Be Prepared to Support Reasonable Repair Costs

By Julie E. Blend

The recent devastation from Hurricane Sandy is a reminder of the need of every community association board to annually evaluate insurance coverage.  In addition to securing proper coverage for the association, boards should be prepared to support the reasonableness of any repair costs necessitated by property loss.  With respect to property damage, the Texas Supreme Court recently held that an award of damages for cost of repair must be supported by evidence of the reasonableness of the costs.

In McGinty v. Hennen, 372 S.W.3d 625 (Tex. June 29, 2012)(per curiam), the Texas Supreme Court reversed the court of appeals’ opinion and rendered a take nothing judgment.  Hennen suffered water leaks and mold in his home and sued the builder for construction defects.  The jury awarded $651,230.72 to Mr. Hennen as the reasonable cost to repair his home, and $262,885.83 as the difference in value of his home from what it should have been had it been constructed correctly.  The Court noted the two measures of damages for breach of a construction contract: (1) remedial (cost to repair) damages; and (2) difference-in-value damages (value as constructed compared to the value if it had been constructed according to the contract).

The Court held that remedial damages require evidence of reasonable cost to repair in excess of out-of-pocket costs alone.  Hennen’s expert testified that his estimated cost of repair was from an Exactimate program “widely used in the insurance industry,” and from costs “from subcontractors or historical data or jobs.”    The Court noted that although in some instances “the process [of determining cost] will reveal factors that were considered to ensure the reasonableness of the ultimate price,” such was not the case with Mr. Hennen’s expert.  Accordingly, the Court found no evidence to support the jury award.  As for difference-in-value damages, again there was no evidence to support the jury award.  The plaintiff only testified about the value of what his home was worth at the time of trial, not at the time of closing when he initially purchased the home.  As a result, the plaintiff took nothing.

The take-away from this recent Texas Supreme Court opinion is to be prepared to support the reasonableness of costs to repair over and above the actual cost to repair.  Who is to say the cost the association agreed to was reasonable?  Ask for contractor bids that include more than just a work-up of the estimated cost of repair.  A trusted contractor should be willing to go the extra step to include data in the bid that supports why the bid is a reasonable amount.  This extra data can include the market cost of materials necessary for the repair, and an explanation of why the components of the repair job are each necessary to restore the property.

Be Prepared to Support Reasonable Repair Costs