United National Insurance Company v. AMJ Investments, LLC

Affirmed as Modified in Part; Reversed and Remanded in Part; and Opinion
and Dissenting Opinion filed June 26, 2014.
In The
Fourteenth Court of Appeals
NO. 14-12-00941-CV
UNITED NATIONAL INSURANCE COMPANY, Appellant
V.
AMJ INVESTMENTS, LLC, Appellee
On Appeal from the 269th District Court
Harris County, Texas
Trial Court Cause No. 2010-37580
DISSENTING OPINION
Because I believe McGinty v. Hennen, 372 S.W.3d 625 (Tex. 2012) (per
curiam) applies, I would reverse the trial court’s judgment and render judgment
that AMJ Investments, LLC, take nothing. Therefore, I respectfully dissent.
I. PERTINENT FACTS
The jury found actual damages of $300,000 for United’s breach of contract
and $300,000 for United’s Insurance Code violations. Both amounts represent the
difference between the $2.4 million United paid to AMJ on its claim1 and the
additional damages AMJ sought in its suit. AMJ attempted to prove its damages
through its expert witness, Art Boutin.
Boutin has nine years of experience as an insurance adjuster determining
repair estimates for storm-related damages. Here, he utilized the same techniques
he had throughout his career. He began with reviewing the reports of AMJ’s other
expert witnesses (Peter de la Mora and Michael Krismer), 2 who had determined the
scope of damages which AMJ claimed Hurricane Ike caused to the Building.
Boutin also reviewed the reports of Sheffield and Johnson, with whose estimate
Krone (AMJ’s public adjuster) agreed regarding the roof repair. Boutin also
visited the building.
Then, in preparing his estimate, Boutin used the estimating software,
Xactimate. He testified generally, as did other witnesses, about how the Xactimate
program works; that is, how the industry uses the program to calculate prices for
the specific zip code where repairs are being estimated, based upon the price data
input into the computer program. Basically, Xactimate simply calculates estimates
for costs after the information of the items to be repaired are input into the
program. Using the program, Boutin generated an approximately fifty-page
estimate providing line-item estimates for repairs to the building on a room-by-
room basis, with a total estimate of $3.4 million. He testified his Xactimate
estimate is what Sheffield should have prepared immediately after Hurricane Ike.
Subtracting the $2.4 million United paid on its claim from the $3.4 million
1
United paid AMJ amounts of $700,000, then $1,491,627.48. Adding that to the
additional $222,000 accounts for total payments of $2,413,627.48.
2
AMJ did not offer the reports of de la Mora and Krismer.
2
contained in the estimate he prepared for trial, Boutin opined that United owed
AMJ approximately $1 million in additional remedial damages.
Absent from Boutin’s estimate, his one paragraph “report”, and his
testimony was any evidence that his estimate for additional costs was for
reasonable and necessary repairs. The word “reasonable,” in fact, is not mentioned
once in Boutin’s testimony.
Additionally, AMJ offered no such evidence from any other exhibit, or from
any other witness, including de la Mora and Krismer. Krismer, in fact, uses the
word “reasonable” only in the context of the investigation of the claim, but not as
to the reasonableness of repair costs. Therefore, in light of McGinty v. Hennen,
372 S.W.3d 625 (Tex. 2012) (per curiam), I would hold Boutin’s testimony is no
evidence of the additional damages AMJ sought.
II. ANALYSIS
In McGinty, shortly after moving into a recently purchased home, plaintiff
noticed water leaks and mold. 372 S.W.3d at 626. A contractor’s estimate of the
remedial costs to repair certain areas and remove the mold was over $651,000. Id.
Plaintiff sued the homebuilder for, among other claims, breach of contract. Id.
Plaintiff presented testimony of an expert who used Xactimate3 software to
generate the $651,000 estimate. Id. at 626, 627; Hennen v. McGinty, 335 S.W.3d
642, 654 (Tex. App.—Houston [14th Dist.] 2011), rev’d, 372 S.W.3d 625 (Tex.
2012) (per curiam). The relevant damages question in the jury charge asked for the
3
The software in McGinty was called “Exactimate,” whereas the software here is called
“Xactimate.” I presume these names refer to the same software because neither United nor AMJ
has made an issue of any difference. Further, the description of the software in both cases is
substantially similar.
3
“reasonable and necessary” costs of repair—the jury answered approximately
$651,000. McGinty, 372 S.W.3d at 626.4
On appeal to our court, the homebuilder argued plaintiff presented no
evidence that the expert’s estimated remedial costs were reasonable. McGinty, 335
S.W.3d at 654. Our court determined the expert’s Xactimate report, coupled with
testimony that his estimates were based on “Houston, Texas price guidelines, as of
January 22, 2007,” was legally sufficient evidence. Id. Notably, one justice
dissented, explaining:
[The expert’s] testimony that some of these prices were generated by
computer software based on Houston prices does not address whether
these prices were reasonable.
Id. at 658 (Frost, J., dissenting).
The supreme court agreed with the dissent, holding, “A party seeking to
recover remedial damages must prove that the damages sought are reasonable and
necessary.” McGinty, 372 S.W.3d at 627 (citing Mustang Pipeline Co., 134
S.W.3d at 200). The court described McGinty’s damages evidence as follows:
[The plaintiff’s] expert’s testimony was the only evidence offered on
reasonable remedial damages. He derived his estimated costs of repair
from an [Xactimate] program “that’s used widely in the insurance
industry.”
Id. (Emphasis added). The supreme court concluded this evidence was legally
insufficient to support a finding that the expert’s remedial damages estimates were
reasonable:
Estimated out-of-pocket expenses, like paid out-of-pocket expenses,
do not establish that the cost of repair was reasonable. Some other
4
I acknowledge the difference of the language in the damages question in McGinty;
however, as discussed below, the damages questions in the present case included reasonableness
and necessity elements.
4
evidence is necessary. Neither [the plaintiff’s] damage expert nor any
other witness testified to the reasonableness of the estimated cost. …
Id. at 627–28 (Emphasis added). After addressing other issues, the supreme court
rendered judgment that the plaintiff take nothing. Id. at 629.
The same result should be reached here because Boutin did not testify that
the approximately $1 million in additional costs of repair were reasonable and
necessary, a fact with which the Majority opinion agrees: “And here, as in
McGinty, no one specifically testified that the plaintiff’s estimated costs of repair
were reasonable and necessary.” However, the Majority does not apply McGinty,
holding there are three “dispositive aspects” distinguishing this case from McGinty.
First, the Majority states, “the jury was instructed to find ‘the [p]olicy
benefits for repair or replacement.…”, it concludes that the language of the charge
failed to ask the jury to find the “reasonable and necessary costs for repair or
replacement,” and it notes United did not object to the charge. I disagree that the
charge failed to ask the jury to determine “reasonable and necessary” costs. In its
entirety, Question No. 4 asked:
What sum of money, if any, if paid now in cash, would fairly and
reasonably compensate AMJ for its damages, if any, that were caused
by such unfair or deceptive act or practice of United National which
you found in Question No. 3 [Insurance Code violations]?
…
Answer separately, in dollars and cents, for of [sic] damages, if any:
a. [P]olicy benefits for repair or replacement of AMJ’s
property due to the damage to the property covered under United
National’s policy.
Answer: $300,000.00 (Emphasis added.)
Relying on Shows v. MAN Engines & Components, Inc., 364 S.W.3d 348,
357–58 (Tex. App.—Houston [14th Dist.] 2012, aff’d on other grounds, 2014 WL
5
2535963 (Tex. June 6, 2014), the Majority holds this question precludes the
application of the standards announced in McGinty, 372 S.W.3d 625 (Tex. 2012)
(per curiam), because it does not include the specific phrase, “reasonable and
necessary costs of repair.” It is true that the above damages question did not
include specific remedial damages instructions5 for the terms “reasonable” and
“necessary”, or that the award was for “reasonable and necessary” repair or
replacement of AMJ’s property under the Policy (similar to the question submitted
in McGinty).
However, the sums awarded here were not awarded in a vacuum—they had
to have been for AMJ’s losses for “policy benefits for repair or replacement
covered under the Policy” which would “fairly and reasonably” compensate AMJ
for its damages under the Policy; therefore, the evidence supporting the jury
question must be viewed in light of McGinty. Hence, the damages question
submitted both “reasonable” and “necessary” elements because it was submitted in
the context of what was necessary under the Policy. See Azad v. MRCO, Inc., No.
14-12-00165-CV, 2013 WL 6700285, at *12–13 (Tex. App.—Houston [14th Dist.]
Nov. 7, 2013, pet. denied) (substitute mem. op.)
The question submitted in Azad was similar to the one here:
What sum of money, if any, if paid now in cash would fairly and
reasonably compensate Plaintiffs for their damages, if any, that
resulted from such failure to comply” [with the terms of the
agreements between the parties.] (Emphasis added).
5
In the business and consumer volume of the Texas Pattern Jury Charge, the instruction
for remedial damages includes “reasonable” and “necessary” components. See Comm.
on Pattern Jury Charges, State Bar of Tex., Texas Pattern Jury Charges: Business, Consumer,
Insurance, Employment, PJC 115.4 (2012) (providing “remedial damages” example instruction
as “The reasonable and necessary cost to repaint Paul Payne’s truck.”).
6
Additionally, the charge defined what type of damages could be considered as
damages; specifically, lost profits. Our court held in Azad:
This question contained a reasonableness requirement and thereby
foreclosed an award based solely upon subjective beliefs about future
profitability. (Emphasis added.)
Id. at *13. The “fairly and reasonably” element in Azad was tied to damages
resulting from the failure to comply with an agreement and causing lost profits.
The “fairly and reasonably” element here was tied to repair or replacement
damages covered under the Policy. Accordingly both Azad and the instant case are
distinguishable from Shows, supra, relied upon by the Majority. Both the charge
in Azad and the charge at issue here included a context for the damages, which
demonstrated that the damages were “reasonable and necessary.” Shows did not.
Rather, in Shows, “[T]he jury found that ‘the cost to replace the engine(s) in
2005’ was $89,967 and that this amount would fairly and reasonably compensate
Shows for his damages.” Shows, 364 S.W.3d at 357. There was no broader
context, as in the instant case, where the damages were tied to those covered under
the Policy, or as in Azad, where they were tied to the failure to comply, thereby
demonstrating their reasonableness and necessity.
Further, to establish that repairs are reasonable and necessary, while those
specific words need not be used, there must be sufficient competent evidence to
enable the jury to conclude that the repairs are necessary and the costs of repair are
reasonable. See Hernandez v. Lautensack, 201 S.W.3d 771, 776–77 (Tex. App.—
Fort Worth 2006, pet. denied) (unchallenged testimony as to repairs performed and
why, as well as evidence of the charges for them, was sufficient.) In any event,
United’s challenge here is not directed at charge error.
Rather, United’s challenge is that Boutin’s estimate of repair costs is legally
insufficient because he offers no testimony that the costs were reasonable and
7
necessary. United correctly asserts that a party seeking to recover remedial
damages must prove that the damages sought are both reasonable and necessary.
McGinty, supra; Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195,
200 (Tex. 2004) (per curiam). “[S]ome other evidence showing that charges are
reasonable is required.” Dallas Ry. & Terminal Co. v. Gossett, 156 Tex. 252, 294
S.W.2d 377, 383 (1956) (Emphasis added); see Fort Worth Hotel Ltd. P’ship v.
Enserch Corp., 977 S.W.2d 746, 762–63 (Tex. App.—Fort Worth 1998, no pet.)
(“[M]ere proof of amounts charged or paid does not raise an issue of
reasonableness and such amounts ordinarily cannot be recovered without evidence
showing the charges were reasonable.”) I do not believe that Boutin’s testimony
was such “other” evidence showing that the damages were reasonable and
necessary.
Next, the Majority does not apply McGinty because it finds both parties used
Xactimate. While it is true United and AMJ used the program, I do not adopt the
Majority’s reasoning that this satisfies the requirement of “other” evidence that the
additional costs sought at trial were reasonable. Further, United’s challenge is not
that Boutin used Xactimate. Its challenge is that the Xactimate estimate, without
“other” evidence establishing that the costs are reasonable and necessary, is no
evidence, as McGinty requires.
Finally, the Majority’s reference to an “agreement” between the parties that
the costs of repair would be the amount calculated by Xactimate for damages AMJ
sought in its suit against United is without evidentiary support. At best, the
evidence reflects that Krone and Johnson agreed on some aspects of the claim—for
purposes of calculating the estimate of the insurance claim, but not for purposes of
trial—on the scope of the work. There is no evidence of any agreement to use
Xactimate for all purposes, and at all times.
8
Even if the parties had made such an agreement when estimating the claim,
there was no agreement that the parties would use Xactimate to calculate a
damages model for purposes of the instant litigation. That Xactimate is the
industry standard for deriving remedial cost estimates does not establish ipso facto,
without “other” evidence, that the costs estimated by Xactimate are reasonable and
necessary. Id.; Dallas Ry. & Terminal Co., 294 S.W.2d at 383.6
I dissent because I believe the Majority improperly removes the
requirements set forth in McGinty. See also City of Alton v. Sharyland Water
Supply Corporation, 402 S.W.3d 867, 885–87 (Tex. App.—Corpus Christi 2013,
pet. denied) (detailed description of methodology, specific options selected and
costs associated, along with analysis of “other” factors showing reasonableness of
costs is sufficient); Ft. Worth, supra (chart listing actual and estimated costs of
damages and repairs, including bills for same, was insufficient); Ron Craft
Chevrolet, Inc. v. Davis, 836 S.W.2d 672, 677 (Tex. App.—El Paso 1992, writ
denied) (uncontroverted evidence of repairs, the reason for them and costs
associated therewith was sufficient); Carrow v. Bayliner Marine Corp., 781
S.W.2d 691, 694 (Tex. App.—Austin 1989, no writ) (evidence analyzing the
repairs to the headliner of a motoryacht were needed and why, along with the costs
to perform the repairs, was sufficient to establish the reasonableness and necessity
of the repairs); Allright, Inc. v. Lowe, 500 S.W.2d 190, 192 (Tex. Civ. App.—
Houston [14th Dist.] 1973, no writ) (receipted bills are not sufficient to show that
the amounts paid were reasonable).
6
AMJ cites two cases for the proposition “that the use of Xactimate to obtain reasonable
materials and labor costs is consistent with the industry standard.” See Fire Ins. Exchange v.
Kennedy, No. 02-11-00437-CV, 2013 WL 441088, at *3 (Tex. App.—Fort Worth Jan. 31, 2013,
pet. denied) (mem. op.); Southland Lloyds Ins. Co. v. Cantu, 399 S.W.3d 558, 563–68 (Tex.
App.—San Antonio 2011, pet. denied). Notably, Southland involved Boutin’s use of Xactimate.
399 S.W.3d at 563–68. However, neither of the cases addressed the specific issue of whether the
evidence was sufficient to support a finding that the damages awarded were reasonable.
9
III. CONCLUSION
I believe the Majority is incorrect by not adhering to McGinty as I do not
believe this case requires any different analysis. The jury was asked to determine
an amount of damages for the repair or replacement of AMJ’s property covered
under the Policy. Boutin’s Xactimate estimates are only estimates of repair costs
without “other” evidence that the charges were reasonable and necessary, as
McGinty requires. Therefore, there is no legally sufficient evidence upon which
the jury could find that the additional damages were reasonable and necessary.
City of Keller, 168 S.W.3d at 827. Accordingly, the evidence is legally insufficient
to support the jury’s finding of $300,000 for damages due under the Policy. I
would sustain United’s first issue.
Because I believe AMJ presented no evidence of compensatory damages, I
likewise would hold AMJ is not entitled to the trial court’s award of $178,734 as a
prompt pay penalty for United’s failure to pay insurance benefits, $600,000 in
additional damages for United’s knowing conduct, and attorney’s fees.7
Accordingly, I would reverse the trial court’s judgment and render judgment that
AMJ take nothing on its claims.
/s/ John Donovan
Justice
Panel consists of Justices Christopher, Donovan, and Brown. (Christopher, J.,
majority).
7
See Guidry v. Environ. Procedures, Inc., 388 S.W.3d 845, 860 (Tex. App.—Houston
[14th Dist.] 2012, pet. denied) (“Having concluded that no evidence supports the trial court’s
award of actual damages [under Chapter 541 of the Insurance Code], we similarly conclude that
the Insureds are not entitled to an award of attorneys’ fees or exemplary damages.”).
10