## Facts

- Rapid Funding, LLC financed and later acquired a distressed, code-violating apartment complex in Wyoming, Michigan known as Amsterdam Gardens.
- James River Insurance Company issued a $3 million commercial property policy covering the complex, with recovery available on a replacement-cost or actual-cash-value basis.
- A January 24, 2007 fire destroyed the property’s North Building, and the city later ordered demolition of both buildings.
- Rapid Funding submitted sworn proofs of loss demanding policy limits, relying primarily on its principal, Andrew Miller, to support value.
- Miller used a third-party replacement-cost estimate of about $7.145 million and applied an assumed 40% depreciation to claim an actual cash value of about $4.489 million for the North Building.
- James River denied the claim, asserting the building’s pre-fire value was zero or negative once code deficiencies and demolition costs were considered.

## Issues

1. Whether the district court erred by admitting the insured’s principal’s building-valuation opinions as lay testimony under Federal Rule of Evidence 701 rather than expert testimony under Rule 702.
2. If the admission was erroneous, whether the error was harmless or required vacating the damages award and ordering a new trial on damages.

## Decision

- The Tenth Circuit held the district court abused its discretion by admitting Miller’s valuation opinions as lay testimony under Rule 701.
- The court concluded Miller’s testimony was, in substance, expert opinion because it relied on specialized valuation concepts and a third-party professional estimate.
- The court further held the error was not harmless because the improperly admitted valuation testimony likely influenced the jury’s compensatory damages award.
- The court vacated the damages judgment and remanded for a new trial limited to damages, leaving liability determinations intact.

## Legal Principles

- Rule 701 does not permit lay opinion testimony that is based on “scientific, technical, or other specialized knowledge” within the scope of Rule 702.
- Courts must evaluate the substance of opinion testimony; a party may not avoid Rule 702 and related disclosure and reliability requirements by presenting expert-like opinions through a purported lay witness.
- Property owners or business principals may sometimes offer lay opinions on value, but only when the opinion is grounded in personal perception and ordinary experience rather than technical methods, specialized depreciation judgments, or reliance on professional analyses.
- Erroneous admission of expert testimony as lay opinion warrants relief when it affects substantial rights and likely influenced the damages verdict.

## Conclusion

The Tenth Circuit ruled that valuation testimony based on professional replacement-cost estimates and technical depreciation assumptions is expert testimony governed by Rule 702, not admissible lay opinion under Rule 701, and it ordered a new trial on damages because the error likely affected the jury’s award.


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