Opinion
NO. CA-C-03-386-H
May 19, 2004, Decided . May 19, 2004, Filed
For Gary F Maricle, Plaintiff: Curtis Bennett Dyer, Attorney at Law, Corpus Christi, TX.
For State Farm Lloyds, Defendant: Ricky H Rosenblum, Attorney at Law, San Antonio, TX; Christopher W Martin, Martin Disiere et al, Houston, TX; Laura A Hernandez, Akin Gump et al, San Antonio, TX; Thomas E Sanders, Akin Gump et al, San Antonio, TX.
ORDER REGARDING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT
On this day came on to be considered Defendant State Farm Lloyds' ("State Farm") motion for partial summary judgment in the above-styled and numbered cause. This is a civil action brought by Plaintiff Gary F. Maricle ("Maricle") against Defendant arising out of a dispute over the extent of coverage offered by Plaintiff's homeowner insurance policy ("the Policy") to the Maricle residence located at 2630 Quebec, Corpus Christi, Texas. Presently, Defendant moves for partial summary judgment on two grounds: (1) State Farm argues that mold damage is specifically and unambiguously excluded from coverage under the Policy, and thus, no claim for breach of contract related to mold damage exists; and, alternately, (2) State Farm contends that Plaintiff's contract damages under "Coverage A" should be limited to $ 91,400.00, which it argues is the limit of liability set forth in the Policy.
See Texas Homeowners Policy HO-B, State Farm Lloyds' Opposed Mot. for Partial Summ. J Ex. 1 (hereinafter "HO-B").
FACTUAL AND PROCEDURAL HISTORY
Throughout the period material to the instant action, the Plaintiff's home was insured by the Policy, numbered 83-00-8506-2. Following the detection of a water leak and resulting mold damage in his residence, Plaintiff Maricle submitted a claim to State Farm through his insurance agent on April 24, 2002. Pl.'s Orig. Pet. at 2, Notice of Removal Ex. A. Upon receiving Plaintiff's claim, State Farm assigned a claim representative and conducted an initial investigation of the reported damage on April 26, 2002. Decl. of Walt Dunham at 2, State Farm Lloyds' Opposed Mot. for Partial Summ. J. Ex. 2. From this initial investigation, Defendant saw fit to enlist the services of the following companies to continue the inspection of Plaintiff's residence: Naismith Investigative Engineering Services ("Naismith"), to conduct an indoor air quality investigation; Town & Country Plumbing ("Town & Country"), to conduct plumbing tests; and Wendlend Air Conditioning and Heating ("Wendland"), to conduct HVAC tests. Id. Based upon the recommendations of Naismith, Town & Country and Wendlend, State Farm paid Plaintiff the amount of $ 3,142.41 for damage to the dwelling and $ 5,340.84 for additional living expenses ("ALE"). Id. The gravamen of the Plaintiff's complaint is that these payments did not meet the requirements of the Policy and that the investigation that produced these insufficient amounts was deficient and untimely.
The Plaintiff's original petition was filed in the 319th Judicial District Court, Nueces County, Texas on July 31, 2003, and Defendant was personally served on August 27, 2003. Specifically, the Plaintiff pleaded the following causes of action: (1) breach of contract; (2) breach of the duty of good faith and fair dealing; and (3) violations of the Texas Insurance Code, TEX. INS. CODE arts. 21.21 and 21.55. Soon thereafter, on September 22, 2003, State Farm filed a notice of removal pursuant to 28 U.S.C. § 1446(a), alleging jurisdiction based on diversity of citizenship and jurisdictional amount. As a result, the case was removed to this Court. On January 28, 2004, Defendant filed the instant motion for partial summary judgment.
STANDARD OF REVIEW
Under Rule 56(c) of the Federal Rules of Civil Procedure, the Court should grant summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). Summary judgments involve a shifting burden of proof. First, the movant bears the burden of informing the Court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). "An issue is 'material' if it involves a fact that might affect the outcome of the suit under the governing law." Burgos v. Southwestern Bell Tel. Co., 20 F.3d 633, 635 (5th Cir. 1994) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)). Next, the nonmovant may respond by presenting affirmative evidence, setting forth specific facts, to show the existence of a genuine issue of material fact. Celotex Corp., 477 U.S. at 322-23. In evaluating a summary judgment motion, this Court "is required to resolve all reasonable doubts and draw all reasonable inferences in favor of the nonmovant, and then determine whether the movant is entitled to judgment as a matter of law." Burgos, 20 F.3d at 635 (citing Wells v. Gen. Motors Corp., 881 F.2d 166, 169 (5th Cir. 1989), cert. denied, 495 U.S. 923, 110 S. Ct. 1959, 109 L. Ed. 2d 321 (1990)).
ANALYSIS
Under Texas law, construction of insurance contracts is governed by the general rules of contract interpretation. Tex. Farmers Ins. Co. v. Murphy, 996 S.W.2d 873, 879, 42 Tex. Sup. Ct. J. 998 (Tex. 1999). As with contracts generally, the construction of an unambiguous insurance contract is a question of law. Coker v. Coker, 650 S.W.2d 391, 393, 26 Tex. Sup. Ct. J. 368 (Tex. 1983). A contract provision will not be deemed ambiguous merely because, as is the case here, "the parties advance conflicting contract interpretations." Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 465, 42 Tex. Sup. Ct. J. 130 (Tex. 1998) (citation omitted). If the written policy is worded so that it can be given only one construction, it will be enforced as written. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938, 28 Tex. Sup. Ct. J. 55 (Tex. 1984).
I. Mold Exclusion Clause
The Defendant contends that the Policy's mold exclusion clause unambiguously excludes coverage for mold damage, and that the accompanying ensuing loss provision does not restore such coverage. Conversely, the Plaintiff argues that while mold damage is generally excluded from coverage, the ensuing loss provision of the Policy allows for coverage when it results from water damage. In such a dispute, it is the insured who carries the initial burden "to plead and prove that the benefits sought are covered by the insurance policy at issue." Fiess v. State Farm Lloyds, 2003 U.S. Dist. LEXIS 10962, No. Civ. A. H-02-192, 2003 WL 21659408, at * 5 (S.D. Tex. June 4, 2003) (citing Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th Cir. 2001)) (additional citations omitted). "The insurer, however, bears the burden of establishing that one of the policy's limitations or exclusions constitutes an avoidance or affirmative defense to coverage." Id. (citing Harken Exploration, 261 F.3d at 471). In Texas, " [a]ny language of exclusion in the policy and any exception to coverage claimed by the insurer constitutes an avoidance or an affirmative defense." TEX. INS. CODE art. 21.58(b) (emphasis added). Finally, if the insurer shows an exclusion applies, "the burden then shifts back to the insured to show that the claim does not fall within the exclusion or that it comes within an exception to the exclusion." Fiess, 2003 U.S. Dist. LEXIS 10962, 2003 WL 21659408 at *5.
At issue in the instant case is the so-called ensuing loss provision of the mold exclusion clause, which states:
SECTION I - EXCLUSIONS
1. The following exclusions apply to loss to property described under Coverage A (Dwelling) or Coverage B (Personal Property) . . .:
f. We do not cover loss caused by:
(1) wear and tear, deterioration or loss caused by any quality in property that causes it to damage or destroy itself.
(2) rust, rot, mold or other fungi. . . . We do cover ensuing loss caused by collapse of the building or any part of the building, water damage or breakage of glass which is part of the building if the loss would otherwise be covered under this policy.
HO-B at 4 (emphasis added). Defendant argues the point quite vigorously that, under Texas law, exclusion clauses, such as the one above, exclude the enumerated loss irrespective of its cause. See State Farm Lloyds' Opposed Mot. for Partial Summ. J. at 3-4 (citing Bentley v. Nat'l Std. Ins. Comp., 507 S.W.2d 652, 654-55 (Tex. Civ. App.-Waco 1974, writ ref'd n.r.e.) and Auten v. Employers Nat'l Ins. Co., 722 S.W.2d 468, 470-71 (Tex. App.-Dallas 1987, writ denied)). Generally speaking, the Court does not disagree with this position. An exclusion clause, standing alone, will indeed exclude coverage for enumerated perils, regardless of their cause. However, the analysis is not that simple here; or, more precisely, the Defendant's argument is beside the point. The at-issue policy does not just contain an exclusion clause; it includes an ensuing loss provision as well. Thus, the cases the Defendant presents as instructive here are actually inapposite, and call to mind the quote from Cervantes that, "Comparisons are odious." While the label "odious" might be a bit strong, when the posited comparison involves apples and oranges - or, in this case, exclusion clauses without an attached ensuing loss provision and exclusion clauses with an attached ensuing loss provision - the adjective "dubious" is probably apt.
For instance, the Bentley holding that the Defendant puts forth, while sound on the issue of the general function of exclusion clauses, is inapposite to the instant situation, as it involved an exclusion clause unaccompanied by an ensuing loss provision. See Bentley, 507 S.W.2d at 653 (illustrating that the at-issue clause lacked an ensuing loss provision). Indeed, this was precisely the position of the Texas Supreme Court in Balandran v. Safeco Insurance Company of America, where Bentley and cases of its ilk were dismissed as relics of the period preceding the introduction of the new standard homeowner's policy in 1978. 972 S.W.2d 738, 742, 41 Tex. Sup. Ct. J. 1153 (Tex. 1998). Similarly, another case cited by the Defendant, Auten, fails to apply here because it too involves an exclusion clause sans the ensuing loss provision present in the instant case. Auten, 722 S.W.2d at 470.
When a homeowner's policy involves an exclusion clause followed by an ensuing loss provision, the cause of the loss does matter. This Court, following the lead of another Southern District of Texas Court in Flores v. Allstate Texas Lloyd's Company, "construes the mold exclusion as precluding coverage for mold occurring naturally or resulting from a non-covered event, but not from mold 'ensuing' from a covered water damage event." 278 F. Supp. 2d 810, 814 n.3 (S.D. Tex. 2003). This position is consistent with the one taken by the Fifth Circuit in Aetna Casualty & Surety Company v. Yates. 344 F.2d 939, 940-41 (5th Cir. 1965). There, the Fifth Circuit, in interpreting a clause almost identical to the one at issue, held that "ensuing loss caused by water damage" refers to damage in the form of an excluded loss, e.g., mold, that is the result of water damage. Id. at 940-41. Specifically, the court explained, "A likely case for application of the clause would be if water used in extinguishing a fire or coming from a burst pipe flooded the house [i.e., water damage] and in turn caused rust or rot; loss from rust or rot so caused would be a [covered] loss ensuing on water damage." Id. at 941. Thus, because the Fifth Circuit has ventured an " Erie guess" on the ensuing loss issue, it is only appropriate that this Court follow that determination.
"When there is no ruling by the state's highest court," as is the case here, "it is the duty of the federal court to determine as best it can, what the highest court of the state would decide." Batts v. Tow-Motor Forklift Co., 66 F.3d 743, 749 (5th Cir. 1995), cert. denied, 517 U.S. 1221, 116 S. Ct. 1851, 134 L. Ed. 2d 951 (U.S. May 28, 1996) (No. 95-1554). There are recognized sources of guidance. "Adherence by a federal district court to a circuit court's ' Erie guess' is appropriate, even when there exists a decision from the state's intermediate level appellate court that is inconsistent with the circuit court's resolution of the state law issue." Perez v. Brown & Williamson Tobacco Corp., 967 F. Supp. 920, 926 (S.D. Tex. 1997).
In spite of this, the Defendant advocates that this Court adopt the position represented by the holding in Fiess v. State Farm Lloyds. 2003 U.S. Dist. LEXIS 10962, No. Civ. A. H-02-192, 2003 WL 21659408, * 7-8 (S.D. Tex. June 4, 2003). However, that case does not simply fail to heed the Fifth Circuit's pronouncement in Yates, it is largely based upon a misinterpretation of the court's reasoning. While the court in Yates did reject the plaintiff's claim that his policy's ensuing loss provision restored coverage for an otherwise excluded loss (rot), it did so because it determined that the rot "ensued from the presence of water but not from water damage." 344 F.2d at 941. In other words, the Fifth Circuit held that though the ensuing loss provision did not restore coverage for a naturally-occurring excluded loss, it would restore coverage where the excluded loss is a result of a covered peril. As such, the Yates decision does not support the proposition, as the Fiess court claimed, that "an ensuing loss provision does not reinsert coverage for excluded losses, but reaffirms coverage for secondary losses ultimately caused by excluded perils." Feiss, 2003 U.S. Dist. LEXIS 10962, 2003 WL 21659408 at * 10. Accordingly, the Court is unswayed by the Defendant's argument, and State Farm's motion for partial summary judgment on the ensuing loss issue is appropriately denied.
II. Limit of Liability
With regard to the liability of the insurer, "the provisions of the [insurance] contract govern the measure of the insured's recovery." State Farm Fire & Cas. Co. v. Griffin, 888 S.W.2d 150, 156 (Tex. App.-Houston 1994, no writ) (citation omitted). Here, the Policy indisputably sets Defendant's limit of liability for damage to "Coverage A Dwelling" at $ 91,400.00. HO-B at Declaration Page. The crux of the dispute between the two parties, then, lies not in any disagreement over the amount of the liability limit, but rather, in its meaning. Specifically, the Plaintiff is contending that the liability limit set forth in the contract is not an absolute limit, but a per-claim limit. And since State Farm originally opened seven claims, the Plaintiff's argument continues, the liability limit on the Policy is seven times the $ 91,400.00 figure, or $ 639,800.00. Defendant State Farm maintains, on the other hand, that the $ 91,400.00 amount is absolute. As Defendant explains in its motion for summary judgment, "Plaintiff simply cannot recover more than the stated limit of liability for their loss, regardless of the number of separate claims that have been made." State Farm Lloyds' Opposed Mot. for Partial Summ. J. at 11. The Court finds that both the plain language of the contract and Texas case law support the Defendant's position.
"Coverage A Dwelling," by the terms of the Policy, covers the "dwelling on the residence premises." HO-B at 1 (emphasis in the original).
As noted above, the Policy's Declaration Page clearly lists the "limit of liability" for "Coverage A Dwelling" on the Plaintiff's policy as $ 91,400.00. See HO-B at Declaration Page. Turning next to the terms of the Policy itself, the key language is found in the "Loss Settlement" provision. The relevant portion reads:
4. Loss Settlement. Covered property losses are settled as follows: . . .
We will pay only the actual cash value of the damaged building structure(s) until repair or replacement is completed. Repair or replacement must be completed within 365 days after loss unless you request in writing that this time limit be extended for an additional 180 days. Upon completion of repairs or replacement we will pay the additional amount claimed under replacement cost coverage, but our payment will not exceed the smallest of the following:
(1) the limit of liability under this policy applicable to the damaged or destroyed building structure(s);
(2) the cost to repair or replace that part of the building structure (s) damaged, with material of like kind and quality and for the same use and occupancy on the same premises; or
(3) the amount actually and necessarily spent to repair or replace the damaged building structure(s).
HO-B at 6 (emphasis added). As the above excerpt makes clear, no payment in excess of the limit of liability is contemplated.
Thus, neither the Declarations Page nor the Loss Settlement provision supports the Plaintiff's theory that the liability limit operates on a per claim basis with respect to property damage. Yet elsewhere in the Policy, an intent to deviate from an absolute limit is expressed explicitly. For example, the Policy specifically states that with regard to Coverage C, which covers personal injury, the limit of liability represents the maximum possible payment "for all damages resulting from any one occurrence." Id. at 10 (emphasis in original). Additionally, the language pertaining to Coverage D, dealing with medical payments to others, makes it clear the limit of liability applies to "all medical expenses payable for bodily injury to one person as the result of one accident." Id. (emphasis in original). Absent that kind of specific language, there exists no reason to assume the parties intended the Policy to contradict the general rule related to liability limits, which states: "Insurance coverage seeks to indemnify the insured up to the amount of the policy, the objective being that the insured should neither reap economic gain nor incur a loss if adequately insured." Vest v. Gulf Ins. Co., 809 S.W.2d 531, 534 (Tex. App.-Dallas 1991) (emphasis added) (citing Crisp v. Sec. Nat'l Ins. Co., 369 S.W.2d 326, 328, 6 Tex. Sup. Ct. J. 583 (Tex. 1963)).
It is therefore ORDERED that Defendant State Farm Lloyds' motion for summary judgment on Plaintiff's breach of contract claim related to the mold exclusion clause be, and it is hereby, DENIED.
It is further ORDERED that Defendant State Farm Lloyds' motion for summary judgment on Plaintiff's breach of contract claim regarding the limit of liability for "Coverage A Dwelling" be, and it is hereby, GRANTED.
SIGNED AND ENTERED this 19th day of May, 2004.
HARRY LEE HUDSPETH
SENIOR UNITED STATES DISTRICT JUDGE