Holloway Lodging (222 Benmar) LLC v. Cushman Wakefield U.S. Inc.

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Holloway Lodging (222 Benmar) LLC, et al., Plaintiffs, v. Cushman Wakefield U.S. Inc., Defendant/Third-Party Plaintiff, v. ACE American Insurance Company, Third-Party Defendant, Holloway Lodging 222 Benmar LLC, et al, Plaintiffs, v. ACE American Insurance Company, Defendant,

Civil Action Nos. 4:22-CV-1745, Civil Action 4:22-CV-1982

United States District Court, S.D. Texas

October 10, 2024

MEMORANDUM AND RECOMMENDATION

PETER BRAY, UNITED STATES MAGISTRATE JUDGE

These cases have been referred to the undersigned magistrate judge pursuant to 28 U.S.C. § 636(b)(1). Pending before the court is Defendant and Third-Party Plaintiff Cushman &amp Wakefield U.S. Incorporated's Motion for Partial Summary Judgment, No. 1745, ECF No. 52,^[1] and Plaintiffs Holloway Lodging (222 Benmar) LLC and Holloway Lodging (16666 Northchase) LLC's Motion for Partial Summary Judgment, No. 1982, ECF No. 34. The court recommends that the motions for partial summary judgment be DENIED. 1. Facts and Procedural History

In 2019, Holloway Lodging (222 Benmar) LLC and Holloway Lodging (16666 Northchase) LLC (Plaintiffs), subsidiaries of the commercial real estate company Holloway Lodging, each purchased a professional office building located in Houston Texas. No. 1745, ECF No. 15 at 3-5. Holloway Lodging (222 Benmar) LLC purchased an eight-story professional office building located at 222 Benmar Drive while Holloway Lodging (16666 Northchase) LLC purchased a six-story professional office building located at 16666 Northchase Drive. Id.

Following these purchases, each Plaintiff signed a Property Management Agreement (PMA) with Cushman & Wakefield, U.S Incorporated (CWUS), a corporation specializing in the management of commercial real estate. No. 1745, ECF No. 17-1. Pursuant to the PMAs, CWUS became their agent in connection with the provision of property management services for the Buildings. Id.

The Plaintiffs again turned to CWUS when searching for property insurance for the Buildings. CWUS offered to add the Buildings to a "master insurance program" called "PAX" that would provide coverage for physical loss and damage to the Buildings. No. 1745, ECF No. 15 at 5; No. 1982, ECF No. 34 at 5. Based on CWUS's representations, Plaintiffs enrolled the Buildings into the master insurance program and became insureds on the property policy issued by ACE American Insurance Company (ACE). No. 1982, ECF No. 34 at 5; No. 1745, ECF No. 52-1 at 3, 5.

The policy period ran from May 1, 2020 to May 1, 2021. No. 1745, ECF No. 52-1 at 16. The insurance policy covered "direct physical loss or damage occurring" during the policy period. Id. The policy included an endorsement, titled "Scheduled Vacant Locations - Requirements and Exclusions" (Vacancy Endorsement) which excluded from coverage an insured's vacant property in the event the insured failed to adhere to six requirements, one of which is relevant here: "conduct monthly inspections of the Vacant location and maintain written reports of each such inspection, with such reports to include the following information: the location of the building or structure; the ambient inside temperature(s) of the building or structure; descriptions of any damage or vandalism noted; and the status of all protective systems." No. 1745, ECF No. 52-2 at 2 (emphasis added). The Buildings were vacant during the policy period and thus subject to the Vacancy Endorsement.

In February 2021, as warnings for Winter Storm Uri were issued, Plaintiffs set about to prevent or minimize potential damages to the Buildings. The asset manager for Holloway Lodging inspected the Buildings in the immediate days before the storm. No. 1745, ECF No. 52-8 at 3, 8. She received reports from the main engineer for the Buildings that the Buildings were in good condition, that the sprinkler and fire suppression systems were installed and working, and that the ambient inside temperature of the Buildings was sufficient to prevent them from sustaining damages from the expected freezing temperatures. Id. at 29. The temperature of the Buildings was adjusted by an automatic heating system that set the temperature to 70 degrees Fahrenheit once the outside temperature fell below 55 degrees Fahrenheit. No. 1982, EOF No. 36-1 at 2-3.

Winter Storm Uri blanketed Houston in freezing temperatures. No. 1745, ECF No. 52-4 at 6. On February 17, 2021, the automatic heating system did not trigger because ERCOT shut the power to the Buildings off. No. 1745, ECF No. 52-4 at 6; No. 1745, ECF No. 52-7 at 5. Freezing temperatures caused ice to form inside the Buildings' pipes which caused them to crack. No. 1745, ECF No. 52-7 at 5; No. 1745, ECF No. 52-8 at 13. Once ERCOT reactivated the power grid, the temperature inside the Buildings rose, the pipes burst, and the Buildings flooded which caused extensive damages. No. 1745, ECF No. 52-7 at 5

On February 18, 2021, CWUS, as agent for Plaintiffs, submitted a claim to ACE for the damage to Plaintiffs' Buildings. Ace hired a claims adjustor from Crawford and Company (Crawford) to investigate the claims. No. 1745, ECF No. 52-6, at 4. After inspecting the Buildings, the investigator submitted his report to ACE wherein he concluded that the freezing temperatures caused the loss. Id. at 6. After receipt of this report, Matthew Schlett, the ACE employee assigned to Plaintiffs' claim, concluded in a Reservation of Rights (ROR) letter that the primary cause for the damage was the loss of electricity and change in temperature. No. 1745, ECF No. 52-5 at 4. The ROR did not list any other cause for the damages, nor did Mr. Schlett claim that CWUS or Plaintiffs acted in a manner which injured or damaged ACE. No. 1745, ECF No. 52-6 at 40-41.

Yet ACE refused to provide coverage for the Buildings. The reason? The Plaintiffs had failed to complete a requirement listed in the insiirance policy's Vacancy Endorsement; to record the ambient temperature of the Buildings in monthly reports. No. 1745, ECF No. 52-6 at 23-4. Mr, Schlett stated that the Plaintiffs had not recorded the ambient temperature of the Buildings in any of the monthly reports submitted to ACE during the policy period. Id. at 24.

The Plaintiffs brought two separate lawsuits in Harris County state court: the first against CWUS on May 5, 2022; the second against ACE on May 10, 2022. No. 1745, ECF No. 1 at 1. No. 1982, ECF No. 1-4. Both suits were removed to this court, No. 1745, ECF No. 1. No. 1982, ECF No. 1. Plaintiffs and CWUS (together, Movants) have moved for partial summary judgment against ACE. No. 1745, ECF No. 52; No. 1982, ECF No. 34. CWUS urges this court to declare that the property insurance policy provides coverage for the damages to Plaintiffs' Buildings. No. 1745, ECF No. 52. Plaintiffs argue that ACE has breached the insurance policy by refusing to provide coverage for the Buildings. No. 1982, ECF No. 34. Movants argue that the failure to record the ambient temperatures did not prejudice ACE and was therefore not a material breach of the insurance policy. No. 1745, ECF No. 52; No. 1982, ECF No. 34. Accordingly, Movants argue that ACE was not excused from providing coverage for the loss. Id. ACE has responded to both motions, arguing that Plaintiffs' failure to record the ambient temperature excluded the Buildings from coverage. No. 1745, ECF No, 53; No. 1982, ECF No. 35. Movants have replied. No. 1745, ECF No. 54; No. 1982, ECF No. 36. The issue is now ripe for resolution.

2. Summary Judgment Legal Standard

A court should grant summary judgment when, viewing the evidence in the light most favorable to the non-movant, "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.'" Davenport v. Edward D. Jones & Co., 891 F.3d 162, 167 (5^th Cir. 2018) (quoting Fed.R.Civ.P. 56(a)). A genuine issue of material fact exists only if a rational jury, reviewing the complete record, could return a verdict for the non-movant. McMichael v. Transocean Offshore Deepwater Drilling, Inc., 934 F.3d 447, 455 (5th Cir. 2019) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

Initially, "[t]he movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact." Lincoln Gen, Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir. 2005) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-25 (1986)). If the movant carries this burden, then the burden shifts to the non-movant to set forth specific facts showing a genuine issue for trial. Fed. R. Civ. P, 56(e). The non-movant must "go beyond the pleadings," using competent summary judgment evidence to cite "specific facts" showing a genuine issue for trial. McCarty v. Hillstone Rest. Grp., Inc., 864 F.3d 354, 357 (5th Cir. 2017) (quoting Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005)).

The court must review all evidence in the light most favorable to the non-movant and must draw all reasonable inferences in favor of the non-movant. See Tolan v. Cotton, 572 U.S. 650, 657 (2014) (quoting Adickes v. S.K Kress & Co., 398 U.S. 144, 157 (1970)).

3. Summary Judgment Analysis

Movants argue that summary judgment should be granted because the evidence shows that Plaintiffs' breach of the recording requirement was immaterial. No. 1745, ECF No. 52; No. 1982 ECF No. 34. That is, Movants argue that Plaintiffs' failure to record the temperatures in monthly reports did not cause or contribute to the damages to the Buildings and thus did not prejudice ACE. Id. ACE responds that summary judgment should be denied because the evidence shows that the Buildings were excluded from coverage because Plaintiffs' failed to comply with the recording requirement. No. 1745,...