Axis Surplus Ins. Co. v. Mercer

577 F.Supp.3d 563

AXIS SURPLUS INSURANCE COMPANY

v.Charles MERCER and Ofelia Mercer

CIVIL ACTION NO. 3:21-CV-625-S

United States District Court, N.D. Texas, Dallas Division.

Signed December 29, 2021

Bruce Ramsey Wilkin, Shackelford Bowen McKinley & Norton LLP, Houston, TX, Conor G. Bateman, Shackelford Bowen McKinley & Norton LLP, Dallas, TX, for Axis Surplus Insurance Company.

Caleb Israel Moore, Law Firm of Caleb Moore PLLC, Bedford, TX, for Charles Mercer, Ofelia Mercer.

MEMORANDUM OPINION AND ORDER

KAREN GREN SCHOLER, UNITED STATES DISTRICT JUDGE

This insurance coverage dispute is before the Court on cross-motions for summary judgment filed by Plaintiff Axis Surplus Insurance Company ("Insurer") and Defendants Charles Mercer and Ofelia Mercer ("Property Owners"). The Insurer seeks a declaratory judgment that the Property Owners’ "all-risks" insurance policy does not cover interior water damage from a rainstorm that occurred while the roof was being replaced on two buildings subject to the policy. For the reasons set forth below, the Court GRANTS Plaintiff Axis Surplus Insurance Company's First Amended Cross-Motion for Summary Judgment [ECF No. 12] and DENIES Defendants’ Motion for Summary Judgment [ECF No. 8].

I. BACKGROUND

The Property Owners were the named insureds under commercial property insurance policy No. ESC62727 ("Policy"). Compl. [ECF No. 1] ¶ 6. The Policy provided coverage for Dakota Place Apartments ("Property"), a multi-building apartment complex in Hurst, Texas, effective from December 4, 2019, to December 4, 2020. Id. ¶¶ 6-7.

The parties do not dispute how the Property was damaged. The Property Owners hired roofers to replace the roofs at the Property. After removing the whole roof on one building and part of the roof on another building, the roofers placed tarps over the open areas, securing them with wood blocks. An overnight rainstorm then damaged the interior of both buildings. See id. ¶¶ 10, 14-15; Defs.’ Br. [ECF No. 9] at 7 ("The roof system was under construction when [the roofing company removed] more of the functioning roof over Buildings 3 and 4 than it could replace before the rainstorm."); Defs.’ App. [ECF No. 10] at 184-85 ("[T]he roofs on Building 4 and the lower 1/3 of Building 3 had been removed" when it rained.).

The Insurer's investigator concluded that the "tarps and wood-blocking were not utilized in a recognized waterproofing methodology." See Defs.’ App. 189. The investigator also determined that some of the tarps had blown off during the storm, and the wood blocking "created a ponding area preventing water diversion and allow[ing] for additional water" to enter and damage the Property. Id. The Property Owners do not dispute the investigator's conclusions about what caused damage to the Property. See Defs.’ Br. 7 (noting the investigator's report is "[c]onsistent with what the Mercers told AXIS").

The Property Owners filed a claim under the Policy. Compl. ¶ 10. The Policy provides coverage for "direct physical loss ... or damage ... caused by or resulting from any Covered Cause of Loss." Defs.’ App. 64. "Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this policy."¹ Defs.’ App. 66, 101. The Policy identifies numerous exclusions to coverage. As relevant here, the Policy excludes coverage "for loss of or damage to ... [t]he interior of any building or structure ... caused by or resulting from rain ... whether driven by wind or not, unless ... [t]he building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain ... enters." Id. at 105. In essence, the Policy does not provide coverage for interior rain damage unless the roof or walls first experience a "Covered Cause of Loss" as defined by the Policy.

The Policy also expressly excludes from "Covered Cause of Loss" any damages resulting from "[f]aulty, inadequate or defective ... [d]esign, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; ... [or m]aintenance;" unless such damage "results in a Covered Cause of Loss." Id. at 104.

The Insurer denied the claim. Defs.’s App. 160-67. The Insurer contends that it properly denied coverage because: (1) the Policy excludes coverage for interior rain damage; (2) the exception providing coverage for interior rain damage applies only when there is first other covered damage to the Property's roofs; and (3) the roofers’ actions do not qualify as a covered cause of loss. See Pl.’s Br. 2. The Property Owners disagree, contending that the roofers negligently damaged the roofs, which they argue qualifies as a covered cause of loss. See Defs.’ Br. 9, 16-17.

II. LEGAL STANDARD

a. Summary Judgment

Courts "shall grant summary judgment if the movant shows that 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) ; Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A fact is "material" if it might reasonably affect the outcome of the case. Anderson , 477 U.S. at 248, 106 S.Ct. 2505.

Where, as here, a case is presented by way of cross-motions for summary judgment, the parties’ burdens depend on whether they are addressing a claim or defense for which they will have the burden of proof at trial. A movant who bears the burden of proof at trial must establish "beyond peradventure all of the essential elements of the [claim or] defense." Chaplin v. NationsCredit Corp. , 307 F.3d 368, 372 (5th Cir. 2002) (emphasis omitted) (quoting Fontenot v. Upjohn Co. , 780 F.2d 1190, 1194 (5th Cir. 1986) ).

By contrast, a party who does not have the burden of proof at trial may demonstrate entitlement to summary judgment by either (1) submitting evidence that negates an essential element of the nonmovant's claim or affirmative defense, or (2) arguing that there is no evidence to support an essential element of the nonmovant's claim or affirmative defense. Celotex , 477 U.S. at 322-25, 106 S.Ct. 2548.

Once the movant has made the required showing, the burden shifts to the nonmovant to establish that there is a genuine issue of material fact such that a reasonable jury might return a verdict in its favor. Matsushita , 475 U.S. at 586-87, 106 S.Ct. 1348. "[C]onclusory statements, speculation, and unsubstantiated assertions" will not suffice to satisfy the nonmovant's burden. RSR Corp. v. Int'l Ins. Co. , 612 F.3d 851, 857 (5th Cir. 2010). Factual controversies are resolved in favor of the nonmoving party "only when an actual controversy exists, that is, when both parties have submitted evidence of contradictory facts." Olabisiomotosho v. City of Houston , 185 F.3d 521, 525 (5th Cir. 1999) (quoting McCallum Highlands, Ltd. v. Wash. Capital Dus, Inc. , 66 F.3d 89, 92 (5th Cir. 1995) ).

b. Insurance

Courts interpret insurance policies under ordinary principles of contract law.

E. Concrete Materials, Inc. v. ACE Am. Ins. Co. , 948 F.3d 289, 300 (5th Cir. 2020) ; Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London , 327 S.W.3d 118, 126 (Tex. 2010). The Court's "primary concern is to give effect to the intentions of the parties as expressed by the policy language." Am. Nat'l Gen. Ins. Co. v. Ryan , 274 F.3d 319, 323 (5th Cir. 2001). In doing so, the Court gives terms used in the policy "their plain, ordinary meaning unless the policy itself shows that the parties intended the terms to have a different, technical meaning." Id. However, "[w]hen terms are defined in an insurance policy, those definitions control the interpretation of the policy." E. Concrete Materials , 948 F.3d at 300 (internal quotation marks omitted) (quoting Provident Life & Accident Ins. Co. v. Knott , 128 S.W.3d 211, 219 (Tex. 2003) ). "[A] court should interpret an insurance policy in a way which (1) confers meaning to all its terms; (2) harmonizes and gives effect to all of the provisions; and (3) avoids rendering parts of the policy inoperative or meaningless." Great Am. Ins. Co. v. Emps. Mut. Cas. Co. , 18 F.4th 486, 490 (5th Cir. 2021) (cleaned up).

Under Texas law, the insured initially bears the burden of establishing coverage under the terms of an insurance policy. O'Quinn v. Lexington Ins. Co. , 906 F.3d 363, 367 (5th Cir. 2018) ; JAW The Pointe, LLC v. Lexington Ins. Co. , 460 S.W.3d 597, 603 (Tex. 2015). Once coverage is established, the burden shifts to the insurer to prove the loss is excluded from coverage. O'Quinn , 906 F.3d at 367. If an exclusion applies, the insured must then establish that an exception to the exclusion exists to restore coverage. Ewing Constr. Co., Inc. v. Amerisure Ins. Co. , 420 S.W.3d 30, 33 (Tex. 2014) (citing Gilbert , 327 S.W.3d at 124 ).

"Terms in insurance policies that are subject to more than one reasonable construction are interpreted in favor of coverage." Am. Home Assur. Co. v. Cat Tech L.L.C. , 660 F.3d 216, 220 (5th Cir. 2011) (quoting Gilbert , 327 S.W.3d at 133 ). An ambiguity does not exist, however, "simply because the parties interpret a policy differently. If a contract as written can be given a clear and definite legal meaning, then it is not ambiguous as a matter of law." Id. "When an exclusion is clear and unambiguous, [the Court] interpret[s] it according to its plain meaning, [giving] no deference to the insured's interpretation. Id. (citing Travelers Lloyds Ins. Co. v. Pac. Emp'rs Ins. Co. , 602 F.3d 677, 681 (5th Cir. 2010) ). As such, cases involving the interpretation of insurance policies are particularly appropriate for summary disposition. Gonzalez v. Denning , 394 F.3d 388, 395 (5th Cir. 2004) ; Principal Health Care of La., Inc. v. Lewer Agency, Inc. , ...