Smith-Reagan & Associates, Inc. D/B/A Smith-Reagan Insurance Agency v. Fort Ringgold Limited, Pete Diaz III, Aaron Diaz and Monica Aguillon

Fourth Court of Appeals
San Antonio, Texas
MEMORANDUM OPINION
No. 04-13-00608-CV

SMITH-REAGAN & ASSOCIATES, INC. d/b/a Smith-Reagan Insurance Agency,
Appellant

v.
Fort Ringgold Limited, Pete
FORT RINGGOLD LIMITED, Pete Diaz III, Aaron Diaz and Monica Aguillon,
Appellees

From the 381st Judicial District Court, Starr County, Texas
Trial Court No. DC-02-343
Honorable Jose Luis Garza, Judge Presiding

Opinion by: Sandee Bryan Marion, Justice

Sitting: Sandee Bryan Marion, Justice
Marialyn Barnard, Justice
Luz Elena D. Chapa, Justice

Delivered and Filed: March 11, 2015

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 hotel’s closure of forty-three of its sixty-four rooms due to mold. 1

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The hotel closed fifteen rooms in January 2002 and another twenty-eight rooms in July 2002.
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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; 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 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 “[t]he measure of the liability for [an agent’s] failure to
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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 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.
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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 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 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 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.
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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 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, “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 is dispositive, we do not reach

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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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