ROLE OF THE EXPERT IN
William E. Cimpson,
M. Neches, CPA
Coopers & Lybrand
ROLE OF THE EXPERT IN ENVIRONMENTAL
Hazardous waste is produced in the
United States at the rate of 700,000 tons per day, or approximately a ton per
year for each person in the United States. As a result, in 1980 the Federal
Government enacted the Comprehensive Environmental Response, Compensation and
Liability Act, commonly known as Superfund. This act established a $1.6 billion
Hazardous Substance Response Trust Fund to pay for the cleanup of abandoned or
uncontrolled hazardous waste sites. The Superfund Amendments and Reauthorization
Act of 1986 reauthorized the Superfund program for five years and funding to
The U.S. Environmental protection
Agency (“EPA”), which has the primary responsibility for managing the cleanup
and enforcement activities under Superfund, has identified approximately 27,000
hazardous waste sites. Only a small percentage of these sites have been or are
in the process of being cleaned up. Cleaning up a site can easily cost millions
of dollars, and many companies face huge potential liability at sites
Due to the magnitude of the
environmental problems, Superfund litigation is proliferating. The Government
is suing waste site owners and operators, waste producers and waste
transporters, commonly known as potential responsible parties (“PRPs”),
for reimbursement of costs expended by the Government in site cleanup
enforcement activities. The Government also seeks court orders compelling PRPs
to implement Government-selected site cleanup remedies. PRPs are suing each
other over cost contributions to fund the cleanups and are suing the Government
to recoup costs incurred in cleanup efforts. PRPs are seeking court approval to
implement remedial solutions. Individuals and nearby property owners are suing
PRPs for personal injury and property damage related to hazardous waste sites.
no surprise, PRPs have turned to their insurance carriers to foot the bill. In
turn, carriers have claimed in many instances that they are not liable under
comprehensive general liability (“CGL”) policies for government-mandated costs
incurred for the clean-up of hazardous wastes. As a result, one of the most
hotly litigated issues today is the extent of responsibility of insurance carriage
to pay for liabilities or response costs incurred under Superfund and state
remains difficult to predict the outcome of the coverage issue. State statues
and case law very among states, and state supreme courts have yet to provide
definitive guidelines on many of the key issues. Court decisions have been split,
although it appears that the majority of courts have ruled in favour of policyholders that carriers are liable for
environmental clean-up costs.
the dispute is between the PRP and the insurance carrier, the PRP and the
Government or other parties involved in the litigation, the costs of the
clean-up, both incurred and anticipated, are sure to be central to the dispute.
Assistance offered by certified public accountants (“CPAs”) and other financial
experts can provide enormous benefits to the client, not only in determining
clean-up costs, but in controlling and mitigating the costs. CPAs will also act
as expert witnesses in trial or other proceedings.
remainder of this paper discusses the use of CPAs and other experts in
environmental litigation. For the purposes of this paper it is assumed that
clean-up costs are “damages” under CGL policies. The next section discusses the
use of experts in the general context of insurance litigation. This is followed
by discussions of specific services CPAs can offer in determining and
controlling clean-up costs. The paper concludes with several observations on
how to work effectively with experts in major environmental litigations
involving multiple parties.
OF EXPERTS – GENERAL
insurance litigation frequently boils down to a battle of experts. The side
with the better experts – more thorough, better prepared, more credible, more
convincing – is likely to prevail. The more complex the case, the more vital
experts become: law firms do not maintain a staff of consultants, CPA and other
experts with the depth and breadth of experience to evaluate all the business,
technical, financial and economic aspects of a case. Similarly, law firms’
clients do not have the resources to support major litigation without risking
serious impairment to on-going operations.
expert is an individual with “…special knowledge, skill, experience, training
or education sufficient to qualify him as an expert on the subject to which his
Attorneys rely on experts to assist in all phases of litigation. Experts
provide knowledge of the industry and its terminology. They assist in drafting
or responding to complaints, interrogatories and requests for documents. The
perform investigations, verify and discover information, reconstruct
transactions, determine values, calculate damages, render opinions and testify
as expert witnesses.
section discusses the use of experts in major insurance litigation. Because of
the universal need in these cases, the discussion emphasizes accounting and
analytical assistance provided by CPAs and other business experts. This is the
most common type of expert assistance utilized in insurance litigation.
However, most of the concepts discussed apply to the use of all types of
experts, including scientific, technological and medical experts.
attorney may have the choice of using an expert from the client’s organization
or an independent expert. Compared to an outside expert, an in-house expert may
be more knowledgeable about the client’s operations and the particular issues
of the case and may appear to be less costly for the client. On the other hand,
the in-house expert will appear to have a personal stake in the outcome of the
litigation. His or her objectivity and credibility will no doubt be called into
question. Further, it is not cost-effective ordinarily for an expert who has
responsibility for the client’s on-going operations to be tied up to the extent
required in litigation.
most cases the use of an independent expert is preferable. Sources of experts
include officers or employees of other firms in the same industry, college and
university professors, and representatives from research organizations,
accounting firms and consulting firms. Each source has advantages and
experts may possess detailed business and technical knowledge essential to the
case, but competitive considerations may mar their testimony. College
professors and researchers have an air of academic authority and independence,
but often they are unfamiliar with the practical business aspects of an
organization and the key issues of the litigation. An accounting or consulting
professional, especially one who specializes in litigation assistance, may be
best suited to perform the analyses and provide competent testimony. However,
he or she may be expensive and may appear to be “hired gun” or “professional
personal characteristics of the expert, which determine to a large degree
whether he or she will be a credible and effective witness, should be paramount
in selecting the expert. The expert should possess excellent credentials, of
course. But a long list of academic honors or professional qualifications will
not prevail in court if the expert appears arrogant, indecisive, unorganized,
inarticulate or frightened. The expert witness must have good courtroom
demeanor and a professional appearance. He or she must possess the ability to
articulate positions precisely and concisely in clear and simple language. In
addition, the expert must be able to stay calm under pressure.
abilities may make an expert good, but the expert’s capabilities are enhanced
through practice. For this reason trial attorneys prefer experienced expert
witnesses. A trial attorney is better served by an expert with outstanding
courtroom presentation skills than an expert with better credentials but a poor
in Drafting or Responding to complaints,
and Requests for Documents
can assist in fashioning detailed allegations that make complaints
motion-proof. An accounting expert can identify specific items presented in
financial and accounting records which are beneficial to the case. This can
prompt early settlement or avoid the dismissal of an otherwise solid claim.
CPA can help ensure that appropriate documents are sought and that they are
requested in the correct nomenclature. An expert familiar with an industry can
suggest sources of information which may not have occurred to the attorneys. In
addition, the expert can review the opposition’s document production.
should not turn over documents without knowing what they contain and how they
may affect the case. A CPA can assist by advising lawyers about the contents of
financial documents and any other business records. The CPA can also help the
attorney narrow document requests and can provide another opinion about the
potential jeopardy to a litigant because of the materials. If damaging
documents are identified, a timely settlement offer can be made before the case
expert can be invaluable in reviewing the opposition’s document production. An
expert may identify missing material which should have been produced by the
opposition. For example, the absence of supporting schedules or a memorandum
file may be obvious to the CPA, but not to the lawyer.
accounting expert also can assist in preparing and responding to
interrogatories. When the opposition’s document production does not provide the
information the expert needs to complete the analysis, a specific interrogatory
drafted by the expert is often the most efficient method to obtain the
necessary data. Expert assistance is often essential to respond to interrogatories
involving complex accounting or business issues.
Testimony and Assistance
lawyer should not take the deposition of the opposition’s expert without expert
assistance. The depositions of certain fact witnesses, such as a financial vice
president or controller, may be more thorough when taken with the assistance of
an expert accountant. Financial officers and employees of a company can be
interrogated more effectively with precise questions using the correct
technical language and terms of art. The expert may also help to prepare
witnesses for depositions. The skepticism and expertise of an accountant can
help to prepare a witness by probing vulnerable areas and anticipating
questions that may cause the witness the greatest discomfort and the lawyer’s
case the most adverse result.
litigation cases may tax the resources of even the largest law firm. Case
management often can be accomplished more cost and time-effectively by
litigation experts, freeing the attorneys to focus on legal rather than on
administrative issues. Experts can assist litigators by:
procedures to track and control document discovery
and staffing discovery sites
and implementing document indexing and computer support systems
and tracking case plans and budgets.
Damage claims Preparation and
assistance is essential in dealing with the complex analytical issues which may
arise in preparing or analyzing damage claims. A good technical analysis alone
does not necessarily translate into a winning presentation in court, however.
Discussed below are several principles which have been applied successfully in
developing damage claims and assisting the expert in cross-examination.
of Assumptions and Estimates
damage claims requires the use of assumptions and estimates. Typical and basic
assumptions and estimates and estimates which play a major role in the
calculated damage amount include the methodology chosen to project activity,
how far into the future damages are calculated, the factor used to discount
damages to present value, and assumptions concerning pricing and expenses.
use of estimates and assumptions is valid in court. Courts have ruled
consistently that a litigant cannot be denied compensation for losses merely
because the damages cannot be quantified precisely. Damages may be awarded
based on reasonable assumptions. However, the expert witness can expect a
vigorous attack on these assumptions.
is important for the damage expert to distinguish clearly between assumptions
resulting from uncertainty concerning the amount of damages as opposed to the
occurrence of damages, particularly when calculating future damages. A mere contingency will
not support a claim for damages.
alternative assumptions are equally probable and reasonable, the attorney may
ask the expert to provide the judge or jury with a range of damage amounts,
together with the expert’s best estimate. This provides the trier of fact with
additional information which may be used to pick an alternative damage amount
when, for whatever reason, the trier of fact does not accept a testified-to
Experts developing damage claims
often combine a series of assumptions favourable to
the client’s position to reach an unrealistically high (or low) damage amount.
This type of overreaching can be self-defeating. For example, the credibility
of an inflated damage calculation may be undermined easily, simply by adjusting
certain assumptions within a reasonable range, so that one can arrive at a
dramatically different damage amount. Similarly, the credibility of a strong
damage claim may be hurt when it is accompanied by additional claims for
tangential and speculative damages.
The attorney must work with the
accounting expert to make sure the damage analysis avoids overreaching and
speculative claims. A conservative, fully documented analysis better serves the
by the court during the course of trial may require rapid recalculation of the
damage amount. For example, the judge may rule on the damage period or
categories of damage allowed. The expert must be able to respond as the facts
of the case shift. Use of computerized damages schedules capable of rapid
adjustment is perhaps the best method to deal with fact changes. When this is
not practicable, the expert should prepare alternative approaches based on
anticipated decisions of the court.
Substantiation of Damage
testifying to very simple — or very complex – damage issues, there is a
temptation simply to state a final damage figure without explaining the
calculations which led up to this value. This can be a grave error, as courts
have repeatedly denied such damage estimates as speculative or uncertain. on the other hand, a
lengthy, technical dissertation by the witness, discussing every detail of the
damage analysis, is more likely to bore than inform the judge or jury. The
plaintiff or the plaintiff’s expert is more likely to fall into this error than
an independent expert.
effective damage presentation may be the following: state the final damage
amount (or range of amounts) and provide a brief explanation of the overall
approach used to calculate the damage amount. In more complex cases, a further
discussion of issues raised in the overall explanation may be necessary.
Frequently, the damage expert would need to testify on damages in direct
examination for less than one hour.
the damage expert may not discuss all the details of his or her damage
calculation on direct examination, he or she must be able to respond quickly to
cross-examination concerning any portion of the analysis. The expert also must
be able to produce any business records on which his or her testimony is besed. To accomplish this, all
damage calculations and supporting documentation should be organized in
cross-referenced working papers. An effective format for working paper is a
hierarchical structure in which the main results are broken down into a series
of subsidiary calculations, each in turn supported by further calculations and
original source documentation. Cross-referencing each level of the calculations
helps to assure the overall integrity of the damage calculation and eliminate
errors and inconsistencies which undermine the overall credibility of the
speaking, forensic accounting, also called investigatory accounting, is any
accounting activity for use in a court of law. Forensic accounting can be the
acquisition, reconstruction, review and analysis of the books and records of an
entity, and the development evidentiary materials. In this sense, damage claims
preparation and analysis, discussed above, is forensic accounting.
Between Forensic Accountants and Traditional Accountants
many of the tasks of the forensic accountant appear similar to those of the
traditional accountant or auditor, there are significant differences. Unlike
the traditional CPA, who typically reviews well-documented audit trails, the
forensic accountant must work with the sketchy, inaccurate or even deliberately
falsified information often encountered in litigation. Frequently, the
accountant must develop missing information based on reasonable assumptions or
on analytical techniques applied to the information available. The forensic
accountant must apply creativity and perseverance to reconstruct transactions
and records of an entity.
the forensic accountant must begin with only a general idea of the objectives
while facing tremendous numbers of records and documents. Often faced with
strict time constraints, the forensic CPA must work quickly to obtain an
overview of the relevancy of the documents and proceed to formulate a strategy.
Although attorneys usually have reviewed at least some of the documents prior
to retaining the forensic accountant, they rely on the accountant’s greater
familiarity with financial and accounting documents to guide the process of
selection of documents for review.
example, in insurance litigation involving a multimillion dollar entity, the
litigation team may have access to thousands or even millions of documents. The
accountant may first obtain a quick understanding of the entity and its history
by arraying five to ten years of historical profit and loss statements. This in
turn may lead to areas requiring further investigation.
forensic accountants are familiar with the legal system and comfortable working
within it. They understand the laws pertaining to discovery and the presentation
of opinions in court. They are familiar with, and may even relish, the rigors
of cross-examination, an experience the typical accountant can fairly be said
of Using Forensic Accountants
accountants and their staffs typically are better equipped to review large
numbers of records than are litigators and their staffs. Because of their
greater familiarity with financial and accounting records, the forensic CPA is
in a better position to detect and extract critical information from the
records. For example, faced with a large stack of computer printouts from a
general ledger, the forensic accountant could quickly identify critical
accounts and enter monthly subtotals into a worksheet to identify trends.
Forensic accountants at major CPA firms can marshal enormous resources when
needed to perform large tasks in a short time. In one litigation, for example,
in a two-month period nearly 40,000 hours of special audit work was performed
in twenty-one cities around the country to meet a tight deadline. Finally,
because the investigatory tasks would be performed by staff personnel under the
direction and supervision of the forensic accountant, the CPA is in a position
to testify as to his or her findings.
of Forensic Accounting
forensic accountant may apply a variety of techniques to perform the analysis.
These techniques, which encompass a broad spectrum of accounting and general
knowledge, can be adapted strategically to strengthen the case. Forensic
accounting techniques include:
o Agreed-Upon Procedures
In addition to these techniques,
which are associated with traditional accounting and auditing, the forensic
accountant will rely on the work of other specialists in performing certain
technical analyses (e.g., statistical analyses, valuations, cost and price
analyses, or economic analyses).
Accountant as Expert witness
The courts have uniformly accepted
the accountant, in particular the certified public accountant, as an expert. Trial attorneys, however,
have considered the accountant to be a poor expert witness. This perception is
often justified. Accountants often seem unable to avoid the use often seem
unable to avoid the use of arcane terminology and detailed qualifications to
explain accounting issues. This may make a bad impression on the judge or jury.
After all, accounting deals with numbers, and it would seem reasonable to
expect a decision based on numbers to be clear, precise, and unqualified.
Accountants are not entirely at
fault, however. Often the issues facing accountants are not simple. Most
laypersons do not understand the large role that subjective judgment and
assumptions play in the development of accounting and financial
statements. An example of the role of
judgment in what at first appears to be a simple arithmetical task is valuing
inventory, If the costs of supplies and manufacturing are known, the value of
the product would seem easy to calculate. But which value should be used, cost
or market? It cost is used, then is historical or replacement cost appropriate?
If historical or replacement cost is chosen, then what method should be used to
computer historical cost: last-in-first-out, first-in-last-out, or some other
cost method? If market value is used, should it be based on normal selling
price or liquidation selling price? Should the cost to complete the inventory
and selling cost be included? The expert witness testifying to the value of
inventory clearly has to do more than add up columns of numbers. He or she must
make difficult accounting decisions and explain them to the judge or jury.
their part, in presenting complex issues in court, accountants often take for granted
that the judge or jury understands accounting principles and terminology.
Accountants may use technical terms without explaining them adequately, and may
dwell on subsidiary issues of minor importance in their overall conclusions.
This is a frequent problem among accountants, most of whom spend their time
working with other financial professionals. Most accountants are more
comfortable with the familiar role of practicing their craft than with the
often more difficult task of explaining it to non-accountants by testifying in
accountants make excellent witnesses. As is true with most technical subjects,
accounting transactions can be explained in terms understandable to judges and
jurors who have no technical background in accounting. The attorney should
retain the accountant who says, “They bought the tractor with a cash down
payment and borrowed the rest,” instead of, “The acquisition of the farming
machinery resulted in a debit to fixed assets and credits to cash and notes
In addition to providing his or her
own testimony, the accounting expert should be present for the testimony of the
opponent’s expert. In addition, it may be wise to have a CPA present during the
testimony of business-related fact witnesses on both sides. The CPA can provide
a specialized audience whose critical and objective comments may be most
helpful, if not crucial. During trial the expert should also prepare for
rebuttal testimony, if needed, and review relevant testimony for aspects useful
in post-trial motions and potential appeals.
OF EXPERTS – SUPERFUND LITIGATION
Having discussed in a general
context how CPAs can assist attorneys involved in litigation, we turn now to
several specific services CPAs can provide to parties involved in Superfund
litigation. These services are categorized into three areas:
of incurred cost claims
review of alternative remedial cost estimates
of Incurred Cost Claims
In an incurred cost claim, the
Government seeks reimbursement from PRPs for funds expended by the EPA in
Superfund site cleanup efforts as well as funds expended by the EPA and the
U.S. Department of Justice (“DOJ”) in enforcement activities. In addition to
actual cleanup costs, the Government and its contractors and subcontractors may
incur and seek reimbursement for substantial costs to secure the site, costs to
determine the nature and level of contaminants and costs to perform feasibility
studies prior to selection of a cleanup remedy. PRPs in Superfund cases are
both challenging the Government’s incurred costs and turning to their insurance
carriers to foot the bill. Expert assistance is essential to analyze the
Government’s incurred costs and can reduce the dollar amount of the incurred
cost claims. Further, because the Government may delay the filling of claims
until millions of dollars have been expended at a particular site, it is wise
to retain an expert to monitor and control costs as soon as significant site
costs are incurred by the Government.
of three incurred cost issues which may require expert assistance are discussed
of Indirect Costs Allocated to a Particular Site
The EPA, DOJ and each of their
contractors and subcontractors allocate their indirect costs to individual
sites, each using a different cost allocation method. The method utilized
currently by the EPA allocates indirect costs (including both regional and
headquarters costs) based on direct labor hours incurred at individual sites by
regional EPA personnel. Under this method, which has been in effect since 1983,
the EPA’s annual indirect cost rates have ranged from $47 to $71 per regional
direct labor hour. Thus, a significant portion of the Government’s incurred
costs is comprised of EPA indirect costs. This allocation method, as well as
its application to a particular site, should be analyzed to determine whether
the inclusion of certain costs is appropriate and whether the mathematical
computation of this cost component is accurate.
indirect cost allocation method utilized currently by the DOJ follows the basic
theory underlying the EPA methodology, although there are differences between
the two methods. DOJ’s indirect costs also should be analyzed to determine if
the computations are mathematically accurate and if indirect costs are
The majority of goods and services
contracted for by the EPA and the DOJ for Superfund include indirect cost
components. Each significant contractor’s indirect cost computation should be
reviewed to determine whether it complies with Government cost accounting
standards and whether the appropriate indirect costs and rates for each
contractor have been reflected correctly in the Government’s incurred costs.
of Incurred Cost Documentation
The EPA typically prepares a summary
cost documentation package to support its incurred cost claim for a particular
site. A typical package would include a summary page of expenditures by cost
component and detailed information for each cost component. A sample listing of
the components of Government incurred costs includes the following:
o EPA Payroll Costs
o EPA Indirect Costs
o EPA Travel costs
o other EPA Costs
o EPA contractor/Subcontractor Costs
o Interagency Agreement Costs
of the Interior
Federal Government Agencies
o state Cooperative Agreement costs
the discovery process the Government usually provides additional detailed
documentation supporting its incurred cost claim. This cost documentation
should be analyzed to determine whether it is adequate to support the
Government’s cost claim. The EPA has contracted with several companies to
perform cleanup procedures at numerous Superfund sites throughout the United States.
Typically, the Government pays these contractors based on a single monthly
invoice for work at all sites. A contractor’s determination of the proportion
of a nationwide invoice applicable to a given site should be analyzed for
Costs Resulting from Multiple Layers of Contractors and Subcontractors
It is common practice for the EPA to
engage a contractor, who engages a subcontractor, who engages another
subcontractor and so on, each of whom performs portions of the site work. Due
to the typical structure of Government cost- based contracts, these multiple
layers of contractors and subcontractors involved in the performance of various
site cleanup procedures may result in unreasonably high charges. An analysis of
the extent and cost effect of layering may be beneficial.
Review of Alternative Remedial Cost Estimates
Government and PRP environmental
engineers may each prepare a proposed remedial solution for site cleanup.
Frequently, the Government’s proposed remedial solution varies greatly in
approach and estimated cost from the solution proposed by the PRP. Proposed
remedies typically involve cleanup actions over several years, and the
associated cost estimates are based on numerous assumptions. PRPs are more
likely to prevail with the Government when they can demonstrate that their
approach costs less while achieving the same environmental quality cleanup
In negotiating or litigating with
the Government or insurance carriers over alternative cleanup remedies, expert
accounting assistance is essential. Assistance in the analysis of remedial
solutions proposed by the Government and PRPs includes the following
o Review of the cost estimates prepared by the
engineers and comparison of these estimates to available industry standard
costs and quotes obtained independently from contractors
o Verification of the mathematical accuracy of
the cost estimate calculations
o Comparison of the cost estimates of the
various recommended remedial solutions using financial modeling techniques
o Comparison of the EPA estimated cost with
EPA cost estimates for similar remedial solutions at other sites
o Comparison of EPA cost estimates with actual
costs incurred for similar recommended remedial solutions at other sites.
procedures result in expert conclusions regarding the accuracy and
reasonableness of the estimated costs of the remedial solutions proposed by the
Government and the PRPs.
Other Expert Assistance
experts also can provide a variety of other services related to Superfund
litigation. These services include the following:
o Establishment of an accounting control
system to record costs incurred by PRPs for the dual purposes of: (1)
substantiating cleanup and other response costs for assessment to PRPs based on
their varying degrees of responsibility at a particular site and (2) filing
claims against the Government for reimbursement of excess costs incurred as a
result of government actions
o Determination, for use in insurance claims,
of the total incurred costs and future liabilities for site cleanups
o Establishment and periodic review of
accounting and financial controls over the proposed cleanup procedures to be
undertaken at a given site, including systems to allocate the related costs in
the manner prescribed by the settlement agreement among the PRPs and the
o Analysis of personal injury and property
damage claims related to hazardous waste sites to assess their reasonableness
o Expert testimony concerning findings and conclusions.
EFFECTIVELY WITH EXPERTS IN ENVIRONMENTAL
Experts in Early
attorneys delay bringing in an expert until only weeks or even days before
trial. The result of such last-minute calls is often extra effort and cost as
well as a weakened ability to present an effective case. The expert may have to
redo work already performed by the attorney or the attorney’s client because
the expert must be able to testify as to his or her independent analysis of the
facts. Experts brought in after the close of discovery may find the credibility
of their analyses undermined because important information is not available to
them — information which could have been obtained readily if an expert had
been available to point out its significance earlier.
attorney and client benefit by bringing in experts early. On a cost basis alone
the expert’s ability to help attorneys avoid unnecessary discovery by
pinpointing key documents justifies early involvement.
Work in Concert on Strategy and
The expert and the attorney must
work together to develop the expert’ testimony. The good expert witness makes
it clear, albeit diplomatically, that he or she will not simply say what the
lawyer wants the witness to say. The attorney must take care not to impose his
or her preconceptions on the expert. Initially, in complex litigations, the
attorney will be far more familiar with the facts of the case than is the expert. However, the
attorney often has only an incomplete understanding of what the expert potentially
could do to assist in the litigation. The attorney should solicit the expert’s
advice concerning the tasks the expert will perform. At the same time, the
expert must be guided by the attorney, who is responsible for presenting the
Preliminary Analysis of Damages
In even the most complicated case, a
good expert can develop a rough estimate of damages in a matter of days. This
analysis can be refined as further information becomes available. Developing a
preliminary damage estimate as soon as possible in a litigation offers several
advantages to the client. First, it helps determine the appropriate level of
further effort. If the exposure or potential is lower than first thought, a
more detailed damage analysis may not be cost effective. This information can
be extremely useful in settlement negotiations. Second, the preliminary
analysis may reveal that further discovery is needed.
A third advantage of developing a
preliminary analysis and subsequent updates is that they provide the accounting
expert with a basis to testify to his or her findings even if time or budget
constraints do not allow the expert to finish every aspect of the analysis.
This safeguards against the possibility (indeed, a real danger in large
litigations involving numerous documents) that the expert will run up large
fees while collecting, organizing and analyzing the data without reaching any
Establish and Monitor a Budget
A famous lawyer was once asked, “How
much will this case cost to litigate?” His answer was, “Everything
you’ve got.” Experts rarely are, or should be, in a position to treat
budgets so cavalierly. Insurers take a dim view of exploded budgets for
experts, and they respond by refusing to pay the fees of the experts and the
attorneys who hired them. Estimated budgets can and should be developed for any
litigation task. Attorneys and insurers should be informed before budgets are
exceeded so they may react appropriately, either by authorizing further
expenditures or by scaling back the expert’s scope of work. Doing this helps
protect both the expert and the client against disputes concerning fees. In
major litigations, when budgets take a second seat to frantic efforts to meet
deadlines, the client and the insurance company should be kept informed on a
very frequent basis of fees incurred.
The attorney must be informed of the
progress the expert is making, both in terms of the analysis and fees being
incurred. Experience Shows the experts often must take the initiative to contact
the attorneys to let them know what they have accomplished and what they intend
to do next. When dealing with experts, many attorneys seem to take the attitude
that no news is good news, and they may be unpleasantly surprised when the
expert’s findings or fees were not as expected. Similarly, when using multiple
experts, for example, a marketing expert, an accountant and an appraiser,
information must be shared. Lack of communication during preparation of the
case can lead to disaster in the courtroom.
Establish a Primary contact for the
Major insurance litigations often
involve multiple attorneys and law firms representing different parties in the
case. To save costs, several parties may agree to share the services of an
expert. Because the interests of parties in litigation rarely converge exactly,
the expert may be pulled in conflicting directions. To avoid this potential
problem, the litigants should establish one attorney as the primary contact to
whom the expert reports and from whom the expert receives his or her
instructions. This attorney also should be responsible for making sure the
experts are provided with the resource (e.g., documents and access to
individuals) they need to accomplish their tasks. Often this role is delegated
to more junior attorney involved in the litigation. A better choice is the
litigator who will examine the expert on the witness stand.
Understand the Rules Governing Discovery
of Expert Opinions
experts and attorneys should be familiar with the work product doctrine and
attorney-client privilege as they relate to the discovery of expert opinions.
The laws can differ among states and from the federal rules of evidence.
Generally speaking, observations and opinions of an expert employed as a
pre-trial consultant rather than a potential witness are deemed work product of
the attorney and are protected from discovery. Once an expert is employed
to testify at trial, however, his or her opinions are relevant evidence and
generally are not protected by the work product doctrine.
laws can be complex, and misunderstandings may have important consequences in a
litigation. For example, an expert’s examination and analysis of confidential
client documents may be privileged, but certain types of direct testimony may
constitute a waiver of the privilege and enable the adverse party to
cross-examine the expert on the subject of the privileged information.
Neither the lawyer nor the expert
should surprise the other at trial or during deposition. The expert witness
should work with the attorney in framing questions in such a way that the
expert can provide answers which are helpful to the case. In complex testimony,
attorneys may wish to take advantage of the fact that it is permissible to lead
an expert in direct examination. If the expert is testifying for the first
time, the expert should spend some time prior to testifying sitting in on the
trial (or another trial) to familiarize himself or herself with courtroom
Using experts is an integral part of
virtually any major insurance litigation. The expert can form an opinion or an
inference on complex, unfamiliar or specialized matters when the layperson
would not be able to do so. Although expert witnesses come from many fields,
perhaps the most commonly used expert is the accountant. Expert accountants
perform valuable services both before and during trial. Attorneys call upon
CPAs to explain or interpret complex financial transactions, to trace funds, to
estimate value, to calculate damages, to perform technical analysis, and to
render opinions. CPAs can assist in Superfund litigation by reviewing
Government incurred cost claims, providing economic evaluations of clean-up
costs and developing financial and accounting control systems. Although most
cases do not reach the courtroom, attorneys should always look for an
accountant who has the right combination of professional skills and personal
characteristics to be an effective expert witness. Finding the right expert
witness can make the difference between winning and losing a case.
Rules of Evidence,
Rule 702; California Evidence Code, Section 720 (a).
Lettuce Growers v. Union Sugar Co.,
45 cal 2d 474, 486-87, 289 p.2d 785, 793 (1955). Smith
v. Onyx oil & chem. Co., 218 F.2d 104, 110 (3d Cir. 1955).
Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555 (1931); Wells Truckways,
Ltd. v. Burch, 247 F. 2d 194 (10th cir. 1957).
Karien v. Butler Mfg. Co., 526 F.2d 1373 (8th cir. 1975); Autrey v. Williams & Dunlap, 343
F.2d 730 (5th cir. 1965).
y. Durango Music. Inc.,
144 Colo. 270, 355 P.2d 1083 (1960); Quad-States. Inc. v. Vande Mheen, 220 Neb. 161,
368 N.W. 2d 795 (1985).
Sys, Eng’g, Inc. v. Oantel Corp., 740 F.2d 59 (1st Cir. 1984); Westric Battery Co. v. Standard Elec. Co.,
482 F. 2d 1307 (10th cir. 1973).
Rules of Civil Procedure,
26 (b) (3); Scotsman Mfg. Co. v. Superior Court, 242 cal. App. 2d 527,
531, 51 Cal Rptr. 511 (1966).
Ouadrini v. Sikorski Aircraft Div., 74 F.R.D. 594 (D. Conn. 1977).
See also Federal Rules of Civil Procedure, 26 (b).
v. Whitmore, 251
cal. App. 2d 359, 59 Cal. Rptr. 411 (1967).
What is A Ponzi Scheme?
Thomas Neches Appears on ‘Getting Schooled’ Podcast w/Abby Hornacek
What is a Ponzi scheme? Who do they affect and how do they happen? Thomas sits down with Abby Hornacek to discuss these questions and more following the recent death of one of the most infamous Ponzi schemers of all time, Bernie Madoff. Madoff’s name roared into the headlines in 2008 when he was arrested for conning 65 billion dollars out of as many as 37 thousand people. (more…)
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