Evanston Ins. Co. v. AmSpec Holding Corp.

495 F.Supp.3d 485

EVANSTON INSURANCE COMPANY, Plaintiff,

v.AMSPEC HOLDING CORP., Defendant.

CIVIL ACTION NO. 4:19-CV-1498

United States District Court, S.D. Texas, Houston Division.

Signed October 20, 2020

Todd M. Tippett, Michael OBrien, Zelle LLP, Dallas, TX, for Plaintiff.

Jeffrey L. Raizner, Andrew P. Slania, Raizner Slania LLP, Houston, TX, for Defendant.

MEMORANDUM OPINION

Sam S. Sheldon, United States Magistrate Judge

Pending before the Court¹ is Defendant/Counterclaimant AmSpec Holding Corporation's ("AmSpec") Motion for Partial Summary Judgment (Dkt. No. 16) and Plaintiff/Counter-Defendant Evanston Insurance Company's ("Evanston") Motion for Summary Judgment (Dkt. No. 17). The Court has considered the motions, all other relevant filings, and the applicable law. For the reasons set forth below, the Court DENIES Defendant's partial motion for summary judgment, and GRANTS Plaintiff's motion for summary judgment.

I. Background

A. Factual Background

The facts are largely undisputed. AmSpec performs testing and inspection services for oil, gas, and petrochemical industries.² AmSpec field inspectors travel to ports, refineries, and terminals along the Gulf Coast where they inspect barges and vessels, and take product samples back to AmSpec laboratories for quality testing.³

1. The Policy ⁴

Evanston issued a property insurance policy (the "Policy") to AmSpec, effective from November 15, 2016 to November 15, 2017.⁵ The Policy insured multiple AmSpec buildings in Texas and provided coverage for business interruption,⁶ extra expense,⁷ and real and personal property.⁸

The Policy also extended coverage to Dependent Locations:

Dependent Locations –

1. Coverage – Coverage for earnings and/or extra expense is extended to loss of earnings or extra expenses that "you" incur during the "restoration period" when "your" "business" is interrupted by direct physical loss or damage, caused by a covered peril, to property at a "dependent location" described on the schedule.⁹

The Policy defines Dependent Locations as "locations that are operated by others and that ‘your’ ‘business’ depends on ...."¹⁰ The dependent locations at issue in the current case are the ports of Corpus Christi, Texas City, Galveston, Port Arthur, and Houston.¹¹

The Policy also provided coverage for Interruption by Civil Authority:

"We" extend "your" coverage for earnings and extra expense to include loss sustained while access to "covered locations" or a "dependent location" is specifically denied by an order of civil authority. This order must be a result of direct physical loss of or damage to property, other than at a "covered location" and must be caused by a covered peril.¹²

2. Timeline

In preparation for a hurricane's arrival, port conditions are used to alert the maritime community to changes in port operations. As explained in one of the bulletins, "[p]ort condition[s] are a gradual, time phased development based on [the] impact of [a] storm and assessment of safety conditions."¹³ There are four possible port conditions: Whiskey (gale force winds possible within 72 hours), X-Ray (gale force winds possible within 48 hours), Yankee (gale force winds possible within 24 hours), and Zulu (gale force winds possible within 12 hours).¹⁴ Under port condition Zulu, a port is closed and all port operations are suspended.¹⁵ Below is a timeline of Hurricane Harvey's development with the corresponding port conditions:

- August 13, 2017

• Hurricane Harvey began as a tropical wave in the Atlantic Ocean.¹⁶

- August 17, 2017

• Hurricane Harvey developed into a tropical storm.¹⁷

- August 18, 2017

• Hurricane Harvey impacted the Windward islands and eventually weakened to a tropical wave.¹⁸

- August 22, 2017

• 1 p.m.: Corpus Christi's Port was set to port condition Whiskey.¹⁹

- August 23, 2017

• Hurricane Harvey reformed and was predicted to make landfall as a hurricane somewhere along the Texas coast.²⁰

- August 24, 2017

• Hurricane Harvey officially formed into a hurricane.

• 6:57 p.m.: Ports of Houston, Texas City, Galveston, and Corpus Christi were set to port condition Yankee.²¹

- August 25, 2017

• 2 p.m.: Ports of Houston, Texas City, Galveston, and Corpus Christi were set to port condition Zulu and, thus, the ports were closed.²²

• 10 p.m.: Hurricane Harvey made landfall in Texas.²³

- August 28, 2017

• 6 p.m.: Port Arthur was set to port condition Zulu and, thus, the port was closed.²⁴

3. The Claim

On August 30, 2017, AmSpec sought coverage under the Policy for the following locations in Texas: Texas City; Pasadena; La Porte; Freeport; and Corpus Christi.²⁵

On the same day, Evanston acknowledged the claim.²⁶ Evanston retained independent adjusting firm Angle Martin & Associates to investigate the claim.²⁷ AmSpec retained public adjuster Stephen Figlin ("Figlin") with Young Adjustment.²⁸

On January 3, 2019, Figlin submitted a statement to Evanston asserting that AmSpec's property locations did not sustain damage, but that its claimed loss of business interruption and extra expense incurred as a result of the port closures.²⁹ AmSpec claims a business interruption loss totaling $912,524.00 and an extra expense claim totaling $11,224.66 over a nine-day period from August 25, 2017 to September 2, 2017.³⁰

On April 3, 2019, Evanston denied AmSpec's claim in writing.³¹ The denial letter explained that there was no loss as a result of denial of access by an order of civil authority as a result of physical loss or damage.³²

B. Procedural History

On April 24, 2019, Evanston filed a Declaratory Judgment action with the Court requesting that the Court find no coverage under both the Civil Authority and the Dependent Location provisions.³³ Evanston specifically sought a declaration (1) that Evanston timely and appropriately investigated and adjusted the claim; (2) that there is no coverage under the Policy for the claim; and (3) that Evanston properly denied AmSpec's claim.³⁴

AmSpec filed counterclaims for violations of the Texas Insurance Code, violations of the Texas Prompt Payment Act, breach of duty of good faith and fair dealing, and violations of the Texas Deceptive Trade Practices Act.³⁵ AmSpec's counterclaims assert that AmSpec was required to shut down four of its locations as a result of direct physical damage and the closing of ports by the Coast Guard.³⁶

AmSpec filed a motion for partial summary judgment October 4, 2019.³⁷ Evanston filed its motion for summary judgment on the same day.³⁸

II. Legal Standards

A. Summary Judgment

Rule 56(a) instructs the Court to "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." See Nall v. BNSF Ry. Co. , 917 F.3d 335, 340 (5th Cir. 2019). Where both parties have moved for summary judgment, as to each party's motion, all inferences on summary judgment must be drawn in favor of the nonmoving party, to the extent that if there appears to be some evidentiary support for the disputed allegations, that motion must be denied. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; McAllister v. R.T.C. , 201 F.3d 570, 574 (5th Cir. 2000). The movant is tasked with the initial burden of informing the Court of the basis for the motion and pointing to relevant excerpts in evidence that demonstrate the absence of genuine factual issues. See Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A. , 759 F.3d 498, 505 (5th Cir. 2014) (quoting Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). The movant may also argue that the nonmovant failed to produce evidence in support of at least one element of a cause of action for which he bears the burden of proof. See Austin v. Kroger Tex., L.P. , 864 F.3d 326, 335 (5th Cir. 2017).

If the movant satisfies the initial burden, it shifts to the nonmovant who must produce evidence of a genuine factual dispute; he may not merely rest on the allegations in his pleading. See Coastal Agric. Supply, Inc. , 759 F.3d at 505 (quoting Boudreaux v. Swift Transp. Co. , 402 F.3d 536, 540 (5th Cir. 2005) ). In reviewing a motion for summary judgment, the Court bears the responsibility of taking the nonmovant's evidence as true and drawing all reasonable inferences in his favor. Id. (quoting Liberty Lobby, Inc. , 477 U.S. at 255, 106 S.Ct. 2505 ). But the Court should not accept "[u]nsubstantiated assertions, improbable inferences, [or] unsupported speculation" as sufficient to carry the nonmovant's burden. Brown v. City of Houston , 337 F.3d 539, 541 (5th Cir. 2003). "When opposing parties tell two different stories, one of which is blatantly contradicted by the record, so that no reasonable jury could believe it, the Court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment." Scott v. Harris , 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007).

B. Policy Interpretation

In Cicciarella v. Amica Mutual Insurance Co. , the Fifth Circuit set forth the method by which insurance policies are interpreted:

In Texas, insurance policies are controlled by the rules of construction that are applicable to contracts generally. [The Court] will not rewrite the terms of the Policy; instead [the Court will] enforce it as written. [The Court's] primary concern is to give effect to the intentions of the parties as expressed in the instrument. Thus, in interpreting the Policy, [the Court] construe[s] all parts of the document together, giving effect to the intent of the parties. The determination whether terms are ambiguous is a question of law. A contract is ambiguous only "when its meaning is uncertain and doubtful or it is reasonably susceptible of more than one meaning." ... [The Court] interpret[s] and construe[s] insurance policies liberally in favor of the insured, especially when dealing with exceptions and words of limitation.

Cicciarella v. Amica Mutual Ins. Co. , 66 F.3d 764, 768 (5th Cir. 1995) (...