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As of: April 9, 2015 3:31 PM EDT

Smith-Reagan & Assocs. v. Fort Ringgold Ltd.

Court of Appeals of Texas, Fourth District, San Antonio

March 11, 2015, Delivered; March 11, 2015, Filed

No. 04-13-00608-CV

Reporter

2015 Tex. App. LEXIS 2291

Prior History: [*1] From the 381st Judicial District Court,

Starr County, Texas. Trial Court No. DC-02-343. Honorable

Jose Luis Garza, Judge Presiding.

Disposition: REVERSED AND TAKE-NOTHING

JUDGMENT RENDERED.

Core Terms

damages, appellees, hotel, business interruption, coverage,

rooms, occupancy rate, expenses, procured, awarding

damages, no evidence, calculation

Case Summary

Overview

HOLDINGS: [1]-A take-nothing judgment was rendered

against appellees because appellees were required to present

evidence on the amount they would have recovered from the

insurance company if appellant had procured an insurance

policy that provided business interruption coverage, and

appellees presented no evidence of how business interruption

damages would have been calculated if the policy had been

obtained.

Outcome

Judgment reversed and take-nothing judgment rendered.

LexisNexis® Headnotes

Insurance Law > ... > Insurance Company Operations >

Company Representatives > Brokers

HN1 The measure of the liability for an agent’s failure to

procure insurance is the amount that would have been due

under the insurance policy if it had been obtained.

Civil Procedure > Appeals > Remands

Civil Procedure > Appeals > Appellate Jurisdiction > General

Overview

Civil Procedure > Judgments > Relief From Judgments >

Motions for New Trials

HN2 When the appellate court sustains a no evidence point

of error after a trial on the merits, the appellate court renders

judgment on that point. However, if there is some evidence

of the correct measure of damages, the appellate court

reverses and remands the cause for a new trial.

Counsel: For Appellant: Crisanta Guerra Lozano, Roerig,

Oliveira & Fisher, Brownsville, TX.

For Appellee: Brendan K. McBride, The McBride Law

Firm, San Antonio, TX; Matthew R. Pearson, Gravely &

Pearson, L.L.P., San Antonio, TX.

Judges: Opinion by: Sandee Bryan Marion, Justice. Sitting:

Sandee Bryan Marion, Justice, Marialyn Barnard, Justice,

Luz Elena D. Chapa, Justice.

Opinion by: Sandee Bryan Marion

Opinion

MEMORANDUM OPINION

REVERSED AND TAKE-NOTHING JUDGMENT

RENDERED

In September 2001, the family-owned Fort Ringgold Motor

Inn sustained extensive damage following a storm. At the

time, the hotel was covered under an insurance policy issued

by Highlands Insurance Company. Appellant, Smith-Reagan

& Associates, Inc. d/b/a Smith-Reagan Insurance Agency, is

the Highlands agent that sold the policy to Fort Ringgold.

Following the storm, the hotel submitted claims for both

property damage and loss of income that resulted from the

 FILED IN 4th COURT OF APPEALS SAN ANTONIO, TEXAS 4/9/2015 3:16:37 PM KEITH E. HOTTLE Clerk
hotel’s closure of forty-three of its sixty-four rooms due to

mold.1 Although Highlands paid claims submitted by the

hotel for property damage, it refused to pay any claim

associated with lost income on the grounds that the policy

did not include business interruption coverage. The hotel’s

owners, Fort Ringgold Limited; Pete Diaz, III; Aaron Diaz;

[*2] and Monica Aguillon sued Smith-Reagan and others.

In their suit against Smith-Reagan, appellees alleged

Smith-Reagan failed to procure business interruption

coverage for the hotel and misrepresented to them that the

Highland policy provided such coverage.

After appellees settled with the other defendants, the case

went to trial, and the jury returned a verdict against

Smith-Reagan and in favor of appellees. On appeal,

Smith-Reagan (1) challenges the sufficiency of the evidence

in support of the jury’s findings and the amount of damages

awarded; (2) asserts the trial court erred by failing to apply

a settlement credit; and (3) asserts the trial court erred in

various evidentiary rulings. Because we believe the

complaint related to the damages awarded is dispositive, we

address only that issue on appeal. See TEX. R. APP. P. 47.1.

DAMAGES

On appeal, Smith-Reagan asserts appellees failed to present

any evidence as to the correct measure of damages for the

failure to include business interruption coverage in the

Highlands policy.

The jury was asked ′′[w]hat sum of money, if paid now in

cash, would fairly and reasonably compensate [*3] Fort

Ringgold for its damages, if any, that resulted from the

conduct of [Smith-Reagan] . . . .′′ The jury was instructed to

′′[c]onsider the following elements of damages, if any, and

none other′′: ′′The loss of business income, if any, sustained

by Fort Ringgold that would not have occurred had

[Smith-Reagan] procured insurance for Fort Ringgold that

included coverage for business interruption.′′ The jury

awarded Fort Ringgold $325,000.00. The jury charge closely

tracked case law, which provides that HN1 ′′[t]he measure

of the liability for [an agent’s] failure to procure insurance

is the amount that would have been due under the insurance

policy [if] it had been obtained.′′ Scott v. Conner, 403

S.W.2d 453, 457 (Tex. Civ. App.—Beaumont 1966, no writ)

(plaintiff could not recover value of house at time of fire;

instead, plaintiff’s damages measured by amount of

insurance in cancelled policy defendant was to replace);

Taylor v. Republic Grocery, 483 S.W.2d 293, 296 (Tex. Civ.

App.—El Paso 1972, no writ) (plaintiff could not recover

amount to repair building; instead, plaintiff’s damages

measured by amount plaintiff would have been due under

policy if policy had been obtained); accord William M.

Mercer, Inc. v. Woods, 717 S.W.2d 391, 400-01 (Tex.

App.—Texarkana 1986), aff’d in part, rev’d in part on other

grounds, 769 S.W.2d 515 (Tex. 1988). Therefore, appellees

were required to present evidence on the amount they would

have recovered from Highlands if Smith-Reagan had

procured [*4] an insurance policy that provided business

interruption coverage.

A starting point for this calculation would have been the

terms of a policy provision that provided such coverage

during the relevant time period. See Nat’l Fire Ins. Co. of

Pittsburgh, Pa. v. Valero Energy Corp., 777 S.W.2d 501,

509-10 (Tex. App.—Corpus Christi 1989, writ denied)

(concluding lost profits as a result of business interruption

was speculative because no evidence of business interruption

damages in conformity with insurance policy provision

providing for such coverage); Gibbs v. Allstate Ins. Co., 386

S.W.2d 606, 609 (Tex. Civ. App.—Fort Worth 1965, writ

ref’d n.r.e.) (evidence sufficient to support damage award

because award was within limits of policy had the policy

been procured). Here, however, appellees presented no

evidence of how business interruption damages would have

been calculated if the policy had been obtained. Appellees

did not present, as such evidence, testimony about or a copy

of a policy providing business interruption coverage during

the relevant time period. Such evidence would have allowed

the jury to calculate the loss of business income, if any, that

would have been due if Smith-Reagan had procured an

insurance policy that included business interruption

coverage.

Instead, at trial, appellees stated their damages amounted to

$1,175,796.00. This amount was based on the number of

closed rooms (forty-three) multiplied [*5] by the rate

charged for those rooms multiplied by the total number of

days the forty-three rooms were closed. Pete Diaz (′′Pete′′),

one of the hotel owners, agreed this amount did not take into

consideration any expenses associated with the closed

rooms, and he assumed a 100% occupancy rate. Pete

testified the hotel’s expenses remained the same after

closing the forty-three rooms because the hotel still had to

pay the mortgage, taxes, and payroll. Therefore, according

to appellees on appeal, the gross amount of $1,175,796.00

includes operating expenses. Pete admitted he did not know

how much he would have been entitled to receive if the

policy had included business interruption coverage.

Pete’s brother Aaron, who managed the day-to-day

operations of the hotel and was also an owner, testified the

1

The hotel closed fifteen rooms in January 2002 and another twenty-eight rooms in July 2002.

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2015 Tex. App. LEXIS 2291, *2
occupancy rate was ′′about 70 percent,′′ but he did not

provide any evidence on which to base this statement.

Although both Pete and Aaron testified the expenses

remained the same, Aaron testified he cut employee hours,

and the hotel was not earning a profit of $1 million. The

only expert appellees presented on the issue of damages was

the testimony of their contractor who testified about the

costs [*6] to repair the hotel and who admitted his estimates

had nothing to do with a loss in revenue due to business

interruption.

On appeal, appellees contend the jury could have relied on

the occupancy rate provided by Smith-Reagan’s expert and

simply multiplied their estimate of lost gross revenue by

that rate. Smith-Reagan’s expert testified the occupancy rate

from January 1, 2001 through July 31, 2001, was fifty-seven

percent based on his review of the hotel’s Manager’s Daily

Reports, which showed the occupancy rate for each day of

the month. Even assuming the contract formula for

calculating business interruption damages was unnecessary,

we do not agree with appellees’ argument because this

contention assumes the policy would have paid gross

revenues without regard to a decrease in expenses due to the

closure of forty-two of the hotel’s sixty-four rooms.

We conclude Pete’s estimate of lost gross revenue and a

100% occupancy rate was speculative, as was Aaron’s

estimate of a seventy percent occupancy rate. Although both

testified the expenses remained the same, neither provided

the amounts of those expenses, and Aaron testified he

reduced employee hours. Moreover, neither tied their

calculation [*7] of lost revenue to any amount that would

have been due under a policy that provided business

interruption coverage. On this record, we conclude the

evidence is legally insufficient to support the jury’s award

of damages for lost business income.

Generally, HN2 ′′when we sustain a no evidence point of

error after a trial on the merits, we render judgment on that

point.′′ Texarkana Mem’l Hosp., Inc. v. Murdock, 946

S.W.2d 836, 841 (Tex. 1997) (citing Holt Atherton Indus.,

Inc. v. Heine, 835 S.W.2d 80, 86 (Tex. 1992)). However, if

there is ′′some evidence of the correct measure of damages,′′

we reverse and remand the cause for a new trial. Formosa

Plastics Corp. USA v. Presidio Eng’rs and Contractors,

Inc., 960 S.W.2d 41, 51 (Tex. 1998) (holding that appellate

court can remand for new trial when no evidence supports

damages awarded but there is evidence of some damages);

see Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 682

(Tex. 2000) (holding remand for new trial is appropriate

remedy where there is evidence of some damages but there

is no evidence to support full amount of damages found by

the jury). Here, the only evidence adduced by appellees was

speculative; therefore, we cannot say some evidence exists

to warrant a remand for a new trial on damages. Accordingly,

we must render a take-nothing judgment against appellees.

CONCLUSION

Appellees’ evidence was legally insufficient to support the

damage award. Because Smith-Reagan’s challenge to the

legal sufficiency of the damage award [*8] is dispositive,

we do not reach the remainder of the issues. We reverse the

trial court’s judgment and render judgment that appellees

take nothing.

Sandee Bryan Marion, Justice

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2015 Tex. App. LEXIS 2291, *5