ACCEPTED
04-13-00608-CV
FOURTH COURT OF APPEALS
SAN ANTONIO, TEXAS
4/9/2015 3:16:37 PM
KEITH HOTTLE
CLERK
NO. 04-13-00608-CV
FILED IN
IN THE TEXAS COURT OF APPEALS FOR THE FOURTH DISTRICT
4th COURT OF APPEALS
SAN ANTONIO, TEXAS SAN ANTONIO, TEXAS
4/9/2015 3:16:37 PM
KEITH E. HOTTLE
* * * * * Clerk
SMITH-REAGAN & ASSOCIATES, INC., D/B/A
SMITH-REAGAN INSURANCE AGENCY,
APPELLANT,
V.
FORT RINGGOLD LIMITED, PETE DIAZ III,
AARON DIAZ and MONICA AGUILLON,
APPELLEES.
* * * * *
On Appeal from the 381st Judicial District Court
Starr County, Texas
District Court Cause No. DC-02-343
* * * * *
APPELLEES’ EN BANC MOTION FOR REHEARING
* * * * *
Respectfully submitted,
Brendan K. McBride Matthew R. Pearson
State Bar No. 24008900 State Bar No. 0078817
Brendan.McBride@att.net mpearson@gplawfirm.com
MCBRIDE LAW FIRM, of Counsel GRAVELY & PEARSON, LLP
to GRAVELY & PEARSON, LLP 425 Soledad, Suite 600
425 Soledad, Suite 620 San Antonio, Texas 78205
San Antonio, Texas 78205 (210) 472-1111 Telephone
(210) 227-1200 Telephone (210) 472-1110 Facsimile
(210) 881-6752 Facsimile
TABLE OF CONTENTS
Page
TABLE OF CONTENTS ............................................................................................................. 2
TABLE OF AUTHORITIES ........................................................................................................ 3
INTRODUCTION & SUMMARY ................................................................................................ 1
ARGUMENT & AUTHORITIES ................................................................................................. 4
A. The Court Must Review The Entire Record and All of the Evidence To Resolve
a Challenge to the Legal Sufficiency of the Evidence.............................................. 6
B. There Was Evidence Of How Business Interruption Would Have Been
Determined. .................................................................................................................. 6
C. Smith-Reagan’s Own Brief Contradicts The Court’s Conclusion. ......................... 9
CONCLUSION & PRAYER ...................................................................................................... 12
CERTIFICATE OF SERVICE ..................................................................................................... 13
CERTIFICATE OF COMPLIANCE............................................................................................. 13
2
TABLE OF AUTHORITIES
Page
Cases
City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) ............................................................. 6
Dow Chem. Co. v. Francis, 46 S.W.3d 237 (Tex. 2001).......................................................... 6
Henson v. Reddin, 358 S.W.3d 428 (Tex.App. – Fort Worth 2012, no pet.) ...................... 6
Hidden Forest Homeowners Ass'n v. Hern, No. 04-10-00551-CV, 2011 Tex. App. LEXIS
9566, 2011 WL 6089881 (Tex. App. -- San Antonio 2011, no pet.)(to be published)6
Kroger v. Texas Ltd. Parnership v. Suberu, 216 S.W.3d 788 (Tex. 2006) ................................ 6
Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706 (Tex. 1997)......................................... 6
Smith-Reagan & Assocs. v. Fort Ringgold Ltd., No. 04-13-00608-CV, 2015 Tex. App.
LEXIS 2291, 4 (Tex. App. -- San Antonio Mar. 11, 2015, no pet. h.)(mem. op.) ...... 2
3
INTRODUCTION & SUMMARY
The Panel’s opinion in this case overlooks certain key record evidence related
to the proof of damages that is inconsistent with the Panel’s conclusions about the
record, and necessarily requires a different legal result than reached by the Panel.
Given that the Panel’s opinion and judgment is based on a sufficiency of the evidence
challenge, the Court must review all of the evidence on the record to determine
whether there is at least a scintilla of evidence to support the jury’s verdict.
Considering all of the evidence on the record – as the Court must – the Panel’s
conclusion that the evidence does not support the amount of business income loss
sustained by the Hotel is erroneous and should be corrected on rehearing en banc.
This is a dispute over the failure by an insurance agent to obtain all of the
coverage requested for the Fort Ringgold Motor Inn in Rio Grande City, Texas (“the
Hotel”). Appellees, Fort Ringgold Limited, Pete Diaz III, Aaron Diaz and Monica
Guillon (collectively “Fort Ringgold”) were unable to obtain insurance benefits for
“business interruption” losses when a massive rain storm caused massive damage
disabling many of the rooms and causing a significant loss of income for the Hotel.
Fort Ringgold brought this claim against its insurance agent, Smith-Reagan &
Associates, Inc. d/b/a Smith-Reagan Insurance Agency (“Smith-Reagan”) to recover
damages for Smith-Reagan’s failure to include business interruption coverage on the
property insurance policy for the Hotel.
1
In its opinion and judgment reversing rendering a take nothing judgment, the
Panel concluded that there was no evidence presented on the record to show the
amount of damages sustained by the Hotel as a result of Smith-Reagan’s failure to
obtain requested business interruption coverage. The Panel’s opinion begins with the
statement that there was no evidence of how business interruption damages would
have been calculated had the coverage been obtained. Smith-Reagan & Assocs. v. Fort
Ringgold Ltd., No. 04-13-00608-CV, 2015 Tex. App. LEXIS 2291, 4 (Tex. App. – San
Antonio Mar. 11, 2015, no pet. h.)(mem. op.). However, since no coverage was
actually obtained, there is no way to prove what it would have been. At most, there
would be evidence of what it probably would have been. And there was such evidence.
David Surles, Smith-Reagan’s insurance expert, explained to the jury how business
interruption coverage usually works and how the loss would be calculated – it would
be based off net profit. Indeed, as explained below, Smith-Reagan’s own brief to the
Court conceded that there was evidence from Surles about how the loss would have
been calculated.
The Court then focused mainly on Pete Diaz’s testimony about the loss of
gross revenues from the loss of use of many of the Hotel’s rooms and concluded that
business interruption insurance would not have provided coverage for loss of total
gross revenue. On that basis, the Court reversed and rendered a take nothing
judgment against Fort Ringgold. It is true that business interruption coverage
probably would not have paid the total gross revenue for all of the damaged rooms.
2
However, there was other critical evidence that does show the amount of coverage the
Hotel probably would have been paid for business interruption losses had Smith-
Reagan not failed to obtain the coverage. Specifically, Surles explained to the jury that
the gross sales figure would have to be adjusted for the historical occupancy rate to
arrive at how much gross revenue was lost, and then adjusted for expenses.
Thus, the jury heard that there were three items of information that were
generally necessary to determine how much would have been paid had a standard
business interruption policy been obtained for the Hotel: (1) the amount of gross
revenue lost for all the unusable rooms; (2) the likely occupancy rate to determine
how many of those damaged rooms were likely to have been rented had they not been
damaged; and, (3) evidence of the difference in expenses due to the shutdown of
some of the rooms. There was evidence of all three of these items.
1. Pete Diaz testified about what would the gross rental income from all
of the damaged rooms would have been had they all been rented
($1.176 million).
2. Surles testified that he had reviewed historical occupancy data for the
Hotel and told the jury the percentage applicable to adjust the gross
revenue to reflect the likely occupancy rate (57%).
3. Diaz testified that the Hotel had to keep its staff, pay insurance,
mortgage and other recurring expenses and had no substantial change
in operating expenses because of the damaged rooms.
Thus, there was evidence from which the jury could determine the Hotel had
lost as much as $670,320 (57% of $1.176 million, with no reduction for expenses).
The jury awarded $325,000 for losses that “would not have occurred had [Smith-
3
Reagan] procured insurance for Fort Ringgold that included coverage for business
interruption.” (CR5:181)
There was more than a scintilla of evidence to support the jury’s determination
of damages. If the Panel does not grant rehearing, the Court should grant rehearing
en banc and consider these additional facts that support the jury’s award of damages.
ARGUMENT & AUTHORITIES
The Panel’s opinion and judgment are based solely on the ground that there
was legally insufficient evidence of the amount of damages awarded to Fort Ringgold
by the jury. The Panel’s opinion does not address the evidence showing there was an
agreement by Smith-Reagan to procure a policy with business interruption coverage
for the Hotel. As discussed in Appellees’ original briefing, there was sufficient
evidence that there was such an agreement, including statements by the agent
involved for Smith-Reagan, its Vice-President, that he had offered business
interruption coverage but Diaz had declined it, and Pete Diaz’s testimony that he did
not decline any of the coverage offered by Smith-Reagan except an “umbrella” policy.
There was also evidence that Smith-Reagan had forms it would use to document
when a client was declining offered coverage, and that business interruption coverage
for a hotel would have been important and even “critical” for a hotel and there would
have been an “in depth” discussion if the Hotel had declined the coverage as Smith-
Reagan’s Vice-President claimed. (Appellees’ Brief at 1-5, 11-17) There was no
4
dispute that Smith-Reagan did not, in fact, obtain business interruption coverage for
the Hotel.
The Panel’s opinion also does not address the sufficiency of the evidence that
the Hotel suffered massive storm damage that left 2/3 of the rooms unusable. (See
Appellees’ Brief at 5-7) Indeed, the property insurer for the Hotel, which provided
coverage for property damage but not losses of business income (because Smith-
Reagan had not obtained business income coverage), instructed the Hotel to shut
down the badly damaged rooms. (RR5:108-111) Thus, there was no dispute that the
Hotel lost the ability to use 2/3 of its rooms to generate income.
The sole basis for the Panel’s judgment reversing and rendering a take nothing
judgment against Fort Ringgold is its conclusion that the record did not establish how
much Fort Ringgold would have been paid in insurance benefits for loss of business
income had Smith-Reagan obtain the requested business interruption insurance
coverage. Given the record and the standard of review applicable to a post-verdict
evidentiary sufficiency challenge, the Court should grant rehearing en banc and
reconsider all of the evidence on the record. Considering all of the record, there is
more than a scintilla of evidence to support the jury’s award of $325,000 in actual
damages.
5
A. The Court Must Review The Entire Record and All of the
Evidence To Resolve a Challenge to the Legal Sufficiency of
the Evidence.
The basis for the Panel’s opinion is a legal sufficiency challenge to the evidence
of Fort Ringgold’s damages as awarded by the jury. A court must examine the “entire
record” to determine if there is some evidence to support the finding. Hidden Forest
Homeowners Ass'n v. Hern, No. 04-10-00551-CV, 2011 Tex. App. LEXIS 9566, 19, 2011
WL 6089881 (Tex. App. -- San Antonio 2011, no pet.)(mem. op.)(citing Dow Chem. Co.
v. Francis, 46 S.W.3d 237, 242 (Tex. 2001)).
The Court must credit favorable evidence if reasonable jurors could, and
disregard contrary evidence unless reasonable jurors could not. City of Keller v. Wilson,
168 S.W.3d 802, 822, 827 (Tex. 2005); Henson v. Reddin, 358 S.W.3d 428, 434
(Tex.App. – Fort Worth 2012, no pet.). A legal sufficiently challenge fails when the
offered evidence exceeds a “scintilla.” Kroger v. Texas Ltd. Parnership v. Suberu, 216
S.W.3d 788, 793 (Tex. 2006), citing City of Keller, 168 S.W.3d at 810. More than a
scintilla of evidence exists when the evidence supporting the finding, as a whole,
would enable reasonable and fair-minded people to differ in their conclusions. Merrell
Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).
B. There Was Evidence Of How Business Interruption Would
Have Been Determined.
The Panel’s analysis starts with the proposition that Fort Ringgold failed to
produce a copy of a policy showing how business income losses would have been
6
calculated had Smith-Reagan not failed to obtain it. There is no way to say for certain
what the coverage would have been or how it would have been calculated because it
would be a function of the endorsement that was not obtained. While there could
have been copies of exemplar endorsements from other policies introduced to show
the jury how the endorsement might have worked, that would not be the only way to
provide a scintilla of evidence from which a jury could determine how business
interruption losses would be determined.
Here, there was testimony from David Surles that business interruption
coverage is intended to provide benefits to replace lost “net profit plus the expenses
that continued during the suspension of operations. So, profit plus continuing
expenses during the period of suspension of operations is what business interruption
insurance policy [sic] pays for.” (RR7:217) Thus, there was more than a scintilla of
evidence of what benefits would be provided by a policy with a business interruption
coverage endorsement even without an exemplar endorsement from some other
policy. Indeed, an exemplar from another policy would not be as probative as the
evidence here, since there really is no telling whether a particular form of
endorsement would have been sold with this policy had it been requested. Here,
however, there was evidence of the sort of losses for which these policies are intended
to compensate the insured, and as detailed below, an explanation based on an expert
witness’s knowledge how the loss would have been calculated.
7
There was also evidence as to how the amount of lost net profits should be
calculated for purposes of determining business interruption losses. When Surles
critiqued Pete Diaz’s claim that the Hotel’s lost business interruption coverage was
equal to the total amount of the lost income for all of the rooms – the $1.176 million
figure the Panel discussed in its opinion – Surles explained that this number would
have to be adjusted to reflect the historical occupancy rate for the Hotel, since 100%
of the rooms would not be rented every night. (RR7:215-16) This adjustment was
based on what Surles knows “about business interruption insurance and how it would
have paid . . .” (Id.)
The jury did not need to guess what this historical occupancy rate was, either.
Surles reviewed the documents and testified that Hotel records showed the occupancy
rate was around 57% prior to the storm damage. (RR7:216, 218-19)
The jury likewise heard that “net profit” is simply gross income less expenses.
(RR5:139-140). Once the gross income was calculated and adjusted to the occupancy
rate, the only thing that remained was to determine what effect the loss had on the
Hotel’s expenses to arrive at the lost net profit from those rooms being unusable.
There was also evidence of the effect of the damage on the Hotel’s expenses. Pete
Diaz explained to the jury that substantially all of the Hotel’s expenses remained the
same because Fort Ringgold was still trying to keep the Hotel operating while 2/3 of
the rooms were unusable. Diaz testified that the expenses would be the same for the
whole period – they were recurring monthly expenses that do not go up or down
8
from month-to-month based on the amount of occupancy. (RR5:138-140, 194)(Q:
“So even though the revenues decreased, the expenses still stayed the same?” A:
“That is correct.”)
Of course, gross income equals profit plus expenses - or put another way, net
profit is gross income less expenses. (Id.) If the expenses remained the same with
2/3 of the rooms shut down (and the expenses did remain the same, according to the
evidence), then the lost revenue from those rooms was the same thing as lost net
profit once those numbers are adjusted to the occupancy rate the jury heard about
from Surles. The jury had all it needed to calculate how much the business
interruption loss would have been based on what Surles explained about business
interruption insurance and how it would have paid, and applying that to the gross
sales number and evidence about expenses they heard from Pete Diaz.
C. Smith-Reagan’s Own Brief Contradicts the Panel’s Conclusion That
There Was No Evidence of How Business Interruption Loss Would
Have Been Calculated.
Critically, in their brief to the Court, these two issues – occupancy rate and
change in expenses – were the two arguments Smith-Reagan actually raised about the
sufficiency of the evidence to support the jury’s determination of damages.
(Appellant’s Brief at 33-34) This is the likely reason for the Panel reaching a
conclusion about the evidence for damages that is not consistent with the record –
Smith-Reagan did not argue the sufficiency of the evidence as it relates to damages in
the way that the Panel decided that legal issue. Had Smith-Reagan tried to argue that
9
there was no evidence of how business interruption would have been calculated,
Appellants would have much more explicitly called the Court’s attention to the fact
that there most certainly was evidence of how the coverage for business interruption
likely would have been calculated. But Smith-Reagan did not make that argument –
because the record cannot support it.
Rather, Smith-Reagan actually agreed that the record included evidence of the
method of calculating lost business interruption benefits – and characterized it in the
same manner as discussed above. On page 33 of its brief, Smith-Reagan stated:
The evidence presented by Defendant’s expert witness, David Surles,
was that payment for business interruption loses is determined by
calculating profit plus continuing expense during the period of
suspension of operations. [citation omitted] Instead of presenting
evidence as to the motel’s profit, Plaintiffs presented evidence as to the
motel’s gross sales.
Smith-Reagan then went on to explain the two specific pieces of evidence that it
claimed were necessary to do the business interruption loss calculation. First, that
Pete Diaz’s gross sales number of $1.176 million did not include “evidence of the
amount of expenses that would have continued during the period the motel’s business
was interrupted.” And second, “[h]e did not know the occupancy rate.” (Appellant’s
Brief at 34)
Contrary to what the Panel explained in its opinion, there definitely was
evidence of how business interruption losses would likely have been calculated – i.e.
gross sales adjusted for occupancy rate less any change in operating expenses. Smith-
10
Reagan conceded as much in its brief – stating that Surles explained the calculation
and challenging only whether there was evidence of the occupancy rate and expenses.
(Appellant’s Brief at 33-34)
Thus, the issue is really whether there was evidence of the effect on the
damaged rooms on the ongoing operating expenses and evidence of the occupancy
rate for the Hotel – the two issues raised in Smith-Reagan’s brief. As explained in
more detail above, there was evidence before the jury on both issues. Pete Diaz
specifically testified that the Hotel’s operating expense was the same even with the
damaged rooms not generating revenue for the Hotel. And Surles testified that the
occupancy rate would have been 57%. The Court must consider the entire record in
ruling on a legal sufficiency challenge. There is no reason why a plaintiff cannot rely
on the testimony of the opposing party’s witnesses to support their case.
Here, taking the entire record, including Pete Diaz’s testimony about gross sales
and expenses, and Surles’s testimony about how business interruption loss is
calculated and the occupancy rate, the jury had evidence of all the elements necessary
to determine what the business interruption loss would likely have been had Smith-
Reagan not failed to obtain the coverage as agreed. The evidence supports
substantially more than the $325,000 awarded by the jury for actual damages.
There was more than a scintilla of evidence of how much Fort Ringgold likely
lost in insurance benefits as a result of Smith-Reagan’s failure to procure the business
interruption insurance. If the Panel does not grant rehearing, then the Court should
11
grant rehearing en banc, and on a review of the entire record, substitute an opinion
vacating the Panel’s judgment and affirming the judgment for Fort Ringgold.
CONCLUSION & PRAYER
The Court’s opinion is based on conclusions about the evidence that are at
odds with the record. Given the narrow standard of review that prohibits the Court
from substituting its view of the evidence for that of a jury, and that limits reversal
only to those instances where there is less than a scintilla of evidence, the Court was
mistaken in concluding there was legally insufficient evidence to support the amount
of actual damages found by the jury.
To the contrary, both parties agree that Surles did testify about how business
interruption loss likely would have been calculated. Smith-Reagan’s actual complaint
was that Fort Ringgold did not produce evidence of what the ongoing expenses were
or the occupancy rate. However, applying the standard of review applicable to legal
sufficiency challenges and reviewing the entire record, as the Court must, there was at
least a scintilla of evidence on both of these matters.
The Court should grant rehearing and vacate its opinion and judgment in this
matter. The judgment should be affirmed in its entirety.
Respectfully submitted,
________________________________
Brendan K. McBride
State Bar No. 24008900
12
Brendan.mcbride@att.net
THE MCBRIDE LAW FIRM
Of Counsel to
GRAVELY & PEARSON, L.L.P.
425 Soledad, Suite 620
San Antonio, Texas 78205
(210) 227-1200 Telephone
(210) 881-6752 Facsimile
And
Matthew R. Pearson
State Bar No. 00788173
mpearson@gplawfirm.com
GRAVELY & PEARSON, L.L.P.
425 Soledad, Suite 600
San Antonio, Texas 78205
Telephone: (210) 472-1111
Facsimile: (210) 472-1110
COUNSEL FOR APPELLEES
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing document has been
forwarded on this 9th day of April 2015 to Appellant’s lead appellate counsel via email
and via electronic service through Texas.gov.
____________________________________
Brendan K. McBride
CERTIFICATE OF COMPLIANCE
I hereby certify that this brief is in compliance with the rules governing the length
of briefs prepared by electronic means. The brief was prepared using Microsoft Word
2010. Garamond 14 pt. font was used for the body, and Garamond 12 pt. font was used
13
for footnotes. According to the software used to prepare this brief, the total word
count, including footnotes, but not including those sections excluded by rule, is 3,013
____________________________________
Brendan K. McBride
14