James River Ins. Co. v. Rapid Funding, Ltd. Liab. Co., - 658 F.3d 1207 (10th Cir. 2011)

Rule:

As the United States Court of Appeals for the Tenth Circuit has said, Fed. R. Evid. 701 does not permit a lay witness to express an opinion as to matters that are beyond the realm of common experience which require the special skill and knowledge of an expert witness.

Facts:

The North Building of Amsterdam Gardens, a complex of apartment buildings in Wyoming, Michigan, was destroyed by fire. It was reported that it would cost approximately $7.145 million to replace the North Building. The owner of the building, Rapid Funding, LLC, a Colorado limited liability company, submitted a claim to its insurer, James River Insurance Company, an Ohio corporation, for the full $3 million of insurance coverage the policy carried. Andrew Miller, Rapid Funding's principal, claimed that the North Building had an actual cash value of $4.489 million before the fire. Miller contended that the figure was based on applying a 40% depreciation factor to the estimate of the replacement cost. James River Insurance denied the claim after concluding the North Building had no value. Subsequently, James River filed suit in Colorado federal district court and asked for a declaratory judgment that it owed nothing on Rapid Funding's actual cash value claim. Rapid Funding counterclaimed for breach of insurance contract and breach of the covenant of good faith and fair dealing. The district court awarded the insured compensatory and punitive damages. James River challenged the judgment, arguing that the damages verdict was based on valuation testimony that should have been excluded under Fed. R. Evid. 701.

Issue:

Was the damages verdict based on valuation testimony that should have been excluded under Fed. R. Evid. 701?

Answer:

Yes.

Conclusion:

The Court noted that under Fed. R. Evid. 701, if the witness was not testifying as an expert, the witness’ testimony in the form of opinions or inferences was limited to those opinions or inferences which were (a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702. In this case, the Court found that the testimony of Miller regarding the value of the buildings lost to arson was based on technical or specialized knowledge. Specifically, accounting for the interaction between depreciation and damage required professional experience and was beyond the scope of lay opinion testimony. Moreover, the Court held that Miller’s testimony was inadmissible regardless of whether the court applied federal or Colorado law because Fed. R. Evid. 701 and Colo. R. Evid. 701 did not conflict. According to the Court, admitting the testimony was not harmless error because the remaining evidence did not support the jury's damages verdict. Accordingly, the verdict was reversed, and the case was remanded for a new trial to determine damages.