ACG - Agency Consulting Group

The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

EXPERT WITNESSES - Why, How and Who?

Be proactive not reactive!

That’s what every agent should be saying to each client and prospect as the lead-in to the analysis and offering of a specific insurance program tailored to their asset protection needs.

Similarly, you never know when you find yourself in a type of legal bind which requires you to know an Expert Witness. Whether for business or personal, you should be both educated and prepared in the event that any situation arises needing these services.

There could be an Expert Witness, a Fact Witness, or it could be both. A Fact Witness is a person with knowledge about what happened in a particular case, who testifies in the case about what happened or what the facts are. Fact witness testimony consists of the recitation of facts and/or events as opposed to an Expert Witness, whose testimony consists of the presentation of an opinion. If we act as a Fact Witness regarding agency value, we simply create and report on the agency’s value and testify in its support. If we act as a Fact Witness regarding ownership of expirations and compensation of producers, we simply testify regarding the industry common practices regarding these issues.

As an Expert Witness, we also analyze the situation but we also render our opinion regarding the appropriateness of the action taken or situation being litigated. As an Expert Witness, we consult our client’s attorney who know their legal strategies and are knowledgeable and experienced attorney, but may not be an expert on how insurance agencies operate. As a consulting expert, we can review depositions and aid in the strategy employed by our client or our client’s attorney within the case.

At least a few times each year Agency Consulting Group hear from agents who ‘mis-designated’ an Expert Witness who was not qualified as an expert in the field or not a good supporting witness in deposition or in court. The most common remark is, “I wish I would have known you a few years ago. You could have saved me a lot of time and money!”

This article is meant to act as a primer for those agency owners who are fortunate enough not to needed an Expert Witness. We hope to familiarize you with why you might need an Expert Witness and to acknowledge the difference between a consulting expert and a Fact Witness; more importantly where to find one when you need one.

On the technical side of insurance, experts are needed as Fact Witnesses for coverage issues and as consulting Expert Witnesses for standards and common practices issues. To give you an example of the need for Fact Witnesses is when each side stand on different ground on insurance coverage issues. Sometimes agency valuation cases may only require a Fact Witness to testify as to the value of an agency. Expert Witnesses for standards and common practices are needed when disagreement arises from how a situation was handled. The Expert Witness can be invaluable in avoiding vagueness or mis-interpretation of norms and standards.

The way a Fact Witness and an Expert Witness was explained to me several decades ago is that a Fact Witness is acknowledged as an expert in a narrow or wide field by all parties and testifies to his/her knowledge base as it applies to the case at hand. His testimony is often specifically in support of a situation or stand and his explanation, if any, simply supports his conclusion. An Expert Witness is there to educate – the attorney, the judge and/or a jury regarding standards and common practices in support of a stand about which (s) he could also have been a Fact Witness. A Fact Witness answers questions in support of a position; an Expert Witness expounds.

When you have a personal dispute, experts are needed when disagreements arise that affect the conduct of your business. Valuation issues, partner disputes, producers issues around agreements with the agency (non-compete, non-piracy, compensation) and divorce situations are examples of typical insurance agency situations requiring expert advice.

Note that you may choose to elect a common, unbiased expert in place of litigation to mediate the disagreement within an agency. This avoids lengthy and expensive litigation if the parties agree to abide by the mediator’s decision. Even if the mediation is not binding, both parties will now understand a third party’s view and will be better prepared to either settle or to continue to litigation, if no settlement is possible.

Who you choose as an expert is as important as who you choose to treat a dire medical situation for yourself or your loved ones. The cost of a surgeon in time of medical need is secondary to the quality of the doctor. Similarly, the cost of an Expert Witness is a by-product of the value of his/her time -- rarely a fixed price. The cost is most often tied to the time they will be needed for the case in question. Like the best surgeons and diagnosticians, the highest quality experts are not cheap. However, they are not outrageous either. And you always get exactly the value for which you have paid.

Experts are, or should be, active participants in their industry and at the top of their game. Someone who was an agent until his retirement twenty years ago is probably not going to help you as much as someone who is active in the industry today, responding every day to the continuously changing insurance environment.

Be very careful of a “so-called” expert’s background and Expert Witness experience. There are industry experts who spend most of their time in Expert Witness testimony and there are many other Expert Witnesses breaking into the field that lack the experience in court testimony. Being an Expert Witness is an art that is learned beyond the expertise of the individual’s knowledge in the insurance industry. Opposing attorneys may attack Experts who are not active participants in the industry. Look for Expert Witness that has the experience as well as insurance related knowledge.

By the way, don’t ask a plumber to look into the electrical system while he’s already in the wall working. An insurance expert may know a great deal about coverage and virtually nothing about standards and common practices of insurance agencies and vice versa. And local CPA’s who know financial statements well, are often terrible Expert Witnesses if the case involves any more than Generally Accepted Accounting Principle (GAAP) accounting issues. Having dealt with one insurance agency for a decade does not necessarily make your accountant an expert in insurance agencies no matter how much you like and trust him.

If you ever find yourself facing a dispute that might end up in mediation or in court, you should identify an Expert Witness that could help you avoid stepping on ‘legal land mines.’ The normal routine is for you or your attorney to contact an Expert Witness and discuss the case under a confidentiality agreement if necessary. An initial discussion is meant to educate the Expert Witness on the situation of the case and to allow him/her to determine whether or not they can be beneficial to you. If the Expert Witness feels that (s) he can benefit you, he/she will tell you and you may continue to retain their services. At any time either party feels the need to withdraw from the case, confidentiality agreement forbids the Expert Witness from disclosing anything about the case to anyone.

One critical thing that you must understand is that the Expert Witness is supposed to be an impartial expert testifying on a subject of his/her specific expertise. Never hire someone as an Expert Witness who cannot be an impartial expert. This means you may not want a friend, an employee (or former employee), or even a long-term accountant acting as an Expert Witness. If the other side can dispute the Expert’s expertise, they will. An ethical Expert Witness will only support the position in which they believe and justifies their testimony. Similarly, ‘blocking the market’ by designating a specific Expert Witness to a court without the Expert Witness’s permission in order to block the other side from using that Expert Witness is regarded as highly unethical and normally results in that Expert Witness not representing the party who prematurely designated the Expert Witness.

Where do you find experts pertaining to the insurance industry and insurance agencies?

Happily, a cadre of over 50 of the most recognized experts in the industry in every phase and nuance of the industry (coverage, agencies, carriers, etc.) can be found in one association, AAIMCO, The American Association of Insurance Management Consultants (www.aaimco.com ). Covering every section of the country, AAIMCO members can be accessed when EXPERT WITNESS advice or testimony is needed.

I am happy to be a member of AAIMCO, in fact, I am a Past President of the Association, and an Expert Witness for matters pertaining to valuation and common practices and standards of insurance agencies. We have served agents and brokers throughout the U.S. as both consulting Expert Witness and fact Expert Witness in cases that pertain to the operation of insurance agencies, producer issues, partnership disputes, compensation issues and agency values.

We strongly urge you to keep this article or at least our contact information (856-779-2430, al@agencyconsulting.com, www.agencyconsulting.com ) and the AAIMCO website (www.aaimco.com ) in your contacts for use when and if the need ever arises for testifying Expert Witnesses. Both we and the other Expert Witness’s at AAIMCO will always be happy to discuss a case with you or with your attorney prior to your discussion to allow both you and us to understand the facts and to determine whether or not we can help you.