State Farm Lloyds vs. Mireles

December 6, 2001

Following Daubert, no reported opinion has yet addressed the reliability of expert testimony about proper adjustment or claims handling practices. However, insurance companies have made inroads in challenging technical "experts" who support policyholder's claims, but lacked reliable scientific basis for their opinions. In State Farm Lloyds v. Mireles, the Court of Appeals reversed a judgment for breach of contract and violations of the DTPA and Insurance Code and rendered judgment in favor of State Farm, after concluding that the policyholder's expert's testimony was neither reliable nor relevant.

The case involved alleged foundation damage caused by a leak. The policyholder's expert, Per Schneider, concluded that the water leak in the bathroom had caused significant foundation damage under parts of the house six to eight feet away from the leak.

According to the expert, the moisture "migrated," causing a heave in the foundation six to eight feet away from the moisture's origination point. Schneider could not explain how the leaks did not cause soil to expand directly underneath the leak, nor could he explain how there was no trace of moisture in the soil near the leak.

Further, Schneider testified he did not know where the plumbing trenches under the house were even located. When asked why the heave occurred at a distance from the leak, Schneider responded "only God knows." He also testified that the migration of moisture through clay soil is unpredictable.

While Schneider had extensive experience in foundation design, he had no studies or data to support his theory regarding the leak and the subsequent heaving. In addition, he could not rule out the other possible causes of foundation damage suggested by State Farm's experts: settlement, tree influence, and climatic conditions.

The court reviewed the admissibility of Schneider's testimony under the standards adopted by the United States Supreme Court in Daubert, and followed by the Texas Supreme Court in Merrell Dow Pharmaceutical Company v. Havner, 953 S.W.2d 706, 711 (Tex. 1997) and E.I. Dupont DeNemours & Company, Inc. v. Robinson, 923 S.W.2d 549 (Tex. 1995).

Reviewing the evidence under a legal sufficiency standard, the court looked to the Robinson factors and considered whether the expert's theory had or could be tested; whether the technique relied upon the subjective interpretation of the tester; whether the theory had been subjected to peer review or publication; the potential rate of error; whether the technique or theory had been generally accepted by the scientific community; and non-judicial uses of the technique.

While the court recognized that not every factor applies in every situation, and that testimony from a mechanical engineer was not amenable to strict application of the factors, the court nevertheless found that Schneider's testimony fell short. Even looking to the expert's experience, skill, and involving whether his analysis was grounded in scientific methods and procedure, the testimony was still unreliable and irrelevant.

The court concluded the testimony was based upon nothing more than subjective belief and unsupported speculation, and that the expert's experience was dissimilar from the issues at hand. Further, the court found it significant that Schneider "stands alone" among foundation experts in his opinions and theories, and that his theories are not generally accepted. Because Schneider's testimony was legally insufficient, there was no evidence of causation. Accordingly, the court reversed and rendered judgment in favor of State Farm Lloyds.

The opinion is case specific but indicates that the courts are taking the Daubert/Robinson challenges seriously, and that not only "junk science," but claims based on novel and unique theories will be carefully questioned.

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