(This article is written by Jake P. Skaggs, a member in the subrogation and recovery department of Cozen O’Connor.)
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, for instance, the 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—meaning the cost to rebuild the property does not exceed the value of the property. The plaintiff in McGinty alleged his house had developed mold because of water leaks from several construction defects. The plaintiff then sued the builder for breach of the construction contract. He claimed 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 one to two percent of the costs in Corpus Christi. However, neither expert gave an opinion that repairs were necessary or that the costs were reasonable. In fact, the experts never said the words “reasonable and necessary.” The defendant then appealed on the grounds there was no evidence 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—namely the estimates and testimony—to support the jury’s finding that the costs were reasonable and necessary.
The Texas Supreme Court disagreed, however, stating the legal standard for damages is reasonable and necessary. The plaintiff’s experts merely explained their processes for arriving at the cost to repair the house by using the Xactimate program, researching local materials, 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 damage expert should be prepared to testify that each element of damage is “reasonable and necessary.”
So it is necessary to meet with your damages expert early on—be it a claims adjuster or a building consultant—to specifically identify all of the information the expert relied upon to arrive at his or her estimate. If that projection is solely based on an Xactimate estimate, then the court may not consider it sufficient evidence.