Case Title: Virginia Financial Assoc. v. ITT Hartford Group

Citation: 

Docket Number: 022659

State: virginia

Court: Virginia Supreme Court

Date: 2003-09-12T00:00:00Z

Document:
Present:  All the Justices 
 
VIRGINIA FINANCIAL ASSOCIATES, INC. 
 
v. 
Record No. 022659 
 
ITT HARTFORD GROUP, INC. 
 
OPINION BY CHIEF JUSTICE LEROY R. HASSELL, SR. 
 
 
                   September 12, 2003 
 
ITT HARTFORD GROUP, INC. 
 
v. 
Record No. 022663 
 
VIRGINIA FINANCIAL ASSOCIATES, INC. 
 
FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY 
Herbert C. Gill, Jr., Judge 
 
I. 
 
 
In these consolidated appeals, the primary issue that we 
consider is whether a plaintiff, who asserted a claim of 
quantum meruit, presented sufficient evidence to establish the 
reasonable value of services it rendered to the defendant. 
II. 
A. 
 
This appeal is the final saga in protracted litigation 
between plaintiff, Virginia Financial Associates, Inc. (VFA), 
and defendant, ITT Hartford Group, Inc. (Hartford).  These 
litigants were previously before this Court in ITT Hartford 
Group, Inc. v. Virginia Financial Associates, Inc., 258 Va. 
193, 520 S.E.2d 355 (1999).  In that appeal, we set aside a 
jury verdict in favor of VFA.  We held that the circuit court 
erred because an expert witness was allowed to give 
speculative opinions.  Id. at 201-03, 520 S.E.2d at 359-60.  
We also concluded that the evidence did not support 
plaintiff's claims of actual and constructive fraud.  We set 
aside the jury's award of compensatory damages and its award 
of punitive damages, which was based upon the claim of actual 
fraud, and entered final judgment in favor of Hartford on that 
claim.  We reversed the judgment of the circuit court, and we 
remanded the case for a new trial limited to the issue of 
damages on VFA's quantum meruit claim against Hartford.  Id. 
at 206, 520 S.E.2d at 362. 
B. 
 
During the trial upon remand, VFA, a Virginia 
corporation, presented evidence that it acted as a "marriage 
broker" for two insurers, Hartford and the Medical Protective 
Company (MedPro).  William Montgomery Dise, an insurance agent 
and "part-owner" of VFA, was instrumental in bringing Hartford 
and MedPro together. 
 
Dise approached Hartford in 1994 with a proposal that 
Hartford provide workers' compensation insurance coverage and 
business owners' insurance policies for dentists to complement 
an insurance package that MedPro offered.  MedPro had 
approximately 20,000 dentist clients to whom Hartford could 
potentially sell its workers' compensation insurance and other 
 
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insurance products.  These insurers entered into a joint 
venture to create an insurance product called "The Package," 
which was sold through a technique known as commercial mass 
marketing or affinity marketing.  Commercial mass marketing 
involves the sale of insurance products to groups whose 
members have similar interests or associations, in this 
instance, dentists.  "The Package" was subsequently sold to 
dentists throughout the United States. 
 
VFA, acting principally through Dise, expended 
significant expense and substantial time to bring the joint 
venture to fruition.  VFA presented evidence that Sandra L. 
Shearer, Hartford's employee, assured VFA that Hartford would 
compensate VFA for its work.  James D. Sinay, another Hartford 
employee, assured Dise that Hartford would compensate VFA 
fairly. 
 
VFA presented the testimony of two expert witnesses, 
Thomas A. Flynn and Robert Leonhart, to establish the value of 
the reasonable compensation that Hartford should pay to VFA 
for its services rendered to Hartford.  Flynn, who qualified 
as an expert witness on the subject of retail insurance, 
testified that he was knowledgeable of the methods of 
compensation for commercial mass marketing programs.  When 
asked whether he had an opinion about the range of commissions 
that are paid to insurance agents or agencies who bring an 
 
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affinity program to an insurer, such as Hartford, he responded 
"yes" and stated that "[his] opinion is that [the] range would 
be between 2.5 percent and 5 percent."  This type of 
commission is referred to as a commission override.  Flynn 
also discussed the various factors that he relied upon to form 
his opinion.  He stated that, generally, the rate of 
compensation would be a commission of 3.75%, but in this 
instance, he discounted the commission that VFA should receive 
because VFA did not provide any continuing service to Hartford 
once Hartford and MedPro decided to market "The Package." 
 
During Hartford's cross-examination of Flynn, he admitted 
that he had "never been paid a commission override for setting 
up an affinity program without providing any service" and that 
he was "not aware of anyone else" who had been paid a 
commission override without providing an ongoing service.  
Flynn also testified that in the instances when he had been 
paid a commission override in his capacity as an insurance 
agent, he continued to provide services to the insurer. 
 
During his voir dire, outside the presence of the jury, 
Flynn testified that Hartford had issued an insurance contract 
that required the payment of a commission to an insurance 
agent "indefinitely as long as the business is on the books.  
There [was] no ongoing service from the agent.  So I do 
recollect a contract like that." 
 
4
 
Leonhart, who also qualified as an expert witness, 
testified that the standard range of compensation in the 
insurance industry for an agent who has performed the services 
that VFA performed for Hartford "is anywhere from two to five 
percent."  The range of compensation is based upon many 
factors, including profitability and the type of insurance 
product.  Leonhart testified that the value of VFA's services 
rendered to Hartford would be 3.5% of the premium income 
generated by the sale of "The Package" in 1994 and 1995. 
 
During his cross-examination by Hartford, Leonhart 
testified as follows: 
 
"Q:  You're not aware of any compensation being 
paid to an agent by an insurance company in the form 
of a commission override where there hasn't been a 
negotiated agreement? 
 
 
"A:  No, sir. 
 
 
"Q:  And that negotiated agreement would deal 
with a number of terms, including the level of 
compensation; correct? 
 
 
"A:  Correct. 
 
 
"Q:  And the services to be provided by the 
agent? 
 
 
"A:  Yes, correct. 
 
. . . . 
 
 
"Q:  Are you aware that at the time in August 
of 1995, when VFA's services for Hartford ceased, 
there was no agreement in place between MedPro and 
Hartford?  Yes or no? 
 
 
5
 
"A:  Yes. 
 
. . . . 
 
 
"Q:  Now, you would agree, in your experience, 
Mr. Leonhart, that . . . you're not aware of any 
situation where an agent like yourself, a consultant 
has received a commission override for providing no 
service? 
 
 
"A:  I think if you'll recall back to my 
original two depositions, that I did recall a couple 
of situations where there were some consultants that 
received compensation and literally were doing 
nothing. 
 
. . . . 
 
 
"Q:  But those agents had contracts with the 
carriers in each instance, didn't they? 
 
 
"A:  Yes, sir. 
 
 
"Q:  Those contracts provided for some level of  
service by the agent, didn't they? 
 
 
"A:  Yes, sir. 
 
 
"Q:  So that was a situation where the carrier, 
for whatever reason, just chose not to call on the 
agent to provide any service but the contract said 
that the agent was to do something? 
 
 
"A:  Yes." 
 
 
Upon the conclusion of its deliberation, the jury 
returned a verdict in favor of VFA in the amount of 
$1,230,000.  Both litigants have appealed the circuit court's 
judgment confirming the verdict. 
III. 
A. 
 
6
 
Hartford argues that the circuit court erred in 
permitting Flynn and Leonhart to testify that the customary 
method of payment for VFA was a commission override because 
neither witness could cite an example in the insurance 
industry of an agent who was compensated on a commission 
override basis when that agent failed to provide ongoing 
services in support of an insurance program.  We disagree with 
Hartford. 
 
We have repeatedly held that expert testimony must be 
based upon an adequate foundation.  Lawson v. Doe, 239 Va. 
477, 482-83, 391 S.E.2d 333, 336 (1990); Clark v. Chapman, 238 
Va. 655, 664-65, 385 S.E.2d 885, 891 (1989).  Expert testimony 
is inadmissible if such testimony is speculative or founded 
upon assumptions that have no basis in fact.  Countryside 
Corp. v. Taylor, 263 Va. 549, 553, 561 S.E.2d 680, 682 (2002); 
John v. Im, 263 Va. 315, 320, 559 S.E.2d 694, 696 (2002); 
Keesee v. Donigan, 259 Va. 157, 161, 524 S.E.2d 645, 648 
(2000); ITT Hartford, 258 Va. at 201, 520 S.E.2d at 359; 
Tittsworth v. Robinson, 252 Va. 151, 154, 475 S.E.2d 261, 263 
(1996); Tarmac Mid-Atlantic, Inc. v. Smiley Block Co., 250 Va. 
161, 166, 458 S.E.2d 462, 466 (1995); Gilbert v. Summers, 240 
Va. 155, 159-60, 393 S.E.2d 213, 215 (1990).  See also Code 
§§ 8.01-401.1 and –401.3. 
 
7
 
We hold that the trial court did not err by admitting the 
testimony of Flynn and Leonhart.  As Leonhart's testimony 
demonstrates, he was aware of insurance agents who performed 
services similar to those provided by VFA, and that those 
agents received commissions even though they did not provide 
ongoing services.  The fact that these agents had written 
contracts with the insurers does not render the challenged 
testimony inadmissible.  The relevant inquiry is not whether 
an insurance agent received a commission override for services 
rendered to an insurance company based upon a provision in a 
written contract.  Rather, the appropriate inquiry in this 
proceeding based upon a claim of quantum meruit is what is the 
reasonable value of the services VFA rendered to Hartford?  
See Marine Dev. Corp. v. Rodak, 225 Va. 137, 140-41, 300 
S.E.2d 763, 765 (1983).  See also Po River Water & Sewer Co. 
v. Indian Acres Club, 255 Va. 108, 114, 495 S.E.2d 478, 482 
(1998); Ricks v. Sumler, 179 Va. 571, 577, 19 S.E.2d 889, 891 
(1942); Hendrickson v. Meredith, 161 Va. 193, 200, 170 S.E. 
602, 605 (1933).  Relevant to this inquiry is the standard of 
compensation in the insurance industry for agents who render 
substantially similar services to insurance companies.  We 
conclude that the challenged expert testimony was based upon 
an adequate foundation and, therefore, was admissible. 
B. 
 
8
 
VFA sought to recover as damages commissions based on 
premiums that sales of "The Package" would potentially 
generate during the ten-year period covering 2001 through 
2010.  Prior to trial, Hartford filed a motion in limine 
seeking to prohibit the admission of any evidence of damages 
based upon the loss of future commissions.  Hartford also 
filed a pretrial motion for partial summary judgment against 
VFA's claims for damages based upon the loss of future 
commissions.  The circuit court denied the motions. 
 
During the trial, Thomas R. Fauerbach, an actuary who 
qualified as an expert witness, was permitted to opine that 
even though Hartford and MedPro had discontinued jointly 
marketing "The Package," MedPro could create a "new package" 
of insurance products for dentists and market that product in 
the future with another insurer.  Nonetheless, Fauerbach 
opined that over the ten-year period, Hartford could realize 
over $250,000,000 in future premiums from the potential future 
sale of business policies to dentists throughout the United 
States. 
 
Fauerbach made his projections of future premiums based 
upon numerous assumptions.  He assumed that MedPro and 
Hartford would continue to jointly market "The Package," even 
though at the time of trial that assumption was factually 
 
9
incorrect.  Fauerbach's projections were also based upon 
MedPro's ability to obtain another national partner. 
 
At the conclusion of VFA's case-in-chief, Hartford 
renewed its motion for partial summary judgment.  Hartford 
asserted, for several reasons, that VFA was not entitled to 
recover as damages the reasonable value of services associated 
with the future sales of "The Package."  The circuit court 
granted the motion, holding that to the extent VFA could 
recover damages in quantum meruit for the future premiums, VFA 
would have to file subsequent lawsuits to recover those 
damages. 
 
Hartford argues that Fauerbach's testimony was based upon 
speculative projections and, therefore, his testimony 
regarding future premium income was not admissible.  
Continuing, Hartford contends that even though the circuit 
court concluded at the end of VFA's case-in-chief that VFA 
could not recover damages based upon the future premiums, 
Hartford nonetheless is entitled to a new trial because that 
testimony may have improperly influenced the jury.  In its 
appeal, VFA argues that Fauerbach's testimony was admissible 
and that VFA was entitled to recover the reasonable value of 
future premiums. 
 
As we have already stated, expert testimony is 
inadmissible if it is speculative or founded on assumptions 
 
10
that have an insufficient factual basis.  Countryside, 263 Va. 
at 553, 561 S.E.2d at 682; John, 263 Va. at 320, 559 S.E.2d at 
696; Keesee, 259 Va. at 161, 524 S.E.2d at 648; ITT Hartford, 
258 Va. at 201, 520 S.E.2d at 359; Tittsworth, 252 Va. at 154, 
475 S.E.2d at 263; Tarmac, 250 Va. at 166, 458 S.E.2d at 466; 
Gilbert, 240 Va. at 159-60, 393 S.E.2d at 215.  Clearly, 
Fauerbach's projection of more than $250 million in future 
premiums from Hartford's sale of insurance policies to 
dentists during the next 10 years was speculative because it 
was subject to the significant unknown variable whether MedPro 
would enter into a future bargain with another national 
insurance carrier.  Therefore, we hold that VFA failed to 
produce sufficient evidence that would have permitted the jury 
to award it damages, based upon quantum meruit, for future 
premium income that "The Package" potentially might generate.*
 
Additionally, as we have already stated, the circuit 
court granted Hartford's renewed motion for partial summary 
judgment on this claim.  As Hartford concedes, the circuit 
court instructed the jury as follows:  "The Court has 
determined as a matter of law that in arriving at the 
reasonable value of the services performed by VFA for 
                     
* In view of this holding, we need not consider VFA's 
argument that the circuit court erred by ruling that VFA would 
be required to file separate additional lawsuits to recover 
damages for its purported loss of future premium income. 
 
11
Hartford, you shall consider only actual premiums received by 
the plaintiff and you shall not consider any projections of 
future premiums." 
 
The jury was properly instructed that it could not 
consider the evidence of future premium projections.  And, as 
we have consistently held, when the jury is properly 
instructed, we must conclude that the jury followed the 
instructions of the court.  Green v. Young, 264 Va. 604, 611, 
571 S.E.2d 135, 139 (2002); Emmett v. Commonwealth, 264 Va. 
364, 371, 569 S.E.2d 39, 44 (2002), cert. denied, ___ U.S. 
___, 123 S.Ct. 1586 (2003); Beavers v. Commonwealth, 245 Va. 
268, 280, 427 S.E.2d 411, 420 (1993); Hall v. Commonwealth, 
233 Va. 369, 375 n.*, 355 S.E.2d 591, 595 n.* (1987); 
LeVasseur v. Commonwealth, 225 Va. 564, 589, 304 S.E.2d 644, 
657 (1983).  Therefore, we hold that Hartford's arguments 
regarding the purportedly prejudicial impact of this testimony 
are without merit. 
C. 
 
At the conclusion of the trial, the jury awarded VFA 
$1,230,000.  The jury returned the following verdict:  "On 
plaintiff's claim for implied contract (quantum meruit):  For 
plaintiff and against defendant ITT Hartford Group, Inc. in an 
amount equal to a 3% commission on premiums of $41,000,000."  
Hartford argues that the circuit court erred in refusing to 
 
12
set aside the verdict or grant remittitur because there was no 
credible evidence to support the jury's finding that Hartford 
actually received $41,000,000 in premiums as of the date of 
trial.  We disagree. 
 
VFA presented sufficient evidence to the jury, including 
the actual written amount of premium income for each year that 
"The Package" was marketed, that would have permitted the jury 
to find that Hartford had received $41,000,000 in premiums as 
of the date of trial.  The jury was properly instructed that 
VFA was not required to prove the exact amount of its damages, 
but that VFA was required to produce sufficient facts and 
circumstances to permit the jury to make a reasonable 
estimate.  And, we note, Hartford did not object to this 
instruction. 
D. 
 
We find no merit in Hartford's argument that Flynn and 
Leonhart should not have been permitted to testify as expert 
witnesses because their testimony was purportedly cumulative.  
As Hartford correctly states in its brief, the circuit court 
has broad discretion to impose limits on the number of expert 
witnesses.  We conclude that the circuit court did not abuse 
that discretion. 
E. 
 
13
 
The circuit court entered a scheduling order dated 
January 28, 2002.  Paragraph 3 of the scheduling order states: 
 
"Experts.  The parties have previously 
designated experts.  Neither party may designate 
additional or substitute experts except by leave of 
Court for good cause shown.  Plaintiff may amend or 
supplement its expert designations no later than 
April 15, 2002, if occasioned by information 
discovered since July 5, 2001.  Defendant may amend 
or supplement its expert designations no later than 
May 15, 2002, if occasioned by information 
discovered since July 5, 2001." 
 
 
Hartford filed a motion for leave of court to designate 
an additional expert witness.  Hartford asserted in its motion 
that VFA had amended its expert designations and presented a 
"new damage theory."  VFA opposed Hartford's motion for leave 
of court to designate an additional expert witness and 
asserted that its theory of damages had not changed. 
 
The circuit court denied Hartford's motion by order.  The 
circuit court's decision to deny Hartford's motion to 
designate an additional expert witness was a matter within the 
exercise of the court's discretion and, based upon the record 
before this Court, we hold that Hartford failed to demonstrate 
that the circuit court abused its discretion.  Accordingly, 
Hartford's argument is without merit. 
IV. 
 
Hartford's remaining arguments are without merit.  And, 
in view of our holding that Fauerbach's opinions regarding 
 
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Hartford's future premium income were speculative, we need not 
consider VFA's remaining assignments of error. 
 
Accordingly, we will affirm the judgment of the circuit 
court. 
Record No. 022659 – Affirmed. 
Record No. 022663 – Affirmed. 
 
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