Texas Supreme Court Reiterates Cost to Repair Property Must Be "Reasonable and Necessary"

In a subrogation case, what type of evidence is required to prove real property damages at trial? Many times, the only evidence of damages that is readily available is the property adjuster’s Xactimate estimate and testimony. As of late, this type of evidence is no longer sufficient. In McGinty v. Hennen, Texas Supreme Court held that the plaintiff must provide specific evidence that the cost to repair the damaged property was reasonable and necessary.

In Texas, the plaintiff can recover the reasonable and necessary costs to repair damaged real property, as long as there is not economic waste (i.e., the cost to rebuild the property does not exceed the value of the property). The plaintiff in McGinty alleged his house had developed mold due to water leaks from several construction defects. The plaintiff sued the builder for breach of the construction contract alleging that his damages were in excess of $600,000 for mold remediation and the repair work. The plaintiff presented two damages experts: a mold remediation expert and a local general contractor who had 30 years of experience. The Xactimate estimates from both experts were admitted as evidence. The defendant did not present any expert testimony challenging the amount of the plaintiff’s damages. During trial, the plaintiff’s experts testified regarding their estimated costs to rebuild and that the Xactimate prices were within 1%-2% of the costs in Corpus Christi. However, neither expert gave an opinion that the repairs were necessary or that the costs were reasonable. In fact, the experts never said the words “reasonable and necessary.” Defendant appealed on grounds that there was no evidence that the cost to repair was reasonable and necessary.

The 14th Court of Appeals in Houston held that although the plaintiff’s experts did not opine that the costs were reasonable and necessary, there was sufficient evidence (the estimates and testimony) to support the jury’s finding that the costs were reasonable and necessary. The Texas Supreme Court disagreed. The Court stated that the legal standard for damages is reasonable and necessary. The plaintiff’s experts merely explained their process for arriving at the cost to repair the house by using the Xactimate program, researching local material and relying on information from previous jobs. They did not provide evidence that these costs were reasonable and necessary. Without some other evidence that the costs were reasonable and necessary (the Court referenced using competitive bids), there simply was no evidence to support the plaintiff’s damages.

Therefore, how does one prove property damages in Texas? The Court did not list what types of evidence is sufficient to prove that the damages were “reasonable and necessary,” but the opinion referenced those terms on numerous occasions. Reading between the lines, a damages expert should be prepared to testify that each element of damage is “reasonable and necessary.” Further, it is necessary to meet with your damages expert early on—be it an adjuster or building consultant—to specifically identify all the information that the expert relied upon to arrive at his/her estimate. If it is only an Xactimate estimate, that may not be sufficient evidence.
 

CONNECTICUT APPELLATE COURT AFFIRMS SUBROGATION VICTORY

On July 13, 2010, the Appellate Court of Connecticut affirmed a $664,373.02 verdict issued by a trial court sitting non-jury in 2007. Utica Mutual Ins. Co. v. Precision Mechanical Services, Inc. The case arose from a fire at the Commons Condominium Complex in Branford, Connecticut. An employee of the defendant was installing a shower diverter in one of the units. He was a licensed plumber soldering pipes when he ignited insulation in the wall. In November of 2007, the trial court, sitting non-jury, awarded Utica Mutual $664,373.02 after three days of trial.

On appeal, defendant argued that plaintiff failed to offer expert testimony regarding the standard of care, improperly excluded defense experts, and plaintiff did not sustain its burden of proof on damages. The three judge appellate panel rejected each contention. With respect to the first issue, the court determined that the question of whether a reasonable person should operate a torch within the vicinity of combustible materials did not go beyond the field of the ordinary knowledge and experience of the fact-finder and therefore held that expert testimony was not required to determine if the defendant’s performance complied with the requisite standard of care. The trial court allowed one defense expert to testify, but then refused to consider the testimony when deciding the case. The defense expert testified that the damages had been greatly enhanced by the lack of fire stops in the condominiums. The appellate court held that the trial court reasonably concluded that it should not consider his testimony or any evidence that the fire spread due to an alleged lack of fire stops, given the defendant’s failure to apprise the plaintiff of its claim through an affirmative pleading. The defendant had not raised contributory negligence as a defense in its answer or any other pleading.

With respect to damages, the appellate court found that Utica Mutual had presented the testimony of its insurance adjuster, who had more than fourteen years of experience in the profession, and was sent a written form by the public adjusters representing the Commons that detailed line by line the areas that had to be repaired. Utica’s adjuster had also retained a contractor to determine the scope of the damages. The contractor prepared a final report that concluded that the repair costs were $676,842.67. Utica paid the Commons $664,373.02 because of the insured fire loss and received a subrogation receipt from the Commons stating that amount had been paid. The Connecticut Appellate Court determined that such evidence afforded a sufficient basis for determining with reasonable certainty that the plaintiff’s damages were $664,373.02. The court also awarded 6% interest from July 9, 1997, when Utica Mutual received the subrogation receipt. The decision represents a complete and total victory for the subrogating carrier.