Sihle Ins. Group, Inc. v. Right Way Hauling, Inc.
2003 WL 21203314, 845 So. 2d 998, 2003 Fla. App. LEXIS 7550 (2003)
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Rule of Law:
A claim for lost profits damages must be proven with reasonable certainty, not based on speculative assumptions, and requires competent evidence that includes all relevant deductions, such as an owner's reasonable salary.
Facts:
- Right Way Hauling, Inc. (Right Way) operated a business manufacturing mulch.
- In 1999, Right Way purchased a power screen that significantly increased its mulch production rate and sorting capabilities, becoming the only such business in central Florida with this equipment.
- Upon acquiring the power screen, Right Way contacted its insurance agent, SIHLE Insurance Company (SIHLE), to add the new equipment to its existing policy with Century Surety Company.
- On July 29, 1999, the power screen was destroyed in a fire.
- Century Surety Company denied coverage for the power screen, asserting it was never added to Right Way's policy.
- Right Way alleged that SIHLE's agent failed to complete the necessary steps to add the power screen to its insurance policy.
- Due to the lack of insurance coverage, Right Way was unable to replace the power screen and could no longer produce the same quantity and quality of mulch.
- Ultimately, Right Way sold its business.
Procedural Posture:
- Right Way sued SIHLE in trial court for negligence and breach of contract for failing to obtain insurance coverage for the power screen.
- A jury found that SIHLE had breached its contract and was negligent.
- The jury awarded Right Way $90,000 for the loss of the power screen and $256,000 in damages for lost profits.
- SIHLE, as the appellant, appealed the trial court's award of damages for lost profits to the District Court of Appeal of Florida, Fifth District. Right Way was the appellee.
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Issue:
Does an expert's testimony regarding lost profits provide sufficient certainty to support a damages award when the calculations are based on speculative assumptions, erroneous data, and fail to account for essential deductions like an owner's salary?
Opinions:
Majority - Thompson, C.J.
No, an expert's testimony regarding lost profits does not provide sufficient certainty to support a damages award when the calculations are based on speculative assumptions, erroneous data, and fail to account for essential deductions like an owner's salary. The court affirmed the trial court's discretion in allowing Right Way's expert to testify, finding that a witness qualified by knowledge, skill, experience, training, or education, even without a specific degree, can offer expert opinion. However, the court reversed the award for lost profits, concluding the evidence presented was too speculative. The expert's calculations relied on several flawed assumptions: projected sales to a customer (Florida Mulch) were based on an erroneous daily load figure rather than weekly, which the expert admitted would affect revenue by one-fifth; the expert used the maximum price of $12 per yard when the range was $5-$12; Right Way's actual pre-fire profits ($30,000/month) were significantly lower than the expert's projected $151,000/month, requiring an unrealistic 250% production increase; and Right Way's tax returns never showed a profit, which typically indicates a lack of reasonable certainty for lost profits claims (citing Travelers Insurance Co. v. Wells). Crucially, the expert failed to deduct a reasonable owner's salary from the net profit, a requirement established in State Dep't of Transp. v. Manoli, stating that the reasonable value of the owner's services must be accounted for. The court held that lost profits must be proven with "reasonable certainty" and be a "natural consequence of the wrong" (citing Brevard County Fair Ass'n, Inc. v. Cocoa Expo, Inc. and Forest's Mens Shop v. Schmidt), and Right Way's calculations did not meet this standard. The court remanded for a new trial on damages, requiring Right Way to provide competent evidence to satisfy a prudent, impartial person as to the amount of lost profits.
Concurring - Sharp, W.
Justices Sharp concurred with the majority opinion.
Concurring - Sawaya, J.
Justice Sawaya concurred with the majority opinion.
Analysis:
This case significantly reinforces the stringent standard for proving lost profits damages in Florida, particularly highlighting the requirement for "reasonable certainty" and the avoidance of "speculation." It clarifies that even a qualified expert's testimony can be insufficient if the underlying data and assumptions are flawed or incomplete, emphasizing the necessity of deducting an owner's reasonable salary. Future cases will likely scrutinize expert methodologies more closely, especially when dealing with businesses attempting rapid expansion or those without a consistent profit history, ensuring that damages awards are grounded in verifiable facts rather than optimistic projections.
