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NBL Flooring, Inc. v. Trumball Ins. Co.

United States District Court, Third Circuit

October 18, 2013

NBL FLOORING, INC., on behalf of itself and others similarly situated, Plaintiff,
TRUMBALL INSURANCE CO., et al., Defendants.



Plaintiff, NBL Flooring (“NBL”), has filed suit against the defendant insurance companies alleging that they improperly charged NBL for workers’ compensation insurance to cover certain independent contractors even though NBL is not required to carry such insurance for those independent contractors. NBL sues on its own behalf and on behalf of a proposed class consisting of “all businesses in Pennsylvania who contracted to purchase workers’ compensation insurance from either Defendant . . . and were improperly charged for coverage of Independent Contractors Without Employees who were not entitled to, and did not benefit from, workers’ compensation insurance.”[1] Plaintiff’s Motion for Class Certification includes, as an exhibit, an expert report prepared by a former insurance agent and broker Edward J. Priz.[2] Presently before the Court is Defendants' Motion to Strike Plaintiff’s Expert Report.


NBL, a carpet installation company, alleges that it purchased workers’ compensation insurance policies issued by Defendants Trumbull Insurance Co. (“Trumball”) and Trumball’s parent company, the Hartford Financial Services Group, Inc. (“HFSG”) in 2007 and 2008. The Policies described the process for calculating the Workers’ Compensation Insurance premiums due, which involved multiplying a rate by a “premium basis.” The premium basis is calculated based on remunerations paid during the policy period to officers and employees of the company who are engaged in work covered by the policy, and to all other persons engaged in work for Plaintiff who could be eligible for Workers Compensation Insurance under the policy if injured, including certain independent contractors. Under the policy, independent contractors would be excluded from the premium calculation where NBL provided proof that those contractors’ employers met their workers compensation obligations.

Plaintiff paid estimated premiums in advance for the Policies, as “[t]he precise amount of the premium could not be determined until after the end of the year, because the calculation depended on the number of employees and other covered individuals during the year.”[3] The Policies required Plaintiff to submit to audits by Defendants after the policy period ended, so that accurate final premiums could be calculated.

Plaintiff alleges that Defendants breached their contractual obligations to Plaintiff by failing to conduct an audit in good faith and by improperly charging premiums for certain independent contractors after the audit.[4] As a result, Plaintiff alleges Defendants improperly charged NBL thousands of dollars in additional premiums in breach of their contract.

As noted above, Plaintiff has filed a Motion for Class Certification, which is supported, in part, by an expert report issued by Edward J. Priz, who has worked in the insurance industry since 1976. In that report, Mr. Priz notes that Hartford included in the premium basis the payments NBL made to uninsured independent contractors when the auditors found that the nature of the work performed by those contractors was an inherent part of the business of the insured (i.e. carpet installation), without regard to whether NBL exercised control over how the independent contractors performed their work.[5] Mr. Priz notes that Pennsylvania’s Worker’s Compensation Act does not provide coverage for sole proprietors and partners, whereas other states do provide for such coverage, and opines that Defendants did not account for this distinctive aspect of Pennsylvania law in their audits. Therefore, he opines, the criteria used by the auditors to determine whether or not to include payments to independent contractors in the premium charges were not the proper criteria under Pennsylvania law, and their use led to improperly high premiums for NBL. He also opines as to the possible benefits accurate premium audits provide to policyholders, as they may lead to a refund of premiums paid based on estimates and a decrease in the cost of future premiums. Finally, he opines that the criteria used by Defendants in the NBL audit were used in the audits of other Pennsylvania companies which employed independent contractors also. Defendants seek to exclude Mr. Priz’s testimony on procedural and substantive grounds.


The Court must take the following factors into consideration in determining whether Mr. Priz’s testimony should be excluded on procedural grounds: (1) the importance of the testimony; (2) the prejudice or surprise to the party against whom the excluded witnesses would have testified, (3) the ability of that party to cure the prejudice; and (4) bad faith or willfulness in failing to comply with the court's order.[6]

Substantively, Federal Rule of Evidence 702 explains when expert testimony can be used:

[I]f scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient fact or data, (2) the testimony is the product of reliable principles and methods; and (3) the witness has applied the principles and methods reliably to the facts.

Where a party seeks to exclude the testimony of an expert witness on substantive grounds, the Court must examine two factors: 1) is the proffered expert qualified, by knowledge, skill, or training, to express an expert opinion; and 2) is the process or technique used to formulate the expert opinion a reliable one?[7] Under the Third Circuit framework, the focus of the Court's inquiry must be on the expert's methods, not his conclusions. An expert must demonstrate that he has good grounds for the opinion (i.e., the opinion is based on methods and procedures of science, not subjective belief) and a reasonable degree of certainty regarding the opinion.[8] An expert need not necessarily use the best grounds or unflawed methods.[9]


Plaintiffs assert that Edward J. Priz has expertise in commercial insurance cost and coverage issues, and particular expertise in Workers’ Compensation insurance. He has worked as an insurance agent and broker, and as a consultant on Workers’ Compensation insurance classifications, premiums, and audits. As noted above, Mr. Priz has submitted an expert report which contains his opinion “about the criteria used by Hartford auditors to determine whether or not to include payments to independent contractors in the premium charges made under Workers ...

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