Houston Specialty Insurance v. Meadows West Condo Ass'n ( 2016 )

Case: 15-30140 Document: 00513331310 Page: 1 Date Filed: 01/06/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 15-30140 United States Court of Appeals
Fifth Circuit
FILED
HOUSTON SPECIALTY INSURANCE COMPANY, January 6, 2016
Lyle W. Cayce
Plaintiff - Appellant Clerk
v.
MEADOWS WEST CONDO ASSOCIATION; MEADOWS APARTMENT
OWNERS ASSOCIATION, INCORPORATED,
Defendants - Appellees
Appeal from the United States District Court
for the Western District of Louisiana
USDC 6:13-CV-2150
Before STEWART, Chief Judge, and CLEMENT and ELROD, Circuit Judges.
PER CURIAM:*
This insurance coverage dispute arises from property damage at the
Meadows West Condominiums in Lafayette, Louisiana, in December 2012.
Plaintiff-Appellant Houston Specialty Insurance Company (“HSIC”) appeals
the district court’s grant of summary judgment in favor of Meadows West
Condo Association and Meadows Apartment Owners Associated, Inc.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 15-30140
(collectively, “Meadows West”). We AFFIRM in part and REVERSE and
REMAND in part.
I.
In 2012, HSIC insured the Meadows West Condominiums in Lafayette,
Louisiana (the “Property”), under a commercial property insurance policy (the
“Policy”). The Property is an eighteen-building, 124-unit condominium. On
December 26, 2012, the Property was damaged by a fire that originated in the
HVAC duct work of one of the units. The fire damaged two units located in a
single building. The remaining buildings on the Property were undamaged.
The Lafayette Fire Department investigated the fire on January 7, 2013,
and determined that the layout of the duct work, the construction of the flex
duct, and maintenance and housekeeping issues could have contributed to the
fire. The Fire Department Investigator, Alton Trahan, provided these findings
to Fire Prevention Chief Forrest Chaisson on January 17, 2013. Chaisson
contacted the Chief Building Official, Larry Manuel, and advised him that the
Property presented a serious fire hazard that needed to be addressed.
Manuel informed the Meadows West property manager, Marion Nevils,
that the flex duct work in the Property’s buildings was likely contributing to
the fires and requested that Nevils hire a mechanical engineer to design a
repair and a licensed commercial contractor to perform it. Manuel further told
Nevils that he was obligated to see that the Property’s potential fire hazards
had been repaired and indicated that Section 116 of the International Building
Code (the “Ordinance”) authorized him to resolve the problem. 1 Manuel thus
set a repair deadline of September 30, 2013, and informed Nevils that the
power would be turned off to all units that remained unrepaired at that time.
1 The Ordinance was adopted by the Lafayette Consolidated Government in
September 2011 pursuant to Ordinance O-232-2811.
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Pursuant to Manuel’s request, Meadows West replaced the Property’s
flex duct work and then sought coverage under its Policy with HSIC. Under
certain conditions, the Policy provided coverage for losses to undamaged
portions of the Property resulting from the enforcement of an ordinance or law
(the “Ordinance or Law Provision”). Meadows West asserted that the
Ordinance or Law Provision covered its losses. Though HSIC paid the claim
for the building that sustained fire damage, it refused to cover the flex duct
work in the seventeen undamaged buildings. HSIC then sought a declaratory
judgment that the Policy did not cover Meadows West’s losses in reconfiguring
the flex duct work. Meadows West counterclaimed for a money judgment
covering the replacement costs and for statutory penalties.
HSIC moved for summary judgment and asserted three independent
grounds to deny coverage: (1) the Ordinance or Law Provision did not cover the
undamaged buildings; (2) even if the Ordinance was in effect at the time of the
fire, Meadows West failed to comply with the Ordinance; and (3) the Policy’s
“faulty, inadequate or defective” exclusion (the “Exclusion”) applied. Meadows
West filed a cross-motion for summary judgment, contending that its costs
were covered under the Policy.
The district court denied HSIC’s motion for summary judgment and
granted Meadows West’s motion, finding that the Ordinance or Law Provision
covered Meadows West’s losses and that HSIC failed to prove that the
Exclusion applied. 2 HSIC now appeals.
II.
This court reviews a district court’s grant of summary judgment de novo,
applying the same standard as did the district court. Ferraro v. Liberty Mut.
2 HSIC also moved for summary judgment on Meadows West’s claim for statutory
penalties, which the district court granted. Meadows West does not appeal this judgment.
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Fire Ins. Co., 796 F.3d 529, 531 (5th Cir. 2015). Summary judgment is
appropriate if “there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “On
cross-motions for summary judgment, we review each party’s motion
independently, viewing the evidence and inferences in the light most favorable
to the nonmoving party.” Trinity Universal Ins. Co. v. Emp’rs Mut. Cas. Co.,
592 F.3d 687, 691 (5th Cir. 2010) (internal quotation marks and citation
omitted).
“We review a district court’s interpretation of an insurance contract de
novo because it is a matter of law.” Kinsale Ins. Co. v. Georgia-Pacific, L.L.C.,
795 F.3d 452, 454 (5th Cir. 2015). Because this case “is a diversity action
regarding the interpretation of [an] insurance polic[y] issued in Louisiana,
Louisiana’s substantive law controls.” Guidry v. Am. Pub. Life Ins. Co., 512
F.3d 177, 181 (5th Cir. 2007).
III.
HSIC contends that the district court erred in finding that the Ordinance
or Law Provision covered Meadows West’s losses and that the Exclusion did
not apply. We address each argument in turn. 3
A.
We first address whether Meadows West’s losses were covered under the
Policy’s Ordinance or Law Provision. The Ordinance or Law Provision
provides: “If a Covered Cause of Loss occurs to Covered Property, [HSIC] will
3 As an initial matter, HSIC contends that the district court failed to rule on its
objections to Meadows West’s evidence and thus committed reversible error in granting
summary judgment on coverage. We disagree with this characterization. The district court
“first consider[ed] HSIC’s motion to strike” and explicitly stated that it had “reviewed” the
challenged affidavit and would consider only those portions that complied with the Federal
Rules. This was proper. See Akin v. Q-L Invs., Inc., 959 F.2d 521, 531 (5th Cir. 1992) (“On a
motion for summary judgment, the district court should disregard only those portions of an
affidavit that are inadequate and consider the rest.”).
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pay for: (1) The loss to the undamaged portion of a covered building
caused by the enforcement of any ordinance or law that: (a) Requires the
demolition of parts of the same property not damaged by a Covered Cause of
Loss; (b) Regulates the construction or repair of buildings . . .; and (c) Is in force
at the time of loss.” Under Louisiana law, the burden is on Meadows West to
prove coverage under the Policy. Bayle v. Allstate Ins. Co., 615 F.3d 350, 358–
59 & n.31 (5th Cir. 2010) (citing Doerr v. Mobil Oil Corp., 774 So. 2d 119, 123–
24 (La. 2000)). Meadows West has met this burden.
1.
HSIC first contends that the phrase “undamaged portion” means that
the Ordinance or Law Provision applies only to buildings that were damaged
in the fire. This argument conflicts with the Policy’s plain language. “When a
contract’s language is ‘clear and explicit and lead[s] to no absurd consequences,
no further interpretation may be made in search of the parties’ intent.’”
Guidry, 512 F.3d at 181 (quoting La. Civ. Code Ann. art. 2046). “If the wording
of the policy is unambiguous, then the contract must be enforced as written.”
Id. (internal quotations omitted). The Policy defines “Building(s)” as “the
buildings or other structures at the Insured Location.” Thus, pursuant to the
Policy’s definitions, even the singular term “building” refers to all of the
buildings at the Property. Applying the Policy definitions and terms as
written, even if only one building is damaged by a “Covered Cause of Loss,” the
Ordinance or Law Provision covers all of the buildings at the Covered Property.
See Dawson Farms, L.L.C. v. Millers Mut. Fire Ins. Co., 794 So. 2d 949, 952
(La. Ct. App. 2001) (“The test for construing an insurance policy is not what
the insurer intended the words to mean, but, how the words would have been
understood by a reasonable person in the shoes of the insured.”). Accordingly,
damage to just one building is sufficient to trigger coverage as to all buildings.
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2.
HSIC next argues that the Ordinance or Law Provision does not apply
because the Ordinance provided no minimum repair requirements and did not
require demolition or regulate repair.
a.
First, Section 2.f.(3) of the Policy provides that HSIC will pay for “[t]he
increased cost to repair, rebuild, or construct the Covered
Property . . . [l]imited to the minimum requirements of such ordinance or law
regulating the repair or reconstruction of the damaged property.” HSIC argues
that the inclusion of this Policy language shows that there must be an
ordinance in effect that contains minimum requirements regulating the repair
or construction of the Property. Though “one policy provision is not to be
construed separately at the expense of disregarding other policy provisions,”
Seacor Holdings, Inc. v. Commonwealth Ins. Co., 635 F.3d 675, 683 (5th Cir.
2011), we are mindful that “an insurance contract should not be construed in
an unreasonable or strained manner under the guise of contractual
interpretation to enlarge or restrict its provisions beyond what is reasonably
contemplated by its unambiguous terms or to achieve an absurd conclusion,”
Smith v. Am. Family Life Assurance Co. of Columbus, 584 F.3d 212, 216 (5th
Cir. 2009).
Here, the Ordinance or Law Provision provides coverage for three
distinct types of claims. First, under Section 2.f.(1), HSIC will pay for “[t]he
loss to the undamaged portion of a covered building caused by the enforcement”
of certain ordinances. Second, Section 2.f.(2) provides that HSIC will pay for
“[t]he cost to demolish and clear the site of undamaged parts of the covered
building” caused by the enforcement of certain ordinances. Finally, Section
2.f.(3) covers “[t]he increased cost to repair, rebuild or construct the Covered
Property.” The types of claims at issue under 2.f.(1) and 2.f.(3) are completely
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different. While 2.f.(1) covers only the undamaged portions of covered
buildings, 2.f.(3) refers to the cost of rebuilding, repairing, or constructing the
entire property.
Further, Section 2.f.(1) contains its own separate limitation on HSIC’s
liability that leads us to conclude that Sections 2.f.(1) and 2.f.(3) are not to be
read in conjunction. Section 2.f.(1) specifically provides that “[t]he most [HSIC]
will pay . . . under this portion of Ordinance or Law is the Limit of
Insurance . . . shown in the Declaration Certificate.” In contrast, only Section
2.f.(3) defines HSIC’s liability limits in terms of the “minimum requirements”
of certain ordinances. Thus, the “minimum requirements” language of Section
2.f.(3) does not extend to Section 2.f.(1). Accordingly, we conclude that an
ordinance need not contain minimum repair requirements to trigger the
application of the Ordinance or Law Provision.
b.
HSIC next asserts that the Ordinance does not require demolition or
regulate repair as required by the Policy but merely gives discretion to the
building officials. Section 116.1 of the Ordinance provides that “[u]nsafe
structures shall be taken down and removed or made safe, as the building
official deems necessary.” This language mandates the removal or repair of
unsafe structures. HSIC, however, points out that, though there were five
previous fires at the Property, the building official did not mandate a re-design
of the flex duct work until the December 2012 fire. This does not change our
conclusion. The Lafayette Consolidated Government (the “City”) did not adopt
the Ordinance until 2011, and the five previous fires all occurred between 1997
and 2010. Even if the building official’s prior lack of action was sufficient to
preclude coverage under Section 2.f.(1), the Ordinance was not in effect at the
time of the earlier fires.
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HSIC also asserts that the correspondence between City officials and
Meadows West’s management shows that the Ordinance did not “require
demolition” or “regulate repair.” We disagree. In his January 18, 2013, letter
(the “January 18 Letter”) to Nevils, Manuel threatened to resort to legal action.
Further, though the January 18 Letter does not specifically cite any ordinance
or law, Manuel again corresponded with Nevils on April 12, 2013 (the “April
12 Letter”). In the April 12 Letter, Manuel explicitly stated that he was
authorized by law to take necessary steps to “resolve this problem [of potential
fire hazards] under [Section 116], which has been adopted by the Lafayette
Consolidated Government.” Manuel issued a repair deadline of September 30,
2013, and informed Nevils that he would disrupt the power to all of the
unrepaired units if the repairs referenced in the January 18 Letter were not
completed. Taken together, the January 18 Letter and the April 12 Letter
indicate that Manuel “deemed [the Property] an unsafe condition” and
“specifie[d] the required repairs or improvements to be made to abate the
unsafe condition . . . within a stipulated time” as required by the Ordinance.
Finally, Meadows West was required by City officials to reconfigure the
flex duct work. Manuel identified the flex duct work as a fire hazard and
instructed that it be removed and repaired. Following this determination,
Manuel: (1) requested that Meadows West hire a Louisiana licensed contractor;
(2) instructed Meadows West to have the repair drawn and designed by a
mechanical engineer; and (3) suggested acceptable repairs. While Manuel did
not mandate a specific type of repair aside from the removal of the flex duct
work, the repair plans still had to be approved by the Planning, Zoning, and
Codes Department, and the repair itself was subject to inspection by the fire
marshal. Thus, Meadows West was required, by law and through the
application of the Ordinance, to remove and replace the flex duct work,
triggering the Ordinance or Law Provision.
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3.
HSIC also asserts that Meadows West failed to comply with the
Ordinance prior to the fire. Section 2.f.(4)(b) of the Policy provides that
“[o]rdinance or [l]aw [c]overages do not apply to . . . [a]ny loss due to the
Insured’s failure to comply with any ordinance or law that the Insured was
required to comply with before the loss, even if the Covered Property was
undamaged.” HSIC contends that the Ordinance would have required
Meadows West to remedy an unsafe condition after the 2010 fire. We again
disagree.
There is no evidence that Meadows West failed to comply with the
Ordinance prior to the fire. First, the City’s officials did not identify the flex
duct work as an unsafe condition and mandate its removal until the January
18 Letter and the April 12 Letter. Meadows West was not informed that the
flex duct work presented an unsafe condition until after the 2012 fire and thus
could not have failed to comply. Most importantly, the Ordinance was not
adopted until late 2011—well after City officials advised Meadows West of its
findings from the 2010 fire. Because the Ordinance was not yet in effect at the
time of the 2010 fire, Meadows West could not have failed to comply with it.
Accordingly, Meadows West has met its burden of proving that the
Policy’s Ordinance or Law Provision applied to its loss. See Bayle, 615 F.3d at
358–59 & n.31.
B.
Because we conclude that Meadows West’s losses were covered by the
Ordinance or Law Provision, we now turn to the applicability of the Policy’s
Exclusion. The Exclusion here provides, in relevant part: “The Company will
not pay for loss or damage caused by or resulting from any of the following: . . .
Faulty, inadequate or defective: . . (2) Design, specifications, workmanship,
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repair, construction, renovation, remodeling, grading, compaction; . . . [or] (4)
Maintenance; of part or all of any property on or off an insured premises.”
“The insurer has the burden of proving that a policy claimed loss falls
within [an] exclusion.” Looney Ricks Kiss Architects, Inc. v. State Farm Fire &
Cas. Co., 677 F.3d 250, 256 (5th Cir. 2012) (alteration in original) (internal
quotation marks and citation omitted). “Ambiguous or equivocal provisions
which seek to narrow the insurer’s obligations are construed against the
insurer.” Id. at 255–56 (internal quotation marks and citation omitted).
HSIC argues that the Property was defectively designed, constructed, or
maintained. Specifically, HSIC points to the correspondence between the City
officials following the 2012 fire to show that the Property’s flex duct work was
faulty in its design, maintenance, or construction at the time of loss. For
example, Trahan observed that the 2012 fire started in the same area as the
previous fires, that the flex duct work sagged over time and allowed the
accumulation of combustible particles, and that the layout of the flex duct work
and maintenance could have contributed to the fire. When discussing the
Property fires with Manuel, Chaisson referred to the Property as an “unsafe
condition.” Further, in his correspondence with Nevils, Manuel stated that the
flex duct work was “causing excessive heat which ignites the dust that has been
collected over the years.”
These statements could establish that some type of problem in the flex
duct work—either maintenance, construction, or design—caused fires at the
Property. In fact, City officials recommended that a new design of the flex duct
work would alleviate the potential fire hazard. HSIC also presented evidence
that the “area of origin of [the 2012 fire was] identical to the five previous fires.”
Admittedly, the City’s officials were noncommittal in pinpointing the exact
causes of the 2012 fire. And further, neither Chaisson nor Trahan—who
actually performed inspections of the Property—described the flex duct work
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as defective. Their observations, however, could allow a reasonable fact-finder
to conclude that a defect existed in the Property and the Exclusion thus
applied.
Because HSIC raised a genuine issue of material fact regarding the
application of the Exclusion, the district court erred in granting summary
judgment in favor of Meadows West.
IV.
In sum, we agree with the district court that Meadows West established
that its losses were covered under the Ordinance or Law Provision. We
conclude, however, that genuine issues of material fact preclude summary
judgment on the applicability of the Exclusion.
Accordingly, the judgment of the district court is AFFIRMED in part,
and REVERSED and REMANDED in part for further proceedings consistent
with this opinion.
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