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?
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"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.
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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.
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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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