Doctors Co. v. State, Dept. of Ins., 1D05-5643.

• Decision Date: 13 September 2006
• Docket Number: No. 1D05-5643.,1D05-5643.
• Parties: The DOCTORS COMPANY, Appellant, v. STATE of Florida, DEPARTMENT OF INSURANCE as Receiver of Caduceus Self-Insurance Fund, Inc., Appellee.
• Court: Florida District Court of Appeals

940 So.2d 466

The DOCTORS COMPANY, Appellant, v. STATE of Florida, DEPARTMENT OF INSURANCE as Receiver of Caduceus Self-Insurance Fund, Inc., Appellee.

No. 1D05-5643.

District Court of Appeal of Florida, First District.

September 13, 2006.

Rehearing Denied November 2, 2006.

Arthur J. England, Jr., and Edward G. Guedes of Greenberg Traurig, P.A., Miami; Barry Richard and M. Hope Keating of Greenberg Traurig, P.A., Tallahassee; William R. Clayton of Greenberg Traurig, P.A., Fort Lauderdale; Michael P. Dickey of Barron, Redding, Hughes, Fite, Fensom, Sanborn & Kiehn, Panama City, for Appellant.

Eric Scott, Senior Attorney, Department of Financial Services, Tallahassee; Theodore R. Doran, Aaron R. Wolfe, Scott R. Rost, and Carolyn S. Ansay of Doran, Wolfe, Rost, Ansay & Kundid, Daytona Beach, for Appellee.

PER CURIAM.

Appellant, The Doctors Company, appeals an adverse final judgment awarding the Department of Financial Services $17.9 million in damages and prejudgment interest in a breach of contract action. Appellee is the receiver of Caduceus Self Insurance Fund Inc., a self-insurance medical malpractice trust. Appellant asserts that the trial court reversibly erred by excluding the testimony of Appellant's expert witnesses and by denying Appellant's motion for a continuance filed on the eve of trial.

We affirm because the trial court did not err on either issue and therefore did not abuse its discretion.

Factual Background

Caduceus was created by several Florida physicians in the 1970s. In 1998, Caduceus entered into a contract with Appellant, a California-based insurance entity looking to expand its operations into Florida. Under the terms of the Master Agreement, Appellant acquired Caduceus's offices, including its staff and its relationships with its agents throughout Florida. Appellant primarily authored the Agreement. Both parties agree that the Agreement is "unambiguous, integrated, and should be enforced pursuant to [its] clear terms."

In exchange for Caduceus's assets, Appellant agreed to pay Caduceus business fees for each new insured and for the cumulative profit generated by its Florida operations from 1999-2002. The Agreement specifically defined the term "cumulative profit."

Although Appellant succeeded in Florida, it declined to pay any new business fees or cumulative profit to Caduceus. Caduceus had planned to pay its malpractice claims with money received from Appellant, but when Appellant failed to pay, Caduceus lacked sufficient cash to pay its claims. The State declared Caduceus insolvent and placed it in receivership. Under the liquidation order and Chapter 631, Florida Statutes (2000), Appellee was responsible for collecting all debts owed to Caduceus. Appellee determined that Appellant failed to account for, calculate, and pay Caduceus the cumulative profit earned by Appellant, as required by the Agreement. Accordingly, Appellee filed a breach of contract action in February 2002.

Procedural and Evidentiary Context of Trial Court's Rulings

In August 2004, the trial court told both parties that once the court set the case for trial, it would not postpone the trial date. Nearly six months later, approximately three years after it filed suit, Appellee requested that the court set a trial date, and Appellant did not object.

In April 2005, the trial court issued an order setting the case for trial in September 2005. The order required Appellee to list and designate all of its witnesses no later than 90 days before trial. Appellant was required to list its witnesses no later than 60 days before trial. The order warned the parties that no "document or witness not contained in the above-referenced lists will be permitted to be introduced or to testify at the time of trial, except by order of the court after showing of good cause." (Emphasis added.)

In May 2005, Appellant sent Appellee two interrogatories. In response to one interrogatory, Appellee listed its expert witness, Edward Buttner, a certified public accountant, and later supplemented its answer with a detailed explanation of Mr. Buttner's opinion and a full description of his calculation of damages. In July 2005, Appellant disclosed the name of its expert, James Schacht, but conducted little discovery and took no depositions before this time.

One day before trial Appellant moved to amend its witness list, seeking to add Jeff Donaldson, Chief Actuary, as a witness. The trial court denied Appellant's motion, finding that (1) the issues sought to be addressed by Mr. Donaldson were "obvious and apparent"; (2) Appellant waited too long to disclose Mr. Donaldson; and (3) allowing Mr. Donaldson to testify would prejudice Appellee.

At trial, Appellee's expert, Mr. Buttner, testified that he calculated the cumulative profit due to Appellee based on Appellant's annual statements and other data provided by Appellant. Mr. Buttner testified that based on this data, Appellant generated $14.1 million in cumulative profit which it failed to pay Caduceus, as required under the Agreement.

During Appellant's case-in-chief, Mr. Schacht testified as an "expert in the field of insurance industry transactions and custom and usage." Appellee objected to his expert opinion testimony based on section 90.705(2), Florida Statutes (2005). Appellee then conducted a thorough voir dire of Mr. Schacht, and Appellant proffered his testimony. On proffer, Mr. Schacht testified that he is neither a certified public accountant nor an actuary, and that he had spent no more than 20 hours preparing for trial. Mr. Schacht testified that he arrived at his opinion by reviewing deposition summaries completed by two subordinate employees. These employees also reviewed Mr. Buttner's report for Mr. Schacht.

Mr. Schacht further testified that Mr. Buttner's cumulative profit calculation was flawed because it failed to take into account loss reserves, as required under Florida law, therefore, Mr. Buttner's profit calculation was somehow inflated. Mr. Schacht further claimed that Mr. Buttner employed defective methodology by equating the term "collected premium" with the amount of reported written premiums, even though the written premiums may not have actually been received during the contractual period. Mr. Schacht, however, did not, and could not, provide his own "cumulative profit" calculation, and he could neither agree nor disagree with any of the figures which formed the basis of Mr. Buttner's calculation.

After hearing arguments regarding Mr. Schacht's testimony, the trial court granted Appellee's motion to exclude his testimony. The trial court found that Mr. Schacht's testimony was not relevant or material, and that it would not assist the jury in reaching an informed decision. The court reasoned that Mr. Schacht could not establish a foundation on which to offer an expert opinion because the three sources on which his opinion depended were unreliable and were not the type of sources upon which experts in the field normally relied. These three sources were: (1) Appellant's attorney; (2) an actuary at Mr. Schacht's consulting firm who had informally discussed the matter with Appellant's actuary; and (3) Mr. Schacht's "suspicion" that Appellant's annual statements did not include bulk reserves.

Appellant then called its chief financial officer, David Preimesberger, as both an expert and a fact witness. The trial court excluded Mr. Preimesberger's opinion testimony because he was not timely designated as an expert pursuant to the trial court's order. During Mr. Preimesberger's lay testimony, he acknowledged that he was not personally involved in preparing any cumulative profit calculations. Although Appellant's controller previously answered interrogatories relating to cumulative profit calculations, Appellant did not call the controller as a witness.

The jury returned a verdict in favor of Appellee and awarded damages in the amount of the cumulative profit as determined by Mr. Buttner.

Exclusion of Appellant's Expert Witnesses

In our consideration of the trial court's ruling excluding the testimony of Appellant's expert witness, we apply the well established standard of review that "acceptance or rejection of expert testimony is a matter within the sound discretion of the lower tribunal, and such decision will not be overturned on appeal absent a showing of abuse of discretion." Gray v. Russell Corp., 681 So.2d 310, 316 (Fla. 1st DCA 1996). We find that Appellant has failed to demonstrate reversible error because the trial court did not abuse its discretion and, in fact, correctly excluded Mr. Schacht's testimony.

The trial court's decision to exclude Mr. Schacht's testimony was controlled by section 90.705(2), Florida Statutes (2005), which states:

Prior to the witness giving the opinion, a party against whom the opinion or inference is offered may conduct a voir dire examination of the witness directed to the underlying facts or data for the witness's opinion. If the party establishes prima facie evidence that the expert does not have a sufficient basis for the opinion, the opinions and inferences of the expert are inadmissible unless the party offering the testimony establishes the underlying facts or data.

An expert opinion is inadmissible where it is apparent that the opinion is based on insufficient data. Dempsey v. Shell Oil Co., 589 So.2d 373, 380 (Fla. 4th DCA 1991). See also Centex-Rooney Constr. Co., Inc. v. Martin County, 706 So.2d 20 (Fla. 4th DCA 1997).

The trial court properly exercised its discretion when it excluded Mr. Schacht's testimony based on conversations he had with Appellant's attorney and with an actuary at his consulting firm. Mr. Schacht's opinion, if allowed, would have been based on inadmissible hearsay. The rule is well established that if an expert is called merely as a conduit to place inadmissible evidence before the jury, the trial court appropriately exercises its discretion by excluding such evidence. See ...