Playa Vista Conroe v. Ins of the W ( 2021 )

Case: 20-20307 Document: 00515767815 Page: 1 Date Filed: 03/05/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
March 5, 2021
No. 20-20307 Lyle W. Cayce
Clerk
Playa Vista Conroe, a Condominium Association,
Plaintiff—Appellee,
versus
Insurance Company of the West, (ICW),
Defendant—Appellant.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:18-CV-2855
Before Higginbotham, Costa, and Oldham, Circuit Judges.
Andrew S. Oldham, Circuit Judge:
A Texas condo association suffered property damage during
Hurricane Harvey. It filed a property-damage claim against its insurer. The
insurer refused to pay, so the condo association filed suit for breach of its
insurance contracts. On cross-motions for summary judgment, the district
court held the insurer liable. We affirm.
I.
Playa Vista Conroe is a condominium association located outside of
Houston, Texas. Its property sits on the north shore of Lake Conroe, a
Case: 20-20307 Document: 00515767815 Page: 2 Date Filed: 03/05/2021
No. 20-20307
manmade lake on the San Jacinto River. Prior to Hurricane Harvey, that
property included a dock with 22 boat slips. In May 2017, Playa Vista insured
the dock and boat slips by purchasing insurance from Insurance Company of
the West (“ICW”). Three policy documents are key to the parties’ dispute:
• A “difference in conditions form”: This document is 23
pages long and provides the framework for the parties’
insurance agreement. We refer to the difference in
conditions form as the “DICF.”
• A “limited coverage—flood endorsement”: This
document is 1.5 pages long, and it replaces the background
flood provisions in the DICF. We refer to the flood
endorsement as the “FE.”
• A “specified flood exclusion”: This document is 0.5 pages
long, and it adds an additional site-specific flood exclusion
for “BOAT SLIPS/DOCKS.” We refer to the boat slip
exclusion as “BSE.”
We refer to the DICF, FE, and BSE together as the “Policy.”
In August 2017, Hurricane Harvey hit the State of Texas. The storm
caused unprecedented rainfall and flooding. In order to prevent the Lake
Conroe Dam from overflowing and failing, the San Jacinto River Authority
released from the dam 79,141 cubic feet of water per second—nearly the flow
rate of Niagara Falls. Playa Vista’s boat slips were completely destroyed.
Those 22 destroyed boat slips are the only property at issue here.
Playa Vista sought compensation for them based on its Policy. It filed a notice
of loss with ICW, describing the loss as “[d]estruction of various components
of the condominium property from severe weather, including complete
destruction of [the] boat dock, damage to condominium buildings, damage to
garages, bulkhead damage, fencing damage, landscaping damage, pool
damage, awning damage, and other miscellaneous damage.” ICW initially
2
Case: 20-20307 Document: 00515767815 Page: 3 Date Filed: 03/05/2021
No. 20-20307
sent a reservation-of-rights letter. Then it denied coverage. ICW stated that
the damage “appear[ed] to be the result of Hurricane/Tropical Storm
Harvey,” and that Playa Vista’s “policy d[id] not cover flooding caused by a
hurricane or tropical storm.”
Playa Vista filed a notice and pre-litigation demand under Chapter
542A of the Texas Insurance Code. The notice claimed that Playa Vista
“suffered immediate and severe damage to [its] commercial property as a
result of an intense storm” and alleged ICW “improperly adjusted [Playa
Vista’s] claim so that [it] would not receive the coverage [it] had originally
contracted to receive.” Playa Vista attached a report estimating $208,117.44
in damages and listing “hurricane” as the type of loss. ICW responded by
reiterating its denial of Playa Vista’s claim.
Playa Vista filed suit in Texas state court. It raised several claims
under state law, but only its breach-of-contract claim is relevant to this
appeal. ICW removed the case to federal court. Then the parties cross-moved
for summary judgment.
The district court denied ICW’s motion and granted Playa Vista’s
motion. That order resolved Playa Vista’s breach-of-contract claim, but it left
damages and attorney’s fees as issues for trial. Two weeks before the trial
date, the parties submitted a joint agreed stipulation (the “Stipulation”) in
which they stipulated that Playa Vista incurred $190,827.50 in damages and
$50,000.00 in attorney’s fees. The district court approved and entered the
Stipulation.
Playa Vista moved for entry of final judgment, see Fed. R. Civ. P.
58(d), noting that “the only remaining issue . . . was the determination of the
amount of damages which Playa Vista [wa]s entitled to under its breach of
contract claim.” The district court issued a final judgment awarding Playa
Vista damages and attorney’s fees pursuant to the Stipulation. The next day,
3
Case: 20-20307 Document: 00515767815 Page: 4 Date Filed: 03/05/2021
No. 20-20307
ICW filed a motion for leave to file a second motion for summary judgment.
ICW claimed that by agreeing to the Stipulation, Playa Vista admitted that
the loss fell within the Policy’s exclusion for “[a]cts or decisions, including
the failure to act or decide, of any person, organization or governmental
body.” Playa Vista did not respond. ICW then filed a motion to alter, amend,
or reconsider the final judgment. Playa Vista objected, and the district court
denied the motion. ICW appealed.
II.
We begin with the district court’s summary-judgment order. “Where,
as here, parties have filed cross-motions for summary judgment, each motion
must be considered separately because each movant bears the burden of
showing that no genuine issue of material fact exists and that it is entitled to
a judgment as a matter of law.” Am. Int’l Specialty Lines Ins. Co. v. Rentech
Steel, LLC, 620 F.3d 558, 562 (5th Cir. 2010). Our review of the district
court’s application of this standard is de novo. See id. at 561–62.
Our review of the Policy language and the legal standards for
insurance coverage also is de novo. See Am. Nat’l Gen. Ins. Co. v. Ryan, 274
F.3d 319, 323 (5th Cir. 2001). As to the Policy language, we use Texas’s
contract-interpretation rules. See ibid. As to the legal standards for insurance
coverage, Texas law provides:
Initially, the insured has the burden of establishing coverage
under the terms of the policy. If the insured proves coverage,
then to avoid liability the insurer must prove the loss is within
an exclusion. If the insurer proves that an exclusion applies, the
burden shifts back to the insured to show that an exception to
the exclusion brings the claim back within coverage.
Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118,
124 (Tex. 2010) (citations omitted). We hold Playa Vista established
coverage, and ICW failed to prove an exclusion applies.
4
Case: 20-20307 Document: 00515767815 Page: 5 Date Filed: 03/05/2021
No. 20-20307
A.
We start with the coverage question. The DICF states that ICW “will
pay for accidental direct physical loss or damage to Covered Property . . .
caused by or resulting from a Covered Cause of Loss.” It defines a “Covered
Cause of Loss” as a “direct physical loss” that is not “excluded in Section[]
C. . . . or [Section] D. . . . or excluded or limited in the Declarations or by
endorsement.” And Section C’s “Property Excluded” provision states that
ICW “will not pay for loss or damage to . . . docks” unless “a stated value is
shown in Section E. . . . and/or a sub-limit of insurance is shown in Section
A.1.a . . . in the Declarations or in an endorsement to this policy.” Section
A.1.a in the Declarations in turn includes a $220,000 “sublimit of insurance”
for coverage of boat slips. Therefore, Playa Vista met its burden to show that
its boat slips are covered in the absence of an applicable exclusion.
B.
The burden thus shifts to ICW to prove that an exclusion applies.
ICW points to three potential exclusions and insists that the language of the
exclusions is sufficient standing alone to warrant judgment as a matter of law
in its favor. That is wrong.
First, the DICF generally excludes losses arising from a “flood” and
specifically excludes “damage resulting from waterborne material involved
in the flood.” But that same exclusion says: “if flood coverage is endorsed to
and made part of this policy, we will way [sic] pay for loss subject to the
limited coverage provided by that endorsement.” Playa Vista did in fact
purchase separate flood coverage—the FE—so the flood provisions in the
DICF are irrelevant.
That is particularly true because the FE contains its own list of
exclusions, several of which replicate the exclusions in the DICF. For
example, the DICF excludes flood damage caused by “Underground waters
5
Case: 20-20307 Document: 00515767815 Page: 6 Date Filed: 03/05/2021
No. 20-20307
rising” and “Tsunami or tidal wave,” and the FE likewise excludes flood
damage caused by “Underground waters rising” and “Tsunami or tidal
wave.” This proves that ICW (as the drafter of the Policy documents)
intended the coverage and exclusion provisions of the FE to replace those in
the DICF. See Progressive Cnty. Mut. Ins. Co. v. Sink, 107 S.W.3d 547, 551
(Tex. 2003) (stating that “a court construing a contract must strive to give
effect to the written expression of the parties’ intent by reading all parts of a
contract together” and an ambiguous insurance contract “will be interpreted
in the manner that most favors coverage” (quotation omitted)); CKB &
Assocs., Inc. v. Moore McCormack Petroleum, Inc., 734 S.W.2d 653, 655 (Tex.
1987) (applying the expressio unius canon to the interpretation of a contract).
The DICF flood exclusion therefore is irrelevant.
Second, the FE provides: “We will not pay for loss or damage caused
by ‘flood’, arising from . . . [a h]urricane or tropical storm.” The FE further
defines a “flood” as “a general and temporary condition of partial or
complete inundation of 2 or more acres of normally dry land areas or of 2 or
more distinct parcels of land (at least one of which is your property) with
water.” It is undisputed that the FE’s definition of “flood” does not apply
to Playa Vista’s boat slips; they obviously existed on water, not two or more
acres of normally dry land. Because the FE only applies to normally dry land,
it too is irrelevant. *
*
ICW’s contrary argument is absurd. It argues that the FE covers “floods” only as
“specifically defined” in the FE, Blue Br. 5—that is, “a general and temporary condition
of partial or complete inundation of 2 or more acres of normally dry land areas or of 2 or
more distinct parcels of land (at least one of which is your property) with water.” But then
it argues the FE excludes “floods” “as commonly understood (i.e. not defined), caused by
[a h]urricane or tropical storm.” Blue Br. 5–6 (quotation marks omitted). The FE says no
such thing. It includes only one definition of “flood,” and it applies equally to the FE’s
coverage provision and the FE’s exclusion provision.
6
Case: 20-20307 Document: 00515767815 Page: 7 Date Filed: 03/05/2021
No. 20-20307
Third, the Policy also expressly excludes “flood” damage to boat slips
and docks. This is the BSE. But the BSE suffers from the same problem as
the second exclusion—it only applies to a “flood.” It is unclear why ICW
drafted its BSE to exclude “flood” damage to property that normally appears
on water rather than dry land. But it was ICW’s Policy to draft, so ICW must
assume the perils of its chosen language. See Ryan, 274 F.3d at 323(“Ambiguous insurance contracts will be interpreted against the insurer. The
policy of strict construction against the insurer is especially strong when the
court is dealing with exceptions and words of limitation.” (quotations
omitted)); Goswick v. Emps.’ Cas. Co., 440 S.W.2d 287, 289 (Tex. 1969)
(“[W]e must presume that the objective of the insurance contract is to
insure, and we should not construe the policy to defeat that objective unless
the language requires it.”).
But even if the FE or the BSE “flood” provisions could in theory
apply, Playa Vista submitted competent summary-judgment evidence to
show that its boat slips were not in fact destroyed by a “flood.” In particular,
Playa Vista’s president Robert G. Copes testified by affidavit. See Fed. R.
Civ. P. 56(c)(1)(A) (listing affidavits as competent summary-judgment
evidence). Copes testified that he personally observed the boat slips at 10:00
pm on the night before the San Jacinto River Authority “released the water
from Lake Conroe Dam, and neither the dock nor any of the Boat Slips were
damaged or destroyed at that time.” When the River Authority released
water from the dam, however, it:
created a suction effect, like a sink drain that is unplugged, but
on a much greater scale. Because of the rate at which water was
being released, the water on the north side of [the] lake (where
the Boat Slips are located) was below normal levels afterwards,
despite the rainfall brought by Harvey.
7
Case: 20-20307 Document: 00515767815 Page: 8 Date Filed: 03/05/2021
No. 20-20307
According to Copes, this super-powerful suction effect pulled debris from all
over Lake Conroe, violently whipped it around the Lake, and destroyed Playa
Vista’s boat slips as the water drained southward out of the Lake. Thus,
Copes testified, it was this “suction effect” and the drop of water levels—not
an “inundation” or “flood” or rise of water levels—that destroyed Playa
Vista’s boat slips.
ICW chose not to dispute the Copes affidavit. Of course, Rule 56 did
not obligate ICW to submit its own affidavit(s); it could simply “identify[]
those portions of [the record] which it believes demonstrate the absence of a
genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986) (citing Fed. R. Civ. P. 56). But in the face of an affidavit tending to
establish that the boat slips were not destroyed by a “flood,” ICW could not
carry its legal burden to prove one of the “flood” exclusions by submitting
nothing. That is particularly true where the Policy exclusions on their face do
not apply to the loss of Playa Vista’s boat slips. The district court did not err
in granting summary judgment to Playa Vista.
III.
Finally, ICW makes two efforts to undo its litigation mistakes. Neither
has merit.
ICW first argues that it creatively drafted its insurance contracts to
avoid any burden to prove anything. As noted above, Texas law establishes a
burden-shifting framework under which the insured must establish coverage,
but then the insurer must prove an applicable exception. See Gilbert, 327
S.W.3d at 124. ICW says it anticipated this problem and drafted the DICF
coverage provision to include an exclusionary clause—with the hope that its
customers would get stuck with the burden of proving both coverage and the
absence of an exclusion. We doubt that insurers can avoid Texas law so easily.
It would be odd that insurers carry the burden to establish exclusions only
8
Case: 20-20307 Document: 00515767815 Page: 9 Date Filed: 03/05/2021
No. 20-20307
when the contract separates them from the coverage provisions and not when
the coverage and exclusion provisions appear in the same contractual section.
It would be particularly odd for that result to obtain when the insurer is the
one who writes the contract. And it would be odder still for that result to
obtain when ICW can point to no state-law authority for it.
But the issue is irrelevant here because ICW conceded in the district
court that Playa Vista’s boat slips are covered by the DICF coverage
provision. ICW cannot take the opposite position now. See Martinez v.
Pompeo, 977 F.3d 457, 460 (5th Cir. 2020) (per curiam).
Second, ICW says it snatched victory from the jaws of defeat by
negotiating the Stipulation after losing at summary judgment. After the
district court ruled in Playa Vista’s favor at summary judgment, the only
issue remaining for the district court was Playa Vista’s request for damages
and fees. The district court set those damages and fees for trial. But before
trial, the parties submitted this Stipulation to obviate further proceedings:
1. The parties stipulate that [Playa Vista’s] docks and boat slips
were damaged from the San Jacinto River Authority’s release
of water from the Lake Conroe Dam at an unprecedented rate
and volume, creating a suction effect that unmoored boats,
causing these unmoored boats, fallen trees, and other debris to
collide into the Plaintiff’s docks and boat slips.
2. The parties stipulate [that Playa Vista’s] property damaged
as a result of the claim [is] valued at $190,827.50 and further
stipulate that the recoverable attorney’s fees are $50,000.00.
The district court approved the Stipulation and then issued a final judgment.
ICW says this Stipulation operates as a legal “gotcha,” and that by
agreeing to it, Playa Vista gave away its summary-judgment victory. After the
district court entered final judgment, ICW argued that Playa Vista stipulated
that its losses were caused by the decision of a governmental body—namely,
9
Case: 20-20307 Document: 00515767815 Page: 10 Date Filed: 03/05/2021
No. 20-20307
the San Jacinto River Authority—and hence triggered a theretofore
unmentioned exclusion for “[a]cts or decisions, including the failure to act
or decide, of any person, organization or governmental body.” That is far too
little too late. If ICW wanted to rely on the governmental-body exclusion, it
was obligated to raise it (at the latest) at summary judgment. See, e.g., Mid-
Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105, 113 (5th Cir.
2010).
AFFIRMED.
10