbestos laws
• Maryland asbestos exposure sites