Southland Lloyds Ins. Co. v. Cantu

• Citation: 399 S.W.3d 558
• Decision Date: 30 March 2011
• Docket Number: No. 04–09–00705–CV.,04–09–00705–CV.
• Parties: SOUTHLAND LLOYDS INSURANCE COMPANY, Appellant v. David Onofre CANTU and Guadalupe Cantu, Appellees.
• Court: Texas Court of Appeals

399 S.W.3d 558

SOUTHLAND LLOYDS INSURANCE COMPANY, Appellant

v.David Onofre CANTU and Guadalupe Cantu, Appellees.

No. 04–09–00705–CV.

Court of Appeals of Texas,

San Antonio.

March 30, 2011.

Sharon E. Callaway, Crofts & Callaway, P.C., San Antonio, TX, John A. Kazen, Kazen, Meurer & Perez, L.L.P., Laredo, TX, for Appellant.

Marc E. Gravely, Matthew R. Pearson, Shannon E. Loyd, Gravely & Pearson, L.L.P., Brendan K. McBride, McBride Law Firm, San Antonio, TX, Alfredo Z. Padilla, Law Office of Alfredo Z. Padilla, Carrizo Springs, TX, for Appellees.

Sitting: CATHERINE STONE, Chief Justice, SANDEE BRYAN MARION, Justice, STEVEN C. HILBIG, Justice.

OPINION

Opinion by: SANDEE BRYAN MARION, Justice.

BACKGROUND

On April 4, 2004, David and Guadalupe Cantu's house was damaged in a hailstorm. The Cantus' house was insured under a policy with Southland Lloyds Insurance Co. Southland sent an independent adjustor, Bobby Arnold, to the Cantus' home to inspect the damage on April 13, 2004. On April 27, 2004, Southland mailed to the Cantus a copy of Arnold's repair estimate and a letter advising them that a claim check in the amount of $2,036.85 would be sent to their insurance agent within seven working days. On April 29, 2004, the check was sent to the Cantus' insurance agent at SAS–Lowery Insurance Agency. The Cantus cashed the check, but did not otherwise respond to Southland regarding the Arnold estimate. However, in June 2004, the Cantus notified Southland by letter that they had employed Joe Ortiz as a “building consultant” to investigate the extent of loss to their home. In the letter, the Cantus authorized Ortiz and/or Marcus Stites to act on their behalf. However, because Ortiz never returned Mr. Cantu's telephone calls, the Cantus later decided to hire an attorney. On July 10, 2004, Southland received an estimate prepared by Stites for Joatmon Loss Services in the amount of $6,855.66. Southland, unaware that the Cantus were dissatisfied with Ortiz and had hired an attorney, asked Arnold to contact Stites to determine why the estimate was so high. Southland never received a response from Joatmon or Stites. In June 2006, Bob Barton of Barton Claim Service inspected the Cantus' house at their request. He prepared a report that concluded most of the interior and exterior surfaces of the house had to be replaced for a total of $65,000.

The Cantus eventually sued Southland on claims for breach of contract and bad faith. Southland generally denied and also pled accord and satisfaction on the grounds that it had paid $2,036.85 in satisfaction of the “covered losses” under the policy. A jury found in favor of the Cantus. Southland now appeals.

CANTUS' EXPERT

At trial, Bob Barton did not testify. Instead, Art Boutin, who adopted Barton's estimate, testified on the Cantus' behalf regarding the extent of damage to their house caused by the hailstorm. In its first issue, Southland raises several complaints regarding Boutin's testimony.

1. Relevance and Reliability

Under the policy, Southland's liability was limited to the lesser of the following: (1) the actual cash value at the time of loss determined with proper deduction for depreciation; (2) the cost to repair or replace the damaged property with material of like kind and quality, with proper deduction for depreciation; or (3) the specified limit of liability of the policy. According to Southland, Boutin's opinion that the hailstorm caused more than $65,000 in damage was not relevant because (1) he did not review the policy; (2) he did not intend to opine on whether the damage was covered by the terms of the policy; (3) he made no effort to determine whether any of the losses were “covered losses” under the policy; (4) his estimate was not economically feasible because the Cantus' house was valued at only $40,000; ¹ and (5) he did not verify whether the items listed as damages in Barton's report were actually damaged. Thus, Southland concludes, Boutin's opinion is not relevant because he ignored what Southland characterizes as the “essential measure of damages in this case,” which is “actual cash value [of the cost of repairs at the time of the loss] less depreciation.” Southland also asserts Boutin's opinion is unreliable because it was speculative and there is too wide an analytical gap between his testimony and the Barton report on which he relied.

An expert's testimony is admissible under Texas Rule of Evidence 702 if the expert is qualified,² and the expert's opinion is relevant to the issues in the case and based upon a reliable foundation. Tex.R. Evid. 702; Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 720 (Tex.1998); E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 556 (Tex.1995). Rule 702's reliability requirement focuses on the principles, research, and methodology underlying an expert's conclusions. Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623, 629 (Tex.2002). Under this requirement, expert testimony is unreliable if it is not grounded in the methods and procedures of science and is no more than subjective belief or unsupported speculation. Robinson, 923 S.W.2d at 557. Expert testimony is also unreliable if there is too great an analytical gap between the data the expert relies upon and the opinion offered. Gammill, 972 S.W.2d at 727. In applying this reliability standard, however, the trial court does not decide whether the expert's conclusions are correct; rather, the trial court determines whether the analysis used to reach those conclusions is reliable. Id. at 728. Although the trial court serves as an evidentiary gatekeeper by screening out irrelevant and unreliable expert evidence, it has broad discretion to determine the admissibility of evidence. Zwahr, 88 S.W.3d at 629. Accordingly, we review the trial court's decision to admit Boutin's testimony for an abuse of discretion. See Gammill, 972 S.W.2d at 718–19;Robinson, 923 S.W.2d at 558.

Boutin, an independent insurance adjuster, testified he adopted Barton's reportas his estimate of the cost to repair the damage to the Cantus' home that was caused by the hailstorm. He stated the manner in which the Barton report was prepared was no different from any estimate he would have prepared for an insurance company. Boutin said that if he had been asked by the Cantus to prepare the report, his investigation would have been the same as Barton's. Boutin explained that the software used to prepare the Barton report is called Exactimate and is accepted by most insurance companies. Exactimate has a large database for materials and labor for specific geographic areas, and he has used Exactimate for seven years. Boutin spoke with Mr. Cantu, who provided him with an overview of the damage sustained during the storm. Boutin spent approximately ninety minutes at the house, and with the Barton report in hand, he went inside the house, room-by-room, to take measurements. He also took measurements outside, including on the roof. He said he independently verified the damage to the house as represented in the Barton report. He saw no damage to the house other than the damage caused by the hailstorm. He was aware the Cantus had already made some exterior repairs to the house, but he did not know if any interior repairs had been made.

Barton prepared his report in June 2006, and Boutin went to the Cantu home for the first time in January 2009. Boutin said his ability to adopt Barton's estimate or his ability to prepare his own report would not have been affected by his not going to the house until 2009. When asked why, he responded that “In the past I've been asked to adopt other estimates with insurance companies doing inspection[s], and it's much the same process. You go out and do the measurements and it was virtually the same process.” When asked to explain a repair estimate of $65,000 on a home insured for only $42,000, Boutin stated that the amount of work that must be done to repair damage to the house has nothing to do with the amount for which the house is insured. Boutin said one of the reasons this happens is because the cost of any required demolition work, such as removal of debris, may account for up to fifty percent of the value of the repair work. The Barton report calls for replacing the fascia boards, siding, and insulation on the outside of the house, as well as replacing everything related to the roof. Although Mr. Cantu said that hail damaged only two sides of the house, Boutin agreed with Barton that all four sides should be replaced because “it's an industry standard that if 50 percent or more is damaged, you replace all of the siding” to ensure the siding matched on all four sides of the house, and he followed this rule when he worked for insurance companies. He said the same rule applied to roof damage. When asked why he would estimate repair work to the outside of the house even though Mr. Cantu had already done some of the exterior repairs, Boutin replied that an estimate is based on an assumption that no repair work has been done.

As to the interior of the house, the report calls for extensive repair work in almost every room throughout the house—such as replacing ceiling insulation, removing kitchen cabinets, replacing dry wall, and replacing and removing electric outlets—because all those areas were damaged by the storm. When asked how he knew these areas had been damaged by the storm, Boutin replied, “It's consistent with damage that I've seen in the past.” He said he saw the interior damage when he inspected the Cantus' house. He also said the fifty percent rule did not necessarily apply to interior work. When asked why all the interior work was needed, Boutin stated, “Because when the ceilings are damaged, to take the ceiling down, you are going to damage the walls as you remove them.” From his inspection, he knew there would be ceiling damage from roof leaks. As to why all the kitchen cabinets had to be replaced when there was no evidence water had gotten into the...