Opinion ID: 2218734
Heading Depth: 1
Heading Rank: 1

Heading: Admissibility of Testimony of Witness, Marshall Reavis.

Text: First among National States' claims of error is a challenge to the opinion testimony of plaintiff's expert witness, Marshall Reavis, indicating that National States was engaging in cash flow underwriting and postclaim underwriting. This witness, who has a Ph.D. in insurance risk management, had reviewed data on National States contained in a nationally recognized insurance industry rating service. [1] Comparisons had been made of National States' premiums and those of other insurance companies selling nursing home policies with allegedly similar coverages. In addition, this witness had studied the company's underwriting and claims management practices as shown in company manuals and memorandums and had reviewed deposition testimony of key National States' employees concerning those practices. After reviewing all of those materials, Mr. Reavis concluded that the company's practices reflected a broad plan to run large amounts of cash through the company that could be invested and ultimately paid out to the company's principals prior to its collapse from an unreasonably low premium structure. He labeled this practice as cash flow underwriting. Mr. Reavis expressed the view that the premium charged by National States for its nursing home insurance was less than a third of that charged by other companies for similar coverage. In reviewing National States' underwriting practices, Mr. Reavis concluded that its quotas for underwriters amounted to reviewing eighty-five applications per day. He concluded that this would necessarily result in the rubber-stamping of policy applications with no serious effort to weed out high-risk applicants. The witness opined that there was virtually no chance the premiums charged by National States would be adequate to cover its claims and administrative costs on the policies sold. This factor, coupled with the company's seemingly deliberate delay in processing claims, led the witness to conclude that the company was applying postclaim underwriting. He described postclaim underwriting as an attempt to rescind policies after claims have been made. National States' principal objection to this testimony was based on Iowa Rule of Evidence 406, which provides: Evidence of the habit of a person or of the routine practice of an organization, whether corroborated or not and regardless of the presence of eyewitnesses, is relevant to prove that the conduct of the person or organization on a particular occasion was in conformity with the habit or routine practice. National States argues that Mr. Reavis failed to consider a sufficient number of claims that it had denied to warrant admission of evidence of routine practice under rule 406. We do not believe that the admissibility of the challenged evidence is governed by rule 406. That rule relates to evidence of routine practice for purposes of permitting a fact finder to conclude that conduct in a particular instance was in conformity with that practice. Plaintiff did not offer the challenged evidence for this purpose. She offered it, rather, as data upon which this expert witness might formulate his opinions concerning the company's insurance underwriting practices. Rule 406 does not affect those rules of evidence that govern expert opinion testimony. Iowa Rule of Evidence 702 allows the admission of expert opinions if such opinions will assist the trier of fact in understanding the evidence or in determining certain factual issues. Rule 703 governs the bases upon which an expert opinion may be premised. It provides: The facts or data in a particular case upon which an expert bases an opinion or inference may be those perceived by or made known to him at or before the trial or 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. This court has long been committed to a liberal view that allows opinion testimony if it will aid the jury and is based on special training, experience, and knowledge with respect to the issue in question. Cook v. State, 476 N.W.2d 617, 620 (Iowa 1991); Mermigis v. Servicemaster Indus., Inc., 437 N.W.2d 242, 247 (Iowa 1989). The qualifications of Mr. Reavis appear to have been adequate to allow him to testify to the matters that were the subject of National States' objections. The topic for expert opinion involved allegedly fraudulent underwriting techniques by insurance companies. Plaintiff's expert was shown to be an authority on that subject through education, background, and experience. We are unable to accept National States' suggestion that only an actuary would be qualified to give a valid opinion on the company's underwriting practices. Probably the most damaging argument that National States makes in challenging Mr. Reavis's testimony is that the benefit structure of those insurance companies used in his premium comparisons were somewhat more generous than the benefits under National States' policies. We conclude, however, that this disparity only affects the weight of the testimony and not its admissibility. In objecting to the questions propounded to Mr. Reavis, National States did not assert that the factors upon which his opinions were based were not of a type reasonably relied upon by experts in the field. Applying the standards of rule 702 and rule 703, we do not believe that the district court abused its broad discretion in admitting this testimony.