Joy Littleton v. TIS Insurance Services, Inc. ( 2019 )

01/09/2019
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
December 4, 2018 Session
JOY LITTLETON ET AL. v. TIS INSURANCE SERVICES, INC.
Appeal from the Circuit Court for Knox County
No. C-11-034211 Deborah C. Stevens, Judge
___________________________________
No. E2018-00477-COA-R3-CV
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In this professional negligence case against an insurance agent, Appellants appeal from
the trial court’s order excluding their expert’s opinion on the applicable standard of care.
We affirm in part, reverse in part, and vacate in part.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed in
Part; Reversed in Part; and Vacated in Part
J. STEVEN STAFFORD, P.J., W.S., delivered the opinion of the court, in which CHARLES D.
SUSANO, JR., and THOMAS R. FRIERSON, II, JJ., joined.
Robert B. Littleton, Nashville, Tennessee and Robert R. Kurtz, Knoxville, Tennessee, for
the appellants, Joy Littleton, Grayling Littleton, and Will Allen Hildreth, As Assignees of
Merit Construction, Inc.
Nathaniel K. Cherry and Barry L. Howard, Nashville, Tennessee, for the appellee, TIS
Insurance Services, Inc.
OPINION
Procedural History
This case involves a relatively simple issue with a relatively complicated
backstory. In 2003, JAG Properties, LLC (“JAG”), sued Merit Construction, Inc., d/b/a
Merit Construction (“Merit”) for damages related to the construction of a Holiday Inn
Express. See JAG Properties, LLC v. Merit Construction, Inc., d/b/a Merit
Construction, No. 10296, Chancery Court of Loudon County, Tennessee (“the Merit
Litigation”). Eventually, Merit agreed to settle the suit for $3.9 million. As a result of the
settlement, Merit consented to the entry of a judgment against it for $3.9 million and
assigned to JAG all rights, causes of action, and other claims that Merit had or might
have had against its own insurers, Merit’s broker, and Merit’s agents arising from or in
connection with the dispute between Merit and its own insurers, broker, and agents
(collectively, “the Order and Settlement Agreement”). A judgment to this effect was
entered in the Merit Litigation on November 1, 2004.
Following the judgment, JAG was able to collect only a portion of the award
against Merit because Merit’s Commercial General Liability carrier, the Highlands
Insurance Group (“Highlands”), was placed in receivership by the State of Texas. At
some point, JAG assigned its rights to the judgment and all accompanying rights to its
principals, Plaintiffs/Appellants Joy Littleton, Grayling Littleton, and Will Allen Hildreth
(“Appellants”).
Pursuant to the assignments, Appellants filed a complaint against Merit’s
insurance broker, Defendant/Appellee TIS Insurance Services, Inc. (“TIS”) on January
28, 2011. The complaint alleged causes of action for negligence, fraud, negligent
misrepresentation, and violation of the Tennessee Consumer Protection Act (“TCPA”).
The complaint sought the remaining balance on the $3.9 million judgment, an amount of
approximately $2.67 million, as well as pre- and post-judgment interest. The claims
alleged related to TIS’ procurement of the Highlands’ general commercial insurance
policy, as discussed in detail infra.
TIS filed an answer denying liability on February 28, 2011. TIS later filed a
motion for judgment on the pleadings, alleging that the damages against it were limited to
$25,000.00. Specifically, the motion stated that “Merit sustained $25,000.00 in actual
compensatory damages since this is the amount paid to JAG to settle the Merit Litigation,
and JAG agreed, pursuant to the Order and Settlement Agreement to not execute on the
remainder of the $3.9 million judgment, even should JAG be unable to recover the excess
from other parties.” The trial court granted the motion by order of October 12, 2012.
Although the trial court granted a motion requesting permission to seek an interlocutory
appeal to this Court, we denied the application by order of February 8, 2013.
On September 12, 2013, Appellants sought leave to amend their complaint to
show that the $25,000.00 payment was not a payment on the judgment in the Merit
Litigation. The trial court granted the motion and an amended complaint was filed on
October 16, 2013. The amended complaint now stated that Merit paid $0.00 toward the
judgment in the Merit Litigation. The trial court thereafter revised its partial grant of the
motion on the pleadings, ruling that Appellants would not be entitled to recover any
compensatory damages. The trial court therefore dismissed the complaint. Appellants
appealed to this Court, which reversed the judgment of the trial court, reiterating
precedent that
[A] judgment creditor’s covenant not to execute on a judgment debtor’s
assets does not “extinguish the underlying liability” of the judgment debtor
for compensatory damages. The judgment debtor is an “injured party” that
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can pursue a negligence claim against its insurance provider for procuring a
liability policy that allowed a gap in coverage.
Littleton v. TIS Ins. Servs., Inc., No. E2014-00938-COA-R3-CV, 2015 WL 443740, at
*3 (Tenn. Ct. App. Feb. 3, 2015) (citing Tip’s Package Store, Inc. v. Commercial
Insurance Managers, Inc., 86 S.W.3d 543 (Tenn. Ct. App. 2001)). The Court therefore
ruled that Appellants could seek the balance of the $3.9 million judgment from TIS. Id. at
*4.
After the case was remanded to the trial court, TIS filed a motion for summary
judgment. The motion was eventually granted as to claims of fraud, negligent
misrepresentation and the TCPA. Appellants’ negligence claims survived, however,
apparently due to disputes of material facts created by the parties’ competing experts.
Defendants then sought to exclude Appellants’ expert witness, a motion the trial court
granted on March 21, 2017. TIS thereafter filed a second motion for summary judgment
on the negligence claim, as Appellants had no expert to support the claim.
On August 22, 2017, Appellants disclosed a new expert, William H. Bahr, along
with his report and resume. Appellants also responded in opposition to the second motion
for summary judgment. TIS responded by filing a motion to exclude Mr. Bahr’s
testimony as being untimely disclosed. The trial court denied the motion to exclude on
this basis, but the trial court ruled that no additional experts could be disclosed.
Additional discovery ensued.
On December 11, 2017, TIS filed another motion to exclude Mr. Bahr’s testimony,
this time on the basis that he was not qualified to testify as to the matters at issue. In
support, TIS relied on Mr. Bahr’s previously submitted report and resume, as well as his
deposition testimony. Appellants responded in opposition, relying in part on a declaration
provided by Mr. Bahr. Following argument on the motion, the trial court entered an order
granting the motion in part and denying the motion in part on February 8, 2018.
Specifically, the trial court ruled that Mr. Bahr would not be permitted to testify
regarding breach of the standard of care by TIS’ agents “as it relates to their sale of the
Commercial General Liability (“CGL”) Policy to insure Merit[.]” Additionally, the trial
court ruled that Mr. Bahr could not testify that TIS had an obligation to notify Merit
about an insurance company’s “ratings drop” or that such a failure of notification was a
breach of the standard of care. The trial court ruled, however, that Mr. Bahr could testify
as to some other matters, discussed infra. Following the exclusion of their expert and the
expiration of the trial court’s scheduling order allowing the disclosure of new experts,
Appellants conceded that they could not present evidence of every necessary element of
their negligence claim. Consequently, on February 16, 2018, the trial court granted TIS’
motion for summary judgment dismissing the final remaining claim for professional
negligence. Appellants therefore appealed to this Court.
Facts Relevant to Summary Judgment
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The facts related to the claim against TIS are largely undisputed for purposes of
this appeal.1 Prior to the 2000 construction year, Merit asked its insurance agent, TIS, to
procure commercial general liability insurance with an A.M. Best Company rating of
“A.”2 TIS presented Merit with three options for the year 2000: a policy from Highlands,
a policy from Zurich, and a policy from CNA. Merit chose a $1 million policy from
Highlands, which had an A.M. Best Company rating of “B++.” TIS procured the policy
for Highlands, as well as a “cut-through” endorsement from American Healthcare
Indemnity Company.3 According to TIS’ statement of undisputed material facts, the
purpose of the cut-through endorsement was “to raise the Highlands policy to an A-rating
for [Merit’s] insurance needs for the year 2000.” Merit was aware of Highlands’ lower
rating and had previously utilized a cut-through endorsement in the past. At the time the
Highlands policy was chosen, however, Merit was given no financial information
concerning Highlands or the other insurance carriers. Indeed, when TIS presented the
three options to Merit, TIS’ agent indicated that all three companies were A-rated
companies with the cut-through endorsement from Highlands and that Merit understood
that the cut-through endorsement would raise Highlands’ rating to the required level. TIS,
1
We take these facts from the undisputed material facts filed by each party that were not in
dispute.
2
A.M. Best ratings are generally accepted in the insurance industry as providing evidence of an
insurance company’s financial stability.
3
The terms “cut-through” and “pass-through” are used interchangeably in the record to describe
agreements for reinsurance:
The cut-through endorsement is so named because it “cuts through” the usual
route of claim payment from reinsurer-to-insurer, and substitutes instead reinsurer-to-
claimant. By whatever name, the forms are issued by the reinsurer or on its behalf to such
payees in advance. These endorsements usually are contingent upon the insurer being
unable to pay claims, but there is no standard form. The use of cut-through endorsements
occurs only on request of mortgagees or some insureds and is a practice which ceding
insurers would rather avoid.
Such a situation may come about because banks and other financial institutions,
as mortgagees, are often unwilling to accept policies of certain insurers as protection for
collateral unless an insurer is satisfactorily rated by A.M. Best Company, the financial
rating organization of the insurance industry. While the absence of a satisfactory rating
may indicate that an insurer is weak financially, often a rating is withheld only because a
company is too young or too small to qualify. To assuage such mortgagees, and to
improve the marketability of their client reinsureds’ policies, many reinsurers will offer
to issue “cut-through” endorsements for the primary insurer’s policies.
§ 16:2. Claimants, Law of Reinsurance § 16:2 (footnote omitted); see also § 6:10. Obtaining satisfactory
brokerage service, Mod. Corp. Checklists § 6:10 (explaining that cut-through endorsements “provide the
insured with direct access to reinsurance for the prosecution of any claim should the basic company be
financially impaired or rendered insolvent”). Likewise, the parties refer to these contracts as both
agreements and endorsements. We will generally refer to this agreement as a “cut-through endorsement”
in this opinion.
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through its agent, did not fully explain to Merit how the cut-through endorsement would
operate or the specific language of the cut-through endorsement, which provided that the
policy would be triggered only if Highlands was “declared insolvent by a court of
competent jurisdiction.” On July 10, 2001, Highlands was down-graded to a “B” rating;
TIS did not inform Merit of the downgrade or offer to move Merit’s coverage to another,
higher-rated company.
Each party provided competing expert testimony as to whether this series of events
amounted to a breach of the standard of care by TIS. Relevant to this appeal, Appellants’
expert, Mr. Bahr, a licensed insurance agent with decades of experience in insurance
consulting, testified that TIS breached the applicable standard of care in recommending
Highlands to Merit even though the policy did not meet the financial rating specifications
required by Merit. Mr. Bahr explained that the cut-through endorsement did not alter or
increase Highlands’ financial rating, contrary to TIS’ assertions to Merit. According to
Mr. Bahr, this cut-through endorsement was not properly explained to Merit and, when
Highlands’ own rating fell sharply in 2001,4 TIS failed to inform Merit of the serious
decline in Highlands’ financial condition and offer to move Merit’s coverage to another
insurance carrier. These actions, according to Mr. Bahr, were a breach of the applicable
standard of care.
Issues Presented
Appellants present two issues for this Court’s review, which are slightly restated
from Appellants’ brief:
1. Whether the trial court erred in excluding the testimony of Appellants’ expert
witness, Mr. Bahr, as to the standard of care required of an insurance agent in Tennessee
and as to whether TIS breached that standard of care?
2. Whether the trial court erred in granting summary judgment for TIS?
Appellants generally concede, however, that if the trial court did not abuse its discretion
in excluding Mr. Bahr’s standard of care opinion, summary judgment was properly
granted.
Discussion
“A cause of action for failure to procure insurance is separate and distinct from
any cause of action against an insurer or a proposed insurer; in a failure to procure claim,
‘the agent, rather than [the] insurance company, is independently liable.’” Morrison v.
Allen, 338 S.W.3d 417, 426 (Tenn. 2011) (quoting 43 Am.Jur.2d Insurance § 163
(2003)). “An agent or broker is liable for failure to procure ‘on the theory that he or she is
the agent of the insured in negotiating for a policy, and owes a duty to the principal to
4
Mr. Bahr explained that while a B++ rating indicated that a company was financially secure, a B
rating placed the company in the “vulnerable category.”
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exercise reasonable skill, care, and diligence in effecting the insurance.’” Id. (quoting 43
Am.Jur.2d Insurance § 163 (citations omitted)). The Tennessee Supreme Court has
explained that such a claim may sound in negligence or breach of contract. Cf. id.
(“While other jurisdictions and secondary authority generally recognize that a failure to
procure claim may be based on either negligence or breach of contract, . . . we limit our
discussion in this case to the latter.”) (citations omitted). Situations wherein an insured
may recover damages include both a complete failure to procure insurance as well as
“instances where coverage was acquired, but was inadequate in light of the agreement
between the insured and the agent.” Id. at 426–27 (citing Bell v. Wood Insurance
Agency, 829 S.W.2d 153 (Tenn. Ct. App. 1992) (affirming a judgment in favor of the
insured where the insurance agent obtained far less coverage than directed)).
In this case, Appellants’ claim against TIS sounds in professional negligence.
Generally, a negligence action requires proof of the following elements: duty, breach of
duty, causation, and damages. Bradshaw v. Daniel, 854 S.W.2d 865, 869 (Tenn. 1993).
“[I]nsurance agents, like other licensed professionals, owe a duty to their clients to
perform consistent with the standards of care of their profession.” Id. at 450 (Koch, J.,
concurring in part, dissenting in part) (citing 1 New Appleman on Insurance Law §
2.05[1]-[2], at 2-26 to -27); see also Permanent Gen. Assur. Corp. v. Jones, No. 01A01-
9310-CV-00430, 1994 WL 137819, at *2 (Tenn. Ct. App. Apr. 20, 1994) (affirming the
dismissal of a malpractice action against an insurance agent where there was no evidence
of the standard of care applicable in the situation). As the Tennessee Supreme Court has
explained:
Tennessee’s courts have held repeatedly that determining whether a
professional’s conduct complies with the applicable standard of care is
beyond the common knowledge of lay persons. Thus, expert testimony is
required to establish not only the applicable standard of care but also
whether the conduct at issue fell below that standard. Expert testimony
cannot be dispensed with unless the professional’s lack of skill or care is so
apparent as to be in the comprehension of a lay person and requires only
common knowledge and experience to understand it.
Martin v. Sizemore, 78 S.W.3d 249, 272 (Tenn. Ct. App. 2001).
Here, Appellants do not contend that the standard of care applicable to TIS can be
determined by lay persons. Rather, they assert that they presented competent proof of the
applicable standard of care through the report and testimony of Mr. Bahr and that the trial
court erred in excluding this proof. Thus, the central dispute in this case involves whether
the trial court abused its discretion in excluding testimony by the Appellants’ chosen
expert, Mr. Bahr, as to the standard of care. We therefore proceed to consider that issue.
II.
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As explained by the Tennessee Supreme Court:
An essential role of the judge, as the neutral arbiter in the trial, is to
function as a “gatekeeper” with regard to the admissibility of expert
testimony, permitting only expert opinions that are based on “relevant
scientific methods, processes, and data, and not upon [the] expert’s mere
speculation.” State v. Scott, 275 S.W.3d 395, 401–02 (Tenn. 2009) (quoting
McDaniel v. CSX Transp., Inc., 955 S.W.2d 257, 265 (Tenn. 1997)) (citing
State v. Copeland, 226 S.W.3d 287, 300–01 (Tenn. 2007)). Specifically,
the admission of expert proof is governed by Tennessee Rule of Evidence
702, which explains that a qualified expert witness “may testify in the form
of an opinion or otherwise” if the expert has “scientific, technical, or other
specialized knowledge [that] will substantially assist the trier of fact to
understand the evidence or to determine a fact in issue.” (Emphasis added.)
Tennessee Rule of Evidence 703 provides further guidance:
The facts or data in the particular case upon which an expert
bases an opinion or inference may be those perceived by or
made known to the expert at or before the hearing. If of a type
reasonably relied upon by experts in the particular field in
forming opinions or inferences upon the subject, the facts or
data need not be admissible in evidence. . . . The court shall
disallow testimony in the form of an opinion or inference if
the underlying facts or data indicate lack of trustworthiness.
(Emphasis added.) “While a trial court’s role as a gatekeeper is critical, it is
not unconstrained,” Scott, 275 S.W.3d at 404, and “[a] trial court abuses its
discretion when it . . . excludes testimony that meets the requirements of
Rule[s] 702 and 703,” Shipley v. Williams, 350 S.W.3d 527, 552 (Tenn.
2011).
Read together, Rules 702 and 703 “require a determination as to the
scientific validity or reliability of the expert testimony,” because only valid
scientific evidence “will substantially assist the trier of fact to determine a
fact in issue” and will be based upon “facts and data [that have been]
reviewed and found to be trustworthy by the trial court.” McDaniel, 955
S.W.2d at 265. In McDaniel, this Court provided a non-exclusive list of
factors to aid trial courts in the consideration of whether expert testimony
qualifies as reliable and is therefore admissible under the rules:
(1) whether [the] evidence has been tested and the
methodology with which it has been tested; (2) whether the
evidence has been subjected to peer review or publication; (3)
whether a potential rate of error is known; (4) whether . . . the
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evidence is generally accepted in the scientific community;
and (5) whether the expert’s research in the field has been
conducted independent of litigation.
Id. Rigid application of the McDaniel factors, however, is not required; the
reliability of the testimony and whether it provides substantial assistance to
the jury serve as the essential guidelines for the determination of
admissibility. Id. (declining to expressly adopt the federal framework for
evaluating expert testimony and instructing Tennessee trial courts that they
“may consider” the McDaniel factors within the framework of Rules 702
and 703); see also Copeland, 226 S.W.3d at 302. Ultimately, “[t]he
objective of the trial court’s gatekeeping function is to ensure that ‘an
expert, whether basing testimony upon professional studies or personal
experience, employs in the courtroom the same level of intellectual rigor
that characterizes the practice of an expert in the relevant field.’” Brown v.
Crown Equip. Corp., 181 S.W.3d 268, 275 (Tenn. 2005) (quoting Kumho
Tire Co. v. Carmichael, 526 U.S. 137, 152, 119 S. Ct. 1167, 143 L. Ed. 2d
238 (1999)). If the expert testimony qualifies as admissible, the trial court’s
gatekeeping function is completed, as “[t]he weight of the theories and the
resolution of legitimate but competing expert opinions are matters entrusted
to the trier of fact.” Id. (citing McDaniel, 955 S.W.2d at 265).
Payne v. CSX Transportation, Inc., 467 S.W.3d 413, 454–55 (Tenn. 2015) (footnotes
omitted). The McDaniel factors are not exclusive and the Tennessee Supreme Court has
recognized that they may not be as helpful in cases where an expert’s knowledge is
derived from personal experience. See Brown, 181 S.W.3d at 274–75. In such a case,
another factor that may be particularly applicable “is the expert’s qualifications for
testifying on the subject at issue.” Id. Under this analysis, the trial court must first
determine “in essence, . . . whether the witness is an expert, either through knowledge,
skill, experience, training, or education, in the area he or she is providing testimony.”
State v. Scott, 275 S.W.3d 395, 402 (Tenn. 2009) (citing Tenn. R. Evid. 702).
An overview of Mr. Bahr’s qualifications and opinion is necessary to our analysis.
Although we will not tax the length of this opinion with a list of Mr. Bahr’s credentials, a
summary of his experience is helpful. Mr. Bahr, who holds a bachelor’s degree in
Business Administration, an associate’s degree in Risk Management, and various other
educational credentials related to insurance issues, has been continuously licensed as an
insurance agent in Tennessee since 1971. After approximately a decade working as an
insurance agent, often working with construction clients, Mr. Bahr transitioned to risk
management in 1981. In 1988, Mr. Bahr opened his own insurance consulting agency,
which he continues to operate to this day. Although Mr. Bahr’s experience with cut-
through endorsements is limited, as discussed in detail infra, his general experience with
insurance and risk management can be described as nothing less than extensive.
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Purportedly based on both his personal experience and research conducted for this
litigation, Mr. Bahr, citing the International Risk Management Institute, defined a cut-
through endorsement as a “reinsurance contract endorsement proving that, in the event of
the cedent’s insolvency, the reinsurer will pay any loss covered by the reinsurance
contract, directly to the insured.”5 According to Mr. Bahr, such an endorsement does not
alter the initial company’s financial rating and only comes into play should the initial
insurance company become insolvent.6 In dispute are the following opinions by Mr. Bahr
related to the standard of care required under the circumstances at issue, which are taken
from Mr. Bahr’s report:
It is incumbent upon any insurance agent to make his/her customer aware
of the financial condition of the insurance company he/she proposes. This is
especially true if said customer informs the agent that the insurance
company must meet certain financial criteria in order to be considered. For
example, should a customer state that ONLY companies with an AM Best
(a noted insurance financial rating company) rating of “B” or better will be
considered, an insurance company with less than this rating should not be
presented to the customer. Furthermore, at the very least, it is normal
practice that some sort of Insurance Company Financial Rating be indicated
in any insurance quote for each insurance company proposed.
Furthermore, should the insurance rating decline, the insured should
be notified of this fact at the earliest possible date, and the customer should
be offered the opportunity to move his insurance to a more financially
stable insurance company. For example, should the AM Best Company
lower a “B+” rated company to a “B” rating, the customer should be
notified and options offered the customer to move the insurance program.
Should serious lowering (2 or more category ratings) of the insurance
company’s rating occur (for example declining from a “B+” to a “B-”)
moving the insurance program to another, more stable insurance company
should be recommended and implemented at the earliest possible
opportunity.
Mr. Bahr further opined that TIS breached this standard of care when it presented
Highlands to Merit despite the fact that Merit requested only “A” rated insurance
companies and Highlands was rated no more than “B++.” Moreover, Mr. Bahr indicated
that the cut-through endorsement did not change Highlands’ rating and that such
agreement should have been disclosed to Merit and the language of the agreement
thoroughly explained to Merit. Further, when Highlands was downgraded to a “B” rating
5
A “cedent” is synonymous with “reinsured,” which is defined as “[a]n insurer that transfers all
or part of a risk it underwrites to a reinsurer[.]” Black’s Law Dictionary 1399 (9th ed. 2009).
6
Mr. Bahr stated that the cut-through endorsement could alter a financial rating if there was a
“fronting contract,” a contract that is not at issue in this case.
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in July 2001, Mr. Bahr testified that TIS should have informed Merit of the “serious
demotion” and offered to move Merit’s insurance coverage to a higher rated company.
Finally, Mr. Bahr explained:
The fact that TIS presented to Merit a bid from an insurance company that
did not meet its financial rating requirements, coupled with TIS’s failure to
accurately explain the “pass through” agreement, along with its failure to
move, or even advise Merit to move to a more financially stable insurance
company upon knowledge of Highlands’ downgrading, is certainly not the
standard of care expected of an ordinary insurance agent. . . .
Based upon this report, as well as Mr. Bahr’s deposition and declaration, the trial
court ruled that Mr. Bahr was unqualified to opine as to the standard of care and any
alleged breaches thereof in this case. The trial court’s rationale for excluding Mr. Bahr’s
standard of care opinion was issued orally and spans several pages with interjections
from counsel. In relevant part, the trial court found as follows:
[One of Mr. Bahr’s opinions is:] “Even after presenting Highlands
Insurance Company, TIS should have shown Merit a pass-through
agreement wording, explain it to them correctly, and obtain a signed letter
from Merit confirming their understanding or acknowledgment of
Highland[s] Insurance Company’s low rate.”
As I read through his deposition, that’s nothing he’s ever done, and
he’s unaware of any agreement that anybody else has ever asked anybody
to sign. And he said is that, you know, doing -- offering a policy with a cut-
through endorsement, there is no business reason not to do that.
So I have a hard time with the third paragraph of his opinion which
says, like I said, that dealing with what TIS should have done when
presented with a pass-through endorsement.
That’s his personal opinion of what that should be. I don’t know. I’m
struggling with where the expertise lies in that, based upon his experience,
given his deposition testimony and even assuming his declaration.
* * *
[H]e clearly is involved in the insurance business, but he’s very specific in
his lack of knowledge of cut-through endorsements.
He’s not -- he’s never sold a policy with a cut-through endorsement.
He’s never, in his consulting role, identified any cut-through endorsement
that he’s dealt with.
He doesn’t say, “In my consulting role, we have had six” -- let’s
assume they were banks. “I had six banks that were using cut-through
endorsements, and this is what the agents did when they sold it. They
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followed this A, B, C, D and E.” So I have a really hard time on that issue
of what an agent should or shouldn’t do.
He agrees there’s no -- nothing’s wrong with offering a policy with a
cut-through endorsement, but then he goes on to say, “But if you’re going
to do it, this is how you should do it,” and that’s where I have a problem
with his experience and background.
* * *
Based upon his experience, I think he can say [what a cut-through
endorsement is, how they are used, and that a lower rated company with a
cut-through endorsement is not the same as a company with higher rating].
I think he then can’t then go forward and say, based upon my
experience, if you’re going to sell a cut-through endorsement, this is how it
should be sold by getting a signed agreement, by providing this
information, by monitoring, you know, for the downgrading of a company,
because he’s just got nothing in his deposition or his declaration or in his
report that is an experiential. It’s just his opinion.
Appellants contend that the trial court’s decision to exclude Mr. Bahr’s standard of
care opinion is illogical and against the weight of the evidence. In support, Appellants
point out that Mr. Bahr has been a licensed insurance agent since 1971. There is no
dispute that in that time, Mr. Bahr sold, underwrote, advised, and taught about insurance.
Additionally, Mr. Bahr holds several “premier designations in the insurance industry,”
particularly in the field of risk management. Indeed, rather than selling insurance, Mr.
Bahr has instead been employed as an insurance consultant since 1988.
In contrast, however, TIS points out that Mr. Bahr worked as an insurance agent
for less than ten years, over three decades ago. In addition, TIS takes issue with Mr.
Bahr’s knowledge and experience as it related to cut-through endorsements. TIS contends
that Mr. Bahr is unqualified to opine as the effect of these agreements on the standard of
care where Mr. Bahr admitted that he had never sold an insurance policy with a cut-
through endorsement. Indeed, Mr. Bahr testified that in his nearly fifty-year career, he
encountered a cut-through endorsement only once before in his consulting business and
never when he was an insurance agent. Moreover, Mr. Bahr admitted in his testimony
that the standard of care he was espousing was not gleaned from any specific industry
rule or regulation on the subject, but only from his, mostly internet, research and personal
experience. Likewise, when asked whether it was a standard practice to “get a signed
acknowledgement regarding cut-through endorsements at that time,” Mr. Bahr responded,
“Being not familiar with them, . . . I really couldn’t answer that question one way or the
other.”
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In response, Appellants point to the clarifications offered by Mr. Bahr in his
declaration. Therein, Mr. Bahr explained that his opinions are based upon his personal
experience as an insurance agent and insurance consultant. Additionally, Mr. Bahr
clarified that while he has never utilized a cut-through agreement,
I am very familiar with what it is and its purpose. I am also fully familiar
with the standard of care in Tennessee that an insurance agent should
follow in selling a cut through endorsement as part of a policy and that
standard of care was not followed by TIS in this case.
Appellants also point out that when Mr. Bahr was faced with the prospect of a cut-
through endorsement in his consulting business, he fully explained the ramifications of
the policy to his client, including that the agreement would not transform a lower rated
company into a higher rated company, in accordance with his stated standard of care.
Finally, Appellants contend that the trial court’s ruling is against logic in that Mr. Bahr
was allowed to testify as to the mechanics of cut-through endorsements, but was
apparently unqualified to testify to the standard of care applicable when one is sold to a
client.
As we perceive it, Mr. Bahr’s testimony, if accepted, addresses three points where
TIS’ conduct fell below the standard of care: (1) when TIS offered the Highlands’ policy
to Merit even though it did not meet Merit’s requirement that the company be at least “A”
rated and allegedly incorrectly informed Merit that the cut-through endorsement raised
Highlands’ financial rating; (2) when TIS failed to properly notify and thoroughly explain
the cut-through endorsement to Merit; and (3) when TIS failed to notify Merit when
Highlands’ rating fell by two grades, which TIS allegedly failed to do based on a
misunderstanding of the effect of the cut-through agreement. In reaching these opinions,
Mr. Bahr necessarily opined that the applicable standard of care required such actions.
The trial court’s issue, however, is that Mr. Bahr undisputedly had very little experience
with cut-through endorsements and no experience from the agent-perspective in offering
them to an insurance client.
We begin with Mr. Bahr’s standard of care opinion as to whether TIS properly
notified Merit of the cut-through endorsement by obtaining a signed letter confirming
Merit’s understanding of the endorsement. After our review, we agree that Mr. Bahr is
not qualified to express this opinion. Here, Appellants’ brief makes clear that Mr. Bahr’s
expertise results from his experience, rather than any kind of educational or scientific
knowledge. Indeed, when asked where he obtained his opinion regarding the standard of
care, Mr. Bahr explained that it was derived “from some of the information I received
online and also from personal experience.” Mr. Bahr then conceded that the online
information that he reviewed was not specific to Tennessee and that his opinion regarding
the standard of care of insurance agents in Tennessee came “from my experience of being
not only an insurance agent in Tennessee but as a consultant for clients and working with
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agents in Tennessee.”7 This experience, however, simply does not include any more than
minimal contact with cut-through endorsements, the type of endorsement at issue here.
Despite his relative lack of experience with cut-through endorsements, at least a portion
of Mr. Bahr’s standard of care opinion focuses on whether TIS “‘exercise[d] reasonable
skill, care, and diligence in’” connection with the cut-through agreement. Morrison, 338
S.W.3d at 426 (quoting 43 Am.Jur.2d Insurance § 163 (citations omitted)).
The deficiency in Mr. Bahr’s experience with regard to the cut-through
endorsement is exemplified in his deposition testimony. Initially, Mr. Bahr agreed that it
was “a standard practice” to obtain “some kind of signed acknowledgement from Merit
regarding, . . . their understanding of the financial condition of the companies and their
decision to ultimately go with Highlands [Insurance Company].” Mr. Bahr admitted,
however, that no rule or regulation supported this standard. Finally, when asked whether
it was “standard to get a signed acknowledgement regarding cut-through endorsements at
that time,” Mr. Bahr testified that he lacked sufficient familiarity with the practice to
offer an opinion. Although the standard of care is not necessarily determined by what a
majority of professionals would do in the same circumstances, see, e.g., Godbee v.
Dimick, 213 S.W.3d 865, 896 (Tenn. Ct. App. 2006) (holding that the trial court properly
excluded testimony regarding the practice of “most spinal surgeons” because “the
practice of the majority of physicians in a community is not analogous to the standard of
care in a community” but that the trial court erred when it excluded testimony referring to
the “generally accepted approach” and the “generally accepted practice” consistent with
the standard of care), an expert must demonstrate sufficient familiarity with the subject
matter at issue. Cf. Tire Shredders, Inc. v. ERM-N. Cent., Inc., 15 S.W.3d 849, 864
(Tenn. Ct. App. 1999) (holding that a witness was sufficiently familiar with the subject
matter when he had worked in the subject business for years and had witnessed the use of
the machine at issue on three prior occasions); State v. Haun, 695 S.W.2d 546, 551
(Tenn. Crim. App. 1985) (affirming the trial court’s decision to exclude an expert’s
testimony where he admitted that he was not sufficiently knowledgeable regarding the
specific subject matter at issue).
This Court has previously refused to find an abuse of discretion in the trial court’s
exclusion of an expert witness where the trial court determined that the expert “did not
have sufficient experience or familiarity in the matters in question to qualify as an expert
witness.” Cordell v. Ward Sch. Bus Mfg., Inc., 597 S.W.2d 323, 327–28 (Tenn. Ct. App.
1980) (considering other factors in declining to find reversible error). Thus, while Mr.
Bahr insists that he is familiar with the standard of care applicable in this situation, i.e., a
situation involving the offering of a cut-through endorsement to a client, his claimed
familiarity is supported by little more than a “bare assertion of familiarity.” Stanfield v.
Neblett, 339 S.W.3d 22, 36 (Tenn. Ct. App. 2010) (“Dr. Weiss also provided sufficient
7
In his later filed declaration, Mr. Bahr clarified “that my opinions in this case as to the standard
of care for an agent in Tennessee were based on my experience of being both an insurance agent and
insurance consultant in Tennessee.”
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support for his assertion that he was familiar with the standard of care in Jackson. Like
the other experts, he also did not simply make a bare assertion of familiarity without
providing the court with a basis for his assertion.”). Taken as a whole, it therefore appears
that Mr. Bahr’s qualifications for testifying specifically as to the standard of care
necessary when offering a client of a cut-through endorsement are lacking. Brown, 181
S.W.3d at 274–75.
As previously discussed, a trial court’s decision to admit or exclude evidence is
reviewed for an abuse of discretion. “Under the abuse of discretion standard, a trial
court’s ruling ‘will be upheld so long as reasonable minds can disagree as to propriety of
the decision made.’” Eldridge v. Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001) (quoting State
v. Scott, 33 S.W.3d 746, 752 (Tenn. 2000)). Here, reasonable minds could differ as to
whether Mr. Bahr had the necessary qualifications to opine as to the standard of care
necessary in a situation involving a cut-through agreement. Given Mr. Bahr’s admittedly
lacking familiarity with the use of cut-through endorsements, it was not unreasonable for
the trial court to conclude that Mr. Bahr’s standard of care opinion was “‘mere
speculation.’” State v. Farner, 66 S.W.3d 188, 208 (Tenn. 2001) (quoting McDaniel, 955
S.W.2d at 265).
Our decision above, however, does not end our inquiry, as we must next determine
whether the trial court also correctly concluded that Mr. Bahr was unable to testify
regarding the standard of care applicable when TIS offered the Highlands policy to Merit
despite is B++ rating and thereafter failed to inform Merit of the drop in Highlands’
financial rating in July 2001. In analyzing these remaining standard of care opinions, we
must keep in mind what the trial court specifically ruled that Mr. Bahr was qualified to
testify to: “(1) to what a cut through endorsement is; (2) to how cut through endorsements
are used; and (3) that a B++ rated insurance company with a cut-through endorsement is
not the same as an A+ rated insurance company[.]” TIS has raised no issue on appeal
regarding the trial court’s decision to allow Mr. Bahr to testify to these matters. As such,
we take as undisputed that these matters are properly within Mr. Bahr’s expertise.
Appellants contend that the trial court’s decision to allow Mr. Bahr to testify that
the cut-through endorsement did not alter Highlands’ financial rating and yet refuse to
allow Mr. Bahr to opine as to TIS’ alleged failures with regard to providing Merit
accurate information concerning Highlands’ financial rating is illogical. Generally, a
court may be found to have abused its discretion when it “applie[s] an incorrect legal
standard, or reache[s] a decision which is against logic or reasoning that cause[s] an
injustice to the party complaining.” State v. Shirley, 6 S.W.3d 243, 247 (Tenn. 1999).
We agree that the trial court’s ruling appears inconsistent on this issue.
Importantly, although Mr. Bahr is apparently qualified to opine that the cut-through
endorsement has no effect on Highlands’ financial rating, the trial court did not allow Mr.
Bahr to testify that Highlands’ financial rating was incorrectly explained to Merit or that
TIS failed to notify Merit of the downgrade in Highlands’ financial rating, both of which
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Mr. Bahr contends are breaches of the applicable standard of care. If, however, the cut-
through endorsement has no effect on Highlands’ financial rating, as Mr. Bahr was
allowed to opine, then Mr. Bahr’s lack of expertise in this area likewise has no effect on
his ability to give an opinion concerning general issues relative to financial ratings of
insurance companies. Simply put, expertise regarding cut-through endorsements is not
necessary to opine as to financial rating issues unless those issues are inextricably linked
to the cut-through endorsement. According to Mr. Bahr’s testimony, however, these
issues are not inextricably linked because the cut-through endorsement did not actually
do anything to alter Highlands’ financial rating.
Thus, setting aside Mr. Bahr’s lack of expertise in cut-through endorsements, we
must conclude that Appellants have shown that Mr. Bahr has sufficient experience with
general insurance matters and financial ratings to render him qualified to opine as to the
remaining breaches alleged against TIS. Mr. Bahr testified in his deposition that he
“constantly” deals with issues of A.M. Best ratings in his work as an insurance
consultant. Moreover, Mr. Bahr testified that he has done insurance work with
construction companies both as an agent, and more recently, as a consultant.
Accordingly, Mr. Bahr’s undisputed testimony shows that he has the necessary
qualifications to opine as to these more general issues relating to financial ratings, despite
his lack of experience with cut-through endorsements or the fact that he has no recent
experience with the exact type of transaction at issue. See Tire Shredders, 15 S.W.3d at
864 (allowing a witness to testify regarding the operation of a machine even though the
witness had never used the particular shredder at issue, had never used a shredder to
shred the materials at issue, but the witness had considerable experience in general with
shredders and had witnessed the use of the shredding machine at issue on three prior
occasions). As such, the trial court abused its discretion in excluding Mr. Bahr’s
testimony that TIS’ failure to inform Merit that Highlands was allegedly not an A rated
insurance carrier in spite of the cut-through endorsement and its later failure to inform
Merit of the drop in Highlands’ financial rating constitute breaches of the applicable
standard of care.
II.
Appellants next contend that the trial court erred in granting summary judgment to
TIS on their negligence claim. Summary judgment is appropriate where: (1) there is no
genuine issue with regard to the material facts relevant to the claim or defense contained
in the motion and (2) the moving party is entitled to judgment as a matter of law on the
undisputed facts. Tenn. R. Civ. P. 56.04. This Court reviews a trial court’s grant of
summary judgment de novo with no presumption of correctness. See City of Tullahoma
v. Bedford Cnty., 938 S.W.2d 408, 412 (Tenn. 1997). In reviewing the trial court’s
decision, we must view all of the evidence in the light most favorable to the nonmoving
party and resolve all factual inferences in the nonmoving party’s favor. Luther v.
Compton, 5 S.W.3d 635, 639 (Tenn. 1999); Muhlheim v. Knox. Cnty. Bd. of Educ., 2
S.W.3d 927, 929 (Tenn. 1999). If the undisputed facts support only one conclusion, then
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the court’s summary judgment will be upheld because the moving party was entitled to
judgment as a matter of law. See White v. Lawrence, 975 S.W.2d 525, 529 (Tenn. 1998);
McCall v. Wilder, 913 S.W.2d 150, 153 (Tenn. 1995).
Here, the trial court’s decision to grant summary judgment rested on the fact that
Appellants were unable to provide competent expert proof establishing the standard of
care and a breach thereof. Because we have concluded that the trial court improperly
excluded Mr. Bahr’s expert proof concerning two alleged breaches of the applicable
standard of care by TIS, the record now contains the necessary expert proof on this
essential element. Consequently, we vacate the trial court’s decision to grant summary
judgment based on insufficient expert proof of the standard of care.
Conclusion
The judgment of the Circuit Court of Knox County is affirmed in part, reversed in
part, vacated in part, and remanded to the trial court for further proceedings consistent
with this Opinion. Costs of this appeal are taxed one-half to Appellants Joy Littleton,
Grayling Littleton, and Will Allen Hildreth, and one-half to Appellee TIS Insurance
Services, Inc., for all of which execution may issue if necessary.
_________________________________
J. STEVEN STAFFORD, JUDGE
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