On a spring morning in 2017, Coinsource General Counsel Arnold Spencer arrived at a breakfast meeting in Dallas’ Preston Center.
“What are you doing here? Your condo is on fire!” one of the meeting’s attendees said.
Spencer was running late that morning, so he didn’t pay much attention to the fire trucks in front of the Preston Place condominiums off Northwest Highway, where Spencer and his wife owned two investment properties. Overnight, the entire 60-unit complex had burst into flames by a seven-alarm fire that displaced more than 100 of the primarily elderly residents and killed one.
The board of directors of Preston Place’s homeowners association, to which Spencer had just been elected to, learned it would require $20 million to rebuild. The problem was their insurance broker placed a policy that only covered about a quarter of that sum.
On Wednesday, a Dallas County jury rebuilt some justice for the residents and the beloved community they lost when it ruled that the broker, Denton-based Ramey & King Insurance Associates, negligently underinsured the policy of the Preston Place Condominium Association. The jury rendered a $20 million verdict.
Although the 10-2 ruling found all parties — Ramey & King, Preston Place Condominium Association and the property manager, Nolan Management Company — partially responsible, it assigned 75% of the liability to Ramey & King.
“I think the verdict reflects how emotionally grueling and tormenting this whole process has been for Preston Place, and how rewarding it was for them to finally get the justice they deserve,” said Joel Bailey of Hedrick Kring, who was the HOA’s lead lawyer during the three-day trial. “One of the reasons why you have insurance is to try to rebuild and get back on your feet. What they came to learn was their insurance company didn’t do any diligence for 10 years. They basically collected a commission and that was it.”
Houston lawyer Clint Echols, who represented Ramey & King at trial, deferred comment until after he speaks with his client. Fort Worth lawyer Michael Maxvill, who represented Nolan Management Company, declined to comment.
At trial, Spencer said, Ramey & King argued that it was Preston Place’s responsibility to increase their coverage, and that the HOA board didn’t communicate clearly that it wanted a replacement policy throughout their 11-year relationship, which began in 2006.
“Our argument back was that was exactly what we depended on the insurance company to tell us,” Spencer said.
Before Dallas District Judge David Evans hears any post-verdict motions, he ordered the parties into mediation. Court records show that Nolan Management has already dropped its counterclaims against Preston Place, which concerned indemnity.
If the case works its way up through the appeals process, it is believed that it will pose the question of what reasonable diligence truly means for insurers in Texas, an area that legal experts say is lacking in the state’s authority-setting case law.
But the facts in this case suggest that Ramey & King could remain on the hook.
“Under Texas law, condominium associations are required to have 80% of the cost [to rebuild] covered under insurance,” Spencer said. “If you have a significant insurable loss, you want to make sure everybody in the association has the option to use the money to rebuild the condo.”
Because Preston Place’s policy only covered around $5 million, Spencer said the decision on whether to rebuild “was made for us.”
“We loved our condos, we loved our community, and we were both surprised and appalled when we found out that there was absolutely no way to rebuild and continue,” Spencer said.
The Fire that Sparked an Emotional Trial
Spencer was one of the more fortunate owners. Because his two units were investment properties that were occupied by other tenants, his personal belongings were salvaged. Other residents — many of whom are widows — were not as lucky. Spencer said between 20 and 25 widows lost an irreplaceable item: their wedding rings.
The sentimental value to Spencer’s units, however, was unsalvageable.
A former prosecutor with the U.S. Attorney’s Office for the Eastern District of Texas, one of Spencer’s units was where he and his family lived for the first four years upon him returning to the private practice world in Dallas — first at Haynes and Boone, then at Akin Gump. Spencer purchased the second unit from his grandmother, who spent the last few years of her life there.
Spencer was the corporate representative for Preston Place at trial, so he served as a key witness. Because he has worn the advocate hat in trials so many times — around 100 so far in his career — Spencer fully expected that he could separate his emotion from the situation.
When he took the stand, he declined taking a bottle of water, a typical gesture of hospitality in courtrooms for witnesses who get emotional.
“I was up there about 30 seconds before I felt the emotions coming up and choking me,” he said. “Part of that was all the pain and suffering that had gone on with the fire. Part was two years of fighting through litigation.”
“My mistake wasn’t that I brought out emotion as a fact witness; my mistake was that I didn’t appreciate until that moment the difference between being an advocate and being a fact witness.”
Bailey echoed that it was a remarkable moment in the trial.
“It hit him that he was there to continue this fight for the unit owners who were still trying to rebuild,” Bailey said. “There are people still trying to pay off mortgages on a building that burned down.”
A powerful moment in Spencer’s testimony came when Echols, Ramey & King’s lawyer, accused Spencer of making a false statement in his affidavit.
“I pushed back pretty hard,” Spencer said. “I found it appalling that he was accusing me of not only telling a lie, but breaking a state and federal law.”
“It was one of the highlights of the trial — to see him both get emotional when thinking about the fire and its impact, but to also get passionate and to resist the accusations of blame [Ramey & King] was trying to throw on Preston Place — because it was completely unfounded,” Bailey said.
Bailey and Spencer said another key piece of evidence at trial came through an email that Don Hollenshead, the agent at Ramey & King responsible for the Preston Place account, sent once litigation ensued.
“I guess after the grief comes the greed,” the email said.
“It was one more reminder to be careful about what you put in emails,” Spencer said.
Bailey said that during closing arguments, he tried to hammer home the idea that Ramey & King was the party that was truly greedy.
“Let’s think about who is being greedy,” Bailey told jurors. “Is it greedy to want your home back and rebuild … or is it greedy to want a commission without doing any of the work?”
Spencer said he couldn’t have been more pleased with Bailey’s performance. The two first met while practicing at Akin Gump together. Spencer said Bailey made “really thoughtful” decisions about simplifying the jury charge to fewer claims and requesting less money. Despite Spencer’s protests, Bailey also decided it was the right decision to remove Preston Place’s request for punitive damages.
“I was really grateful he had that balance and perspective and wasn’t as close to the issues as I was,” Spencer said. “He gave us great advice.”
Bailey’s judgment paid off. After a little more than two hours of deliberation, the jury returned a verdict Wednesday afternoon that rendered $10 million more than the middle-range figure Bailey said the jurors should reward.
The Hedrick Kring trial team also included first-year associate Megan Servage, who Bailey said took a couple witnesses herself and did a superb job.