Property Damage Insurance Claims
Property Damage, Experts And Damages
November 14, 2012
Insurers, contractors and property owners take note – Property damage claims are common. They arise from wind, water, fire, construction defects and every type of accident imaginable. But do you know what is required for a sustainable damages award? The Supreme Court recently addressed that issue inMcGinty v. Hennen, 372 S.W.3d 625 (Tex. June 29, 2012) (per curiam).
As we have previously reported, expert testimony requires special attention at trial and is often fertile ground for an appeal. And we are not just talking about Daubert type challenges. In a number of cases the Texas Supreme Court has held that an expert's testimony was "no evidence" even where there was no Daubert challenge and the testimony was admitted without objection. See Keeping Your Expert, and Yourself, Out Of Trouble. It is more common, however, to see these rulings in the context of liability or causation evidence. McGinty involved the adequacy of evidence quantifying damages.
The case arose from construction defects that resulted in water damage and mold contamination in the plaintiff's house. Hennen sued the builder and recovered $651,230 on a breach of contract theory for the "reasonable and necessary cost to repair the home." The jury also awarded Hennen $700,000 in exemplary damages on tort theories, but the trial court disregarded the jury's finding as to the date Hennen should have discovered the wrongful act and held those damages were precluded by limitations. A divided court of appeals affirmed. McGinty then petitioned the Supreme Court, arguing that there was no evidence the estimated repair cost was "reasonable and necessary."
It has long been the law in Texas that a party seeking to recover remedial damages must prove that the damages sought are reasonable and necessary. In order to do this, the plaintiff must show more than simply "the nature of the injuries, the character of and need for the services rendered, and the amounts charged" for the repairs. Some other "evidence showing that the charges are reasonable" is required.
In McGinty, the plaintiff presented testimony from two experts. One testified about the defects in the construction of the house and the work necessary to stop the water penetration. The other, a general contractor certified in mold remediation, prepared a written estimate and testified as to what the work would cost. The contractor testified that he derived his estimated repair costs using a software program used widely in the insurance industry known as "Exactimate." [sic] He further testified that the program had a Houston price guide, and that because not every price issued by the program is right, "we have to cross-reference and double check all our pricing." Finally, he testified that "some of the other costs came from subcontractors or historical data or jobs."
The Supreme Court held that this testimony was "no evidence" that the estimated repair costs were "reasonable." Specifically, the Court stated that testimony as to how the contractor derived the estimate "does not in itself make the figure reasonable. In some cases, the process will reveal factors that were considered to ensure the reasonableness of the ultimate price. But that did not happen here. Hennen's expert established only that some of the pricing came from a widely used software program and some from 'subcontractors or historical data or jobs.'"
McGinty v. Hennen has wide application to first party insurance cases and other property damage cases where the Xactimate software program is commonly used to prepare repair estimates. It makes clear that some other evidence is required to establish that the resulting estimate is "reasonable." What makes the case particularly significant is that it was not a close call. Hennen is a unanimous per curiam decision, which the Court issued without hearing oral argument.
There is one other thing of note about this case: Hennen tried to assert "cross points of error" in the Texas Supreme Court complaining about a limitations ruling made by the Court of Appeals.
The Supreme Court held that "Because he did not file a petition for review, Hennen has waived these arguments." (citing Tex. R. App. P. 53.1). Maybe Hennen should have hired an appellate lawyer.