Majestic Oil v. Certain Underwriters ( 2023 )

Case: 21-20542 Document: 00516680243 Page: 1 Date Filed: 03/17/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
March 17, 2023
No. 21-20542 Lyle W. Cayce
Clerk
Majestic Oil, Inc.,
Plaintiff—Appellant,
versus
Certain Underwriters at Lloyd’s, London Subscribing
to Policy Number W1B527170201,
Defendant—Appellee.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:19-cv-3149
Before Clement, Duncan, and Wilson, Circuit Judges.
Per Curiam:*
This is a first-party insurance case. Majestic Oil, Inc. asserts that its
insurer, Certain Underwriters at Lloyd’s, London, improperly denied
coverage for damage to the roof of Majestic’s property in Pasadena, Texas,
in the wake of Hurricane Harvey. Majestic contends that the district court
erred by excluding an expert report, excluding an expert affidavit, and then
*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
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granting summary judgment in favor of Lloyd’s. Because the district court
did not properly conduct the required analyses in excluding the expert
evidence, we vacate the district court’s evidentiary rulings and remand for
reconsideration under the applicable standard. In the light of that holding,
we also vacate the district court’s order granting summary judgment.
I.
Majestic purchased a building in Pasadena, Texas (“the Property”) in
2014. Incident to the purchase, Majestic hired a contractor, Kim Hamel, to
identify and repair any issues with the Property. Hamel identified multiple
leaks in the roof as well as other damage caused by normal wear and tear.
During her deposition in this action, she admitted that the wear and tear
damage “probably should have [been] fixed,” but Majestic did not
completely replace the roof. Instead, Hamel only had the leaks repaired.
Hamel, along with multiple Majestic employees, attested that the roof leaked
before the repairs—but not after.
Lloyd’s insured the Property in April 2016. Before issuing the policy,
the underwriter Lloyd’s sent to inspect the Property agreed that there were
no roof leaks. The policy did not cover pre-existing damage, ongoing
damage, or wear and tear. Relevant here, it provided coverage for damage
caused by “[r]ain or wind driven rain which enters the insured building or
structure through an opening created by the force of a [n]amed [s]torm . . . .”
Enter Hurricane Harvey, such a named storm, which pummeled the
Texas Gulf Coast in August 2017. It is undisputed that the Property’s roof
leaked after Harvey, but the parties dispute what caused those leaks. In
November 2017, Majestic reported the loss to Lloyd’s. An adjuster
employed by Lloyd’s determined that the roof was in poor condition before
Harvey and the damage to the Property’s interior predated the hurricane.
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The structural engineering expert that Lloyd’s retained agreed. Lloyd’s
denied the claim in August 2018.
In February 2019, Majestic hired an engineer, Gregory Becker, to
determine what caused the damage. The manager of the Property told
Becker that the leaks began after Harvey. In April 2019, Becker authored an
initial expert report (his “First Report”). In it, he “note[d] that the storm
events of Hurricane Harvey best correlate with the manager’s accounting of
damages[;] however[,] the earlier [storm] event [o]n January 2, 2017[,]
cannot be ruled out as initially contributing to the roof vulnerability.” Becker
ultimately concluded in his First Report that “it is more likely than not that
the observed damage is a result of the claimed storm event [i.e., Harvey].”
In August 2019, Majestic sued Lloyd’s over the denial of coverage.
During Becker’s deposition in April 2021, Lloyd’s exposed
shortcomings in the First Report. Becker conceded that he did not
differentiate damage caused by covered perils from that caused by uncovered
perils in his First Report. Further, he confirmed that he did not wholly rule
out the January 2017 storm as initially contributing to the roof vulnerability
in his First Report. But Becker also identified weather report data (“the
Weather Report”) he located in researching an unrelated case that he had
not considered in preparing his First Report. Becker testified that he relied
on the Weather Report to exclude the January 2017 storm as causing damage
to the Property. He explained that he was able to rule out the January 2017
storm because the data in the Weather Report indicated that the Property
experienced higher windspeeds during Harvey than Becker had previously
realized. In other words, Becker refined his theory to conclude that only
Harvey could have caused the observed damage to the Property. Counsel for
Lloyd’s questioned Becker about the Weather Report during his deposition.
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Majestic provided a second expert report authored by Becker (the
“Second Report”) in April 2021—shortly after Becker’s deposition, but six
months after the deadline for expert reports. In the Second Report, Becker
reiterated the conclusion, consistent with his deposition testimony, that the
January 2017 storm could not have caused the observed damage to the
Property. Lloyd’s moved to strike the Second Report, arguing that it was
untimely because it contained a new opinion. Majestic countered that the
Weather Report was merely supplemental, and therefore timely. The district
court agreed with Lloyd’s and struck the Second Report.
In August 2021, Lloyd’s filed a motion for summary judgment.
Majestic opposed the motion with, inter alia, an affidavit from Becker. That
affidavit repeated the same conclusions as Becker’s now-struck Second
Report, and the district court likewise struck the affidavit, as a “sham
affidavit.” With both Becker’s Second Report and affidavit excluded, the
outcome of the insurer’s motion for summary judgment hinged in large part
on Becker’s conclusion, in his First Report, that the January 2017 storm
could not be ruled out as having caused damage to the Property. Applying its
reading of Texas’s concurrent causation doctrine, the district court faulted
Becker for failing to exclude the January 2017 storm as a potential cause of
the damage and found that Majestic otherwise failed to show that the damage
was attributable to Harvey. Majestic Oil, Inc. v. Underwriters at Lloyd’s,
London, No. 4:19-cv-3149, 2021 WL 4502841, at *2 (S.D. Tex. Sept. 30,
2021). Further, the court found that Majestic had not submitted evidence
that could allow a jury to segregate damage caused by Harvey from damage
caused by non-covered perils. Id. The court accordingly entered summary
judgment for Lloyd’s.
Majestic now appeals, contending that the district court erred by
excluding the Second Report and Becker’s affidavit and, in turn, granting
summary judgment in favor of Lloyd’s.
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II.
We review the district court’s evidentiary rulings for abuse of
discretion. Smith v. Chrysler Grp., L.L.C., 909 F.3d 744, 748 (5th Cir. 2018);
Seigler v. Wal-Mart Stores Tex., L.L.C., 30 F.4th 472, 476 (5th Cir. 2022).
We review the district court’s order granting summary judgment de novo.
GWTP Invs., L.P. v. SES Americom, Inc., 497 F.3d 478, 481 (5th Cir. 2007).
As we agree with Majestic that the district court erred in its evidentiary
rulings, we vacate the court’s orders striking Becker’s Second Report and
affidavit, vacate its summary judgment order based on those rulings, and
remand for further proceedings.
A.
Under Federal Rule of Civil Procedure 26(e)(2),1 a party must
supplement its expert’s report if the party or expert learns that it is incorrect
or incomplete. In re Complaint of C.F. Bean L.L.C., 841 F.3d 365, 371 (5th
Cir. 2016). “However, supplemental disclosures are not intended to provide
an extension of the deadline by which a party must deliver the lion’s share of
its expert information.” Id. (quotation marks omitted). Thus, when a party
files an additional expert report after the expert disclosure deadline, the
question is whether the report is “supplemental.” Id. If it is, then it falls
within Rule 26(e) and is admissible. If not, i.e., the report asserts new analysis
or conclusions, it runs afoul of Rule 26(e), and Federal Rule of Civil
Procedure 37(c)(1) governs its admissibility.
1
Rule 26(e)(2) provides:
For an expert whose report must be disclosed under Rule 26(a)(2)(B), the
party’s duty to supplement extends both to information included in the
report and to information given during the expert’s deposition. Any
additions or changes to this information must be disclosed by the time the
party’s pretrial disclosures under Rule 26(a)(3) are due.
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The district court determined that Becker’s Second Report was not
merely supplemental because it “changed Becker’s ultimate conclusions
about whether certain storms before Hurricane Harvey could have caused
the damage to the [P]roperty.” While Becker posited in his First Report that
“the earlier [storm] event [o]n January 2, 2017[,] cannot be ruled out as
initially contributing to the roof vulnerability,” his Second Report “ruled
out” the January storm. The Second Report thus altered a significant, if
intermediate, conclusion of the First Report. On the record before us, then,
we discern no abuse of discretion in the court’s determination that Becker’s
Second Report was new rather than supplemental.
The problem arises in the district court’s follow-on decision to
exclude Becker’s Second Report. In a nutshell, the court failed properly to
apply the Federal Rules of Civil Procedure. Rule 37(c)(1) provides:
If a party fails to provide information or identify a witness as
required by Rule 26(a) or (e), the party is not allowed to use
that information or witness to supply evidence on a motion, at
a hearing, or at a trial, unless the failure was substantially
justified or is harmless . . . .
Fed. R. Civ. P. 37(c)(1); see also Fed. R. Civ. P. 16(b), (f) (authorizing
district courts to control pretrial discovery through scheduling orders and
providing for sanctions for failure to obey scheduling or other pretrial
orders).2 Courts consider four factors to determine whether exclusion is
appropriate: “(1) the explanation for the failure to identify the [information];
(2) the importance of the [information]; (3) potential prejudice in allowing
2
It is unclear under which rule the district court acted in this case because, while
the district court did not enter a scheduling order, the parties agreed to a series of deadlines,
including for expert disclosures. No matter; the same factors apply regardless. See
Complaint of Bean, 841 F.3d at 372–74 (analyzing factors through lens of Rule 37);
Geiserman v. MacDonald, 893 F.2d 787, 790–91 (5th Cir. 1990) (applying them in context
of Rule 16 scheduling order deadlines).
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the [information]; and (4) the availability of a continuance to cure such
prejudice.” Certain Underwriters at Lloyd’s, London v. Axon Pressure Prod.
Inc., 951 F.3d 248, 270 (5th Cir. 2020) (quotation omitted). A district court
must explain its reasoning when excluding expert evidence. Id.“We are tasked with determining whether the district court ‘based its
decision on an erroneous view of the law or on a clearly erroneous assessment
of the evidence.’” Id. (alterations adopted) (quoting CenterPoint Energy
Hous. Elec. LLC v. Harris Cnty. Toll Rd. Auth., 436 F.3d 541, 550 (5th Cir.
2006)); see Complaint of Bean, 841 F.3d at 372–74 (analyzing four factors to
determine whether district court abused its discretion by excluding testimony
as a sanction). It follows that “where a district court fails to explain its
decision . . . we do not know whether the decision was within the bounds of
its discretion or was based on an erroneous legal theory.” Axon Pressure, 951
F.3d at 270 (quotation omitted).
Here, the district court provided three reasons for its exclusion of the
Second Report. First, it found that the Second Report changed Becker’s
ultimate conclusion about the cause of the roof damage. Second, it found
that the Weather Report on which Becker based the Second Report was
available to Becker when he wrote the First Report. Third, the district court
found that Becker’s “delay to seemingly surprise [Lloyd’s] at his deposition
by altering his ultimate conclusions [was] not harmless.”
The district court relied primarily on the fact that Becker could have
obtained the data found in the Weather Report before his First Report was
filed. That is a valid consideration under the first factor of our four-factor
test, and it may well be determinative after full analysis. But the district court
failed meaningfully to weigh the remaining factors. The court’s order lacks
any analysis of either the importance to the case of the new data in Becker’s
Second Report or the potential prejudice to Lloyd’s of allowing the late
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disclosures, beyond the court’s bald statement that the “delay to seemingly
surprise [Lloyd’s] . . . [was] not harmless.” And the district court did not
address the possibility of a continuance to cure any prejudice. Because the
district court failed adequately to explain its reasoning, “the order must be
vacated and remanded to allow the district court to explain its decision after
considering the proper factors.” Axon Pressure, 951 F.3d at 270.
B.
The district court similarly erred in striking Becker’s summary
judgment affidavit as a “sham affidavit” because it contradicted his First
Report. Under the sham affidavit doctrine, a party cannot manufacture an
issue of material fact on summary judgment using an affidavit that contradicts
a prior deposition. E.g., Seigler, 30 F.4th at 477. But Becker’s affidavit was
consistent with his deposition testimony. Indeed, the affidavit was
cumulative: In his deposition, the Second Report, and his affidavit, Becker
ruled out a non-covered cause of loss (the January 2017 storm first mentioned
in his First Report) as a possible cause of the roof damage to the Property.
Therefore, the sham affidavit doctrine does not apply in this instance. See id.
(“An affidavit that supplements rather than contradicts prior deposition
testimony falls outside the doctrine’s ambit.” (internal quotation marks
omitted)).
Instead, as a practical matter, the fate of Becker’s affidavit rises and
falls with that of the Second Report, as the two repeat the same conclusions.
See Axon Pressure, 951 F.3d at 270–71 (applying the same four-factor test to
both additional expert reports and expert affidavits produced in opposition to
summary judgment). Thus, while it was error for the district court to strike
Becker’s affidavit as a sham affidavit, on remand, the district court may
properly weigh the admissibility of Becker’s affidavit using the same factors
that apply to the Second Report. Id.
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C.
Because we vacate the district court’s evidentiary rulings striking
Majestic’s belated expert disclosures and remand for further consideration
of that evidence’s admissibility, we must also vacate the district court’s
summary judgment order. And we note that more than the summary
judgment record may change on remand. Pending Majestic’s appeal, this
court spoke to Texas’s concurrent causation doctrine, which formed the legal
basis for the district court’s summary judgment ruling. See Advanced
Indicator & Mfg., Inc. v. Acadia Ins. Co., 50 F.4th 469, 476–77 (5th Cir. 2022).
In Advanced Indicator, we held that “when covered and non-covered perils
combine to create a loss, the insured is entitled to recover that portion of the
damage caused solely by the covered peril.” Id. at 477 (quotation marks and
citation omitted). The insured may carry its burden of proving its loss “by
putting forth evidence demonstrating that the loss came solely from a
covered cause or by putting forth evidence by which a jury may reasonably
segregate covered and non-covered losses.” Id.
Whether Advanced Indicator breathes life into Majestic’s sole
causation theory it advances on appeal is a question, like the admissibility of
Becker’s Second Report and affidavit, for the district court to consider anew,
once the summary judgment record is properly settled.
III.
Because the district court failed adequately to explain its pertinent
evidentiary rulings, we vacate its orders striking Majestic’s expert’s Second
Report and summary judgment affidavit. In turn, we vacate the court’s
summary judgment based on those rulings, and we remand for further
proceedings consistent with this opinion.
VACATED and REMANDED.
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