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 Fire Expert Selection
Claims Magazine: September 2006
Effective selection and use of fire experts…Introduction A wise person once said, “If you continue to do things the same way—don’t expect different results.” For many years now, insurers have been the target of “bad faith” legal actions where awards have been made for significant amounts of damages, including “punitive damages” for sums of money reaching into the tens of millions of dollars. Insurers have struggled at times with how to defend themselves against these types of claims. Perhaps it is time to shift paradigms and consider instead—“How do we show we acted in good faith in order to proactively address the potential for bad faith claims?” In this article we will outline some recent changes in corporate financial governance. We will discuss the changing dynamics in vendor management by insurers. We will relate how these changes should improve compliance with a company’s operational procedures, starting with how qualified fire experts are retained. We will also review several key court decisions from recent years that have raised the bar on who can be qualified as an expert witness and under what circumstances they will be allowed to testify. And, finally, we will provide you with some key questions that you should be asking of any fire expert that your company wishes to engage. The Sarbanes-Oxley Act (SOX)In recent years, many insurers have had the SOX dynamic at play within their claims departments. In 2002, two U.S. Congressmen-- Paul Sarbanes and Michael Oxley-- sponsored the passage of the Sarbanes-Oxley Act. This came about as the result of a number of well-publicized financial scandals involving publicly traded companies. As a result of the passage of this Act, all publicly traded companies have been required to commit a tremendous amount of time, energy and capital to testing and certifying the effectiveness of their internal accounting and management processes. There is a new language being spoken in corporate board rooms today. The buzz-words include:
Many insurers in the U.S. have invested heavily into building new financial reporting mechanisms. They have also built (and will need to maintain) strong internal structures to meet the reporting requirements of the Act. This has brought new meaning to the concept of corporate governance, where procedures that have been put in place must be followed. And, the corporation must be able to prove through compliance controls that the ‘rules’ are being followed. Procurement Professionals The full impact of the Sarbanes-Oxley Act began to be felt at a time when insurers in North America were establishing “Procurement / Purchasing” departments. Insurers recognized their huge buying power and these new departments began to leverage this power to not just achieve cost reductions, but to improve the quality of their vendors’ performance. Many insurers have already achieved cost reductions through the efforts of the procurement professionals. But equally important, the new procurement professionals have initiated processes to formally review and evaluate outside vendors. The result has been the implementation of a process of formal interviews with vendors as an exercise in due diligence to establish the qualifications, credibility and professionalism of vendors being selected. The outcome of this process is “Service Level Agreements” (SLA’s) that include “Key Performance Indicators” (KPI’s). These contracts are designed to ensure compliance by the vendor with agreed-upon standards. “Detection controls” are built-in to the insurer’s system(s) to ensure the vendor is complying with the standards and to make certain that the vendor being used is on the insurer’s “approved list” for vendors. Where does this all fit together? The SOX requirements, combined with the new age of procurement, has brought a new discipline to most corporations. The ‘Operations & Procedures’ manual that used to gather dust in a file cabinet now has real meaning and ‘full compliance’ is the name of the game. Following the rules for establishing and utilizing an approved list of vendors is no longer an option. With this shift to full compliance, it follows that a new emphasis exists in today’s operating environment to leverage these selection and compliance processes to the benefit of the insurer. Fire litigation is an area where many (if not most) cases are won or lost based upon the quality of the fire expert retained in the case. How can these new processes assist in not only achieving the right result in the case, but in also proving an insurer has acted in “the utmost good faith”? To answer this question, we must consider some of the unique features of utilizing expert testimony in a fire litigation case. What is evidence? In every trial, both civil and criminal, the case is presented through the testimony of the witnesses. The testimonial evidence of the witnesses establishes the case. The physical evidence in the trial is admitted through the testimony of the witnesses. For a trial to be properly and effectively presented, the witnesses must be prepared to tell the jury what happened and how that testimony related to the issues in the case. When the physical evidence is admitted, the witnesses will identify and authenticate the evidence so that it can be considered by the jury in the context of the case. A special form of physical evidence is “demonstrative evidence,” which is evidence created by a witness to “demonstrate” a point in the case. This may include charts, diagrams, graphs, scale models and photographs which are created for the purpose of showing the jury the meaning and significance of other evidence in the case. In many cases, and in virtually all fire litigation cases, another form of testimonial evidence will be used: the testimony of an expert witness. The expert witness is allowed to do something which no other witness can do in the case—provide “opinion” testimony on the meaning of the evidence. In a fire litigation case, the expert witness can testify as to his or her opinion of the cause of the fire. In those cases, this is often the most important testimony the jury will hear. Triers of Fact The trial judge and/or jury are considered to be the “trier of facts” in a case. When they weigh the evidence before them they will give consideration to a number of things including:
In weighing the testimony and evidence, consideration will be given to the “burden of proof”. In a criminal court matter, the prosecuting attorney is required to prove that the defendant is guilty “beyond a reasonable doubt”. In a civil matter, the test is to prove that the policyholder committed or procured an intentional act “by the preponderance or greater weight of the evidence”. Some states require that the insurer’s evidence be “clear and convincing”, a more stringent standard. Whether it is a civil or criminal case, evidence must be presented to prove the “Arson Triangle”:
Note that actual proof of motive may not be required, depending upon the jurisdiction. In criminal cases, it is never an element of the crime, but may be part of the “connecting evidence” linking the defendant to the crime. In civil cases, most jurisdictions require proof of motive. In all civil cases there must be evidence which inculpates or connects the subject to the fire. In the course of any trial, many different witnesses from both sides will offer testimony and evidence. Most of those witnesses must testify only to first-hand objective facts, but the rules of evidence allow for an expert witness to render an “expert opinion”. In an arson case, there could be a number of expert witnesses including:
Qualifying as an “Expert” Fact witnesses in a trial generally have to establish only that they have first-hand knowledge of the facts about which they will testify. When a witness does not have first-hand knowledge and attempts to testify about what somebody else has said, it is usually inadmissible as hearsay evidence. Of course, the testimony must also be shown to be relevant to the issues in the trial. But, if those basic conditions can be met, there are usually no other legal requirements for the fact witness to be able to testify. Before an “expert” is allowed to present testimony and offer opinions about the ultimate issues in the case, the court will first require the witness to demonstrate the requisite qualifications as an expert in that field. The witness must show some special knowledge or expertise in the field which the ordinary person does not possess. Through background, experience and training the witness must demonstrate that they possess the requisite skills to be accepted as an expert by the court. When this is done, the expert may have to face some challenges to their qualifications from both the opposing attorney and the trial judge. For many years, the rule in the United States was the so-called “Frye Test”. This rule was adopted by virtually every court in the U.S. and remained the standard for admitting expert testimony for fully 70 years. Under the Frye Test, the expert was required to show that his methods and conclusions had gained “general acceptance” in the specific field of his expertise. So long as the expert employed methods which were sanctioned by other experts in the field, the Frye Test could be satisfied. In 1993, the United States Supreme Court changed the rule. It adopted the “Daubert Test” which charged trial judges with the responsibility of acting as the “gatekeeper” of evidence in the courtroom to ensure that the experts testified using reliable and scientifically sound methodologies. The court suggested a four-part test for judges to employ in determining whether an expert would be considered qualified under the Daubert standard. The test included the following:
This was not intended to be a rigid test to be applied equally in all cases. Trial judges were cautioned to consider the nature of the case and the scientific evidence/expert testimony being presented in that specific case to fashion a test appropriate to the facts of that case. But the judge acting as the “gatekeeper” of expert testimony was required to ensure the testimony being offered was not only relevant to the case, but “reliable” enough to be heard by the jury. The full import of the Daubert decision was the emphasis on the reliability component. In arson cases in both civil and criminal courts where the Daubert test is now the law—essentially, all federal court cases (both civil and criminal) and all cases where the specific jurisdiction has subsequently adopted the Daubert standard (about 21 states at last count)—this has fundamentally changed the way these cases are being litigated. Now, an expert testifying in an arson trial must face not only the opposing side of the case, but the judge. An expert’s findings and conclusions today are given more stringent scrutiny than ever before. How is an expert “qualified”? An “expert” is deemed to be someone who has specialized knowledge, skill, training or experience that makes them capable of “assisting” the jury and the court through the presentation of an opinion about the issues in the case. At trial, the lawyer or district attorney offering the testimony of the expert will first outline and establish the background of the expert as shown on their ‘curriculum vitae’. This will demonstrate why the witness should be “qualified” as an expert by virtue of their technical expertise. The other side will be given the opportunity to cross-examine the witness on those qualifications, to suggest that the witness is not adequately trained or experienced in the field. In a Daubert jurisdiction, the trial judge will challenge the witness on those qualifications in acting as the “gatekeeper” of expert testimony. This is often a more formidable challenge than the adverse attorney’s cross-examination. NFPA 921 This is an investigative guide that was first written in 1992 and was most recently revised in 2004. It states that a fire investigation should be conducted utilizing a “systematic approach”. It recommends that the “scientific method” be employed as the approach to be used, and provides the appropriate component steps to accomplish a successful investigation. Perhaps the most significant component of the scientific method is the “testing” of an expert’s theory or “hypothesis” about the fire. Hypothesis testing requires an examination of all known facts and a cognitive and/or experimental challenge of those facts, as well as a challenge of any possible “alternative theories”. Once a final hypothesis has been reached, it should include the identification of the ignition source, the first fuel ignited and how the two came together to cause the fire. In addition, the expert should be able to offer proof that his/her theory has been tested and validated. In a case alleging arson, all reasonable accidental causes must be considered, analyzed (inductively and deductively) and eliminated for the hypothesis of an incendiary cause to withstand challenge. Although NFPA 921 is represented to be merely a “guide” to assist fire and explosion investigators, the reality is that it has become the prime document upon which any fire investigation will be scrutinized. It is widely considered to be the standard of care for fire investigators. Role of an Expert The role of an expert should not be limited to simply providing an ultimate opinion on a fire’s origin and cause. Experts should provide consultation and guidance from the scene right in to the courtroom, to assist the decision-maker on the evaluation of the case and the strategy to be employed at trial. They should weigh-in on matters involving the identification, documentation, collection and preservation of evidence. Their advice should be utilized on matters involving the development and evaluation of any testing of materials, devices and scenarios in a laboratory. A fire expert must be able to interact and provide liaison with local, state and federal officials, as well as insurance professionals. They should be consulted on matters involving the retention of specialized experts including engineers, scientists, forensic analysts and laboratories. They should be competent to develop demonstrative evidence to explain their theories and develop strategies for their testimony at deposition or trial. The expert should be aware of the facts and issues in that case which will be used to challenge their opinions and should know how to respond effectively to those challenges. The ultimate task of an expert is to make their opinions as fact-based and scientifically verified as possible, and to prove not only that their origin and cause opinion is correct, but that any alternative theory is incorrect. Picking the right expertThe landscape has changed significantly for not just fire experts, but for all expert witnesses that you hire. The disciplines we have seen from the enactment of the Sarbanes-Oxley Act and what has been brought to the table by procurement professionals needs to be rolled over into how insurers go about selecting experts for their vendor lists. In this day and age—particularly given the regulatory and legal environment—there is no question that if an insurer is going to prove its case and document its good faith, then it must be utilizing the best professionals available. This is particularly true in situations where you are alleging your policyholder has committed a criminal activity. To narrow things down to the selection of the ‘right’ fire expert consider these questions in terms of doing your due diligence:
Summary There are some questions you might ask yourself after reviewing this article:
Conclusions Insurers have an obligation to act in “utmost good faith”. The foundation for proving this is founded in the quality of your loss adjusters and the effective use and selection of experts. Being able to prove that you have a formal, defined process in place to select and maintain your approved list of experts will not only improve the quality of your decision-making, but will demonstrate to a court your commitment to fulfill your obligations to your policyholders.
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