Insurance Law Section
The Henley v. Love Lesson: Where Experts Must Tread
by Blair Dancy  

In addition to the complexities inherent in coverage law, coverage litigation brings its own set of challenges. One recurring question: When does a coverage case require an expert opinion? See, e.g., Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 29 (Tex. 2008) (“Pinpointing the moment of injury retrospectively is sometimes difficult, but we cannot exalt ease of proof or administrative convenience over faithfulness to the policy language; our confined task is to review the contract, not revise it.”); Vines-Herrin Custom Homes, LLC v. Great Am. Lloyds Ins. Co., 357 S.W.3d 166, 173 (Tex. App.—Dallas 2011, pet. denied) (holding “expert testimony establishing the exact date of injury was not required to trigger the duty” under Don’s Building Supply, where the evidence showed the physical injury to the property indisputably occurred during one of two consecutive policy years covered by the same insurer); Swicegood v. Medical Protective Co., CIV.A.3:95-CV-0335-D, 2003 WL 22234928, at *15 (N.D. Tex. Sept. 19, 2003) (J. Fitzwater) (holding “the proof to be admitted at trial will consist of historical evidence from the Underlying Lawsuit and expert testimony to assist the jury in allocating or apportioning covered and non-covered damages,” involving mixed underlying claims of covered medical malpractice and uncovered romantic/sexual acts).

The Northern District of Texas has answered the expert question in respect to a claim for failure to procure insurance, in summary judgment. See Henley v. Love Ins. Group, LLC, 3:15-CV-3078-L, 2017 WL 735485 (N.D. Tex. Feb. 24, 2017). In Henley, the plaintiff had purchased an apartment complex with seven buildings and sought flood insurance through the defendant insurance agent. Id. at *1 & n.3. The agent was to procure two policies through FEMA, one for the $500,000 maximum limit and one for $475,000 for excess. Id. at *2.

However, the agent submitted an application for the $500,000 policy without designating the specific amount of insurance for each building, resulting in the issuance of a policy that covered only one of the buildings. See id. at *4. Moreover, the agent wholly failed to procure the $475,000 policy. Id. The plaintiff presented a public adjuster’s opinion that the buildings had suffered $847,520.10 in damage, and minus the $112,054.78 already recovered for one of the buildings, resulted in actual damages of $735,465.32. Id. at *5.

The agent contended that the plaintiff’s evidence failed to present evidence of what the policies would have covered. Id. At oral argument, the agent’s lawyer asked, “What are the terms of that policy? Under what circumstances would it kick in? What would it actually cover? Are there exclusions to that policy because they have to be under FEMA?” Id.

The court agreed: “A starting point for this calculation would have been the terms of a policy provision that provided such coverage during the relevant time period.” Id. (quoting Smith-Reagan & Associates, Inc. v. Fort Ringgold Ltd., 04-13-00608-CV, 2015 WL 1120398, at *2 (Tex. App.—San Antonio Mar. 11, 2015)). The court found neither party had presented “evidence as to the amount that would have been due had Defendant performed.” Id. Without such evidence, the court denied plaintiff’s motion for summary judgment, finding a genuine dispute of material fact on the question of damages. Id.

While Henley denied the plaintiff’s summary judgment, the holding it followed had more extreme consequences for failure to prove up the missing coverage terms. In Smith-Reagan, the plaintiff owned a hotel and sued its insurance agent for failure to include business interruption coverage in its policy after the hotel sustained extensive damage in a storm. See Smith-Reagan & Associates, Inc. v. Fort Ringgold Ltd., 04-13-00608-CV, 2015 WL 1120398, at *1 (Tex. App.—San Antonio Mar. 11, 2015). The question on appeal was whether the hotel had presented legally sufficient evidence as to the correct measure of damages. Id. The court noted, “Appellees did not present, as such evidence, testimony about or a copy of a policy providing business interruption coverage during the relevant time period.” Id. at *2. The owner and manager of the hotel testified as to lost revenue due to lack of occupancy. Id. However, “neither tied their calculation of lost revenue to any amount that would have been due under a policy that provided business interruption coverage.” Id. Accordingly, the court found the evidence speculative, amounting to no evidence of the correct measure of damages, and reversed and rendered judgment in favor of the agent. Id. at *3.

Of particular interest is the Smith-Reagan dissenting opinion on rehearing, offering additional insight into the underlying record. Smith-Reagan, 04-13-00608-CV, 2015 WL 5625240 (Tex. App.—San Antonio Sept. 9, 2015, no pet.) (on rehearing) (dissenting opinion). While the majority simply denied the motion for rehearing, the dissent criticized the majority for overlooking the agent’s expert testimony as to the measure of benefits payable under a typical business interruption policy. Id. at *2. The dissent further disagreed with the agent’s argument that “since no coverage was actually obtained, there is no way to prove what [the coverage] would have been,” noting the impossibility of proving coverage that was never obtained in the first place. Id. The dissent would have held the evidence sufficient to support the jury’s damage award based on the agent’s expert’s testimony as to what benefits such coverage would provide and the testimony of the hotel’s owner and manager. Id. at *3.

The lesson from Henley and Smith-Reagan? If the claim is failure to procure coverage, have your expert opine on what that coverage would have been, and if in doubt, prove up a specific policy when possible.