Certian Underwriters at Lloyd's London v. Lowen Valley View LLC et al

Filing 91

MEMORANDUM OPINION AND ORDER granting 46 Motion for Summary Judgment filed by Certain Underwriters at Lloyd's of London. The Court also GRANTS summary judgment sua sponte in favor Underwriters on its request for declaratory relief and DE NIES sua sponte Defendants' request for declaratory relief. Because this order is dispositive of the case, Underwriters's Objections to Defendants' Expert Witness Disclosure (Doc. 58 ) is OVERRULED as moot at this time. Additionally, the parties' Joint Motion for Status Conference (Doc. 90 ) is also DENIED as moot. (Ordered by Judge Jane J. Boyle on 7/21/2017) (aaa)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
CERTAIN UNDERWRITERS AT
LLOYD’S OF LONDON, SYNDICATE
NOS. 2003, 1414, 0510, 4472, 1183,
1200, AND 4444, SUBSCRIBING TO
POLICY NUMBER NJL440003612,
Plaintiff,
v.
LOWEN VALLEY VIEW, LLC and
PANADE II LTD. d/b/a HILTON
GARDEN INN,
Defendants.

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CIVIL ACTION NO. 3:16-CV-0465-B

MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff Certain Underwriters at Lloyd’s of London, Syndicate Nos. 2003,
1414, 0510, 4472, 1183, 1200, and 4444, Subscribing to Policy Number NJL440003612's (Plaintiff
or Underwriters) Amended Motion for Summary Judgment. Doc. 46. For the reasons explained
below, Plaintiff’s Motion is GRANTED.
I.
BACKGROUND
A.

Factual History1
This is an insurance coverage dispute involving hail damage to a hotel. Defendants Lowen

1

This factual history is drawn from the parties’ summary judgment briefing and evidence, as well as
their pleadings. Any disputed fact is noted as the contention of a particular party.

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Valley View, LLC and Panade II Ltd. d/b/a Hilton Garden Inn (collectively Defendants) own and
operate the Hilton Garden Inn in Irving, Texas. Doc. 34, Defs.’ Resp. to Pl.’s Mot. Summ. J. 4
[hereinafter Defs.’ Resp.]. Underwriters issued a standard commercial property insurance policy (the
Policy) to Defendants covering the hotel for the period from June 2, 2012, to June 2, 2013. Doc. 47,
Pl.’s Br. in Supp. of Am. Mot. Summ. J. 2 [hereinafter Pl.’s Br.]. The Policy, by its terms, covered
“direct physical loss or damage to Covered Property at the premises described in the Declarations
caused by or resulting from any Covered Cause of Loss.” Id. (referencing Doc. 48, Pl.’s App. in Supp.
of Am. Mot. Summ. J. [hereinafter Pl.’s App.] 133, Ex. D, Building and Personal Property Coverage
Form). The parties do not dispute that hail was a covered cause of loss under the Policy. See Doc.
11, Defs.’ Answer & Countercls. ¶ 26; see also Doc. 47, Pl.’s Br. 11.
In November 2014, Ajay Desai, the vice president of the company that manages the hotel,
was evaluating the property for potential capital improvement projects. Doc. 34, Defs.’ Resp. 5.
Noticing that “the shingles on the top of the hotel looked bad,” Desai contacted a roofing contractor,
who inspected the property and found evidence of significant hail damage to the various roofing
systems at the property. Id. On December 22, 2014, this roofing contractor obtained a weather
history report from a company called Weather Fusion/Point Data, which noted several hail events
at or near the hotel between the dates of January 1, 2006, and December 21, 2014. Id. (citing Doc.
48, Pl.’s App. 209–11, Ex. G, Weather Fusion/PointData Report).2
Specifically, the report, dated December 22, 2014, noted nine events of hail “at location”

2

There does not appear to be any significance to the beginning date of the roofer’s search, January
1, 2006. And the only significance of December 21, 2014, appears to be that it was the day before the report
was requested.

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between January 1, 2006, and December 21, 2014, five of which had “estimated maximum hail size”
of greater than one inch. See Doc. 48, Pl.’s App. 209–11, Ex. G, Weather Fusion/Point Data Report.
Of the nine hail events noted “at location,” seven occurred before the policy period, one after, and
one during, on June 13, 2012. See id. The event with the largest “estimated maximum hail size” noted
“at location” was on May 24, 2011. See id. And of the five events with “estimated maximum hail size”
greater than one inch, only the June 13, 2012 event occurred during the policy period; the other four
occurred prior to the policy period. See id.
Defendants’ roofing contractor provided a copy of the Weather Fusion/PointData report to
Desai, who in turn provided a copy to Defendants’ insurance agent on December 29, 2014. Doc. 34,
Defs.’ Resp. 5; Doc. 47, Pl.’s Br. 3. Defendants’ insurance agent filed a hail claim with Underwriters
on behalf of Defendants on the same day. Doc. 34, Defs.’ Resp. 5; Doc. 47, Pl.’s Br. 3. The
description of the damage provided to Underwriters was “roof damage due to hail,” and the date of
loss listed on the Property Loss Notice was June 13, 2012, the date of the only hail event noted on
the Weather Fusion/PointData report provided to the insurance agent that occurred during the
policy period. Doc. 48, Pl.’s App. 204–05, Ex. E, Property Loss Notice.
After receiving notice of the claim from the agent, Underwriters assigned the investigation
of the claim to Frontier Adjusters, which sent an independent adjuster, Derek Phipps, to inspect the
property for hail damage in mid-January 2015. Doc. 34, Defs.’ Resp. 5; Doc. 47, Pl.’s Br. 4; Doc. 48,
Pl.’s App. 231–38, Ex. J, Phipps Damage Estimate.3 When assigned the job, Phipps received only the

3

Though it does not appear to be a point of contention between the parties, there is some confusion
as to the actual date of Phipps’s inspection. Plaintiff indicates the inspection took place on January 12, 2015.
Doc. 47, Pl.’s Br. 4. Defendants state it took place on January 16, 2015. Doc. 34, Defs.’ Resp. 5. Phipps’s
actual report provides a “Date Inspected” of January 14, 2015. Doc. 48, Pl.’s App. 232. For what it’s worth,

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Property Loss Notice, which included no information about the Policy or its coverage and no special
instructions for the inspection. Doc. 48, Pl.’s App. 205, Ex. E, Property Loss Notice; Doc. 33, Defs.’
App. in Supp. of Resp. to Pl.’s Am. Mot. Summ. J. [hereinafter Defs.’ App.] 52–55, Ex. D, Dep. of
Derek Phipps.
Before physically inspecting the property, Phipps consulted National Oceanic and
Atmospheric Administration (NOAA) reports online, which he used to confirm that a hail storm
had in fact occurred in the area and on the date of loss provided to him by Frontier Adjusters. Doc.
33, Defs.’ App. 65–66, Ex. D, Dep. of Derek Phipps. Phipps’s computer log notes from January 16,
2015, indicate that he found significant hail damage to the roofs and exterior siding upon inspection
of the property. Id. at 412, Ex. K, Phipps Computer Log Notes. Phipps determined that the roofs
would require replacement rather than repair, and on January 19, 2015, prepared an estimate of what
it would cost to replace the roofs. Doc. 48, Pl.’s App. 231–38, Ex. J, Phipps Damage Estimate.4

Phipps’s affidavit indicates he inspected the property on January 12, 2015. Doc. 48, Pl.’s App. 214, Ex. H,
Aff. of Derek Phipps ¶ 6. Suffice it to say his investigation took place in mid-January.
4

From the evidence it appears that Phipps’s Damage Estimate includes only the cost to replace the
roofs, not the cost to repair the damage to the exterior siding. Apparently, Phipps was waiting to hear back
from other contractors before submitting an estimate for the siding, but it does not appear that he ever heard
back from the contractors or submitted an updated estimate. See Doc. 33, Defs.’ App. 412, Ex. K, Phipps
Computer Log Notes (entry from Jan. 16, 2015, stating “The exterior EIFS has hail damage on each elevation
requiring repairs and bids from two local stucco/eifs contractors . . . . IA is coordinating with contractor and
owner/insured to obtain the exterior bids.”); id. at 150, Ex. E, Phipps Damage Estimate (noting that certain
work referenced in the estimate was to be “performed by the roofing contractor” and thus would not be
“included in the exterior EIFS repair bid amount”); id. at 71, Ex. D, Dep. of Derek Phipps (“A: So before I
made a recommendation, I just requested that a stucco/EIFS professional give their recommendation for
it . . . .”); id. at 82 (“Q: . . . just so I’m clear on this, this estimate that you prepared is the hail damage that
you saw at the Hilton Garden Inn to the three roof systems? A: Correct.”); id. at 86 (“Q: Okay. And did you
ever get a copy of the EIFS damage estimate from the contractor? A: I did not. Q: Do you recall sending any
subsequent reports to either Frontier or their carrier after your initial report on January 19th of 2015? A: I
do not.”).

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Phipps submitted his estimate to Frontier Adjusters through a web-based computer program. Doc.
33, Defs.’ App. 73, Ex. D, Dep. of Derek Phipps.
On March 2, 2015, Underwriters—through an authorized claims administrator, Peninsula
Insurance Bureau—sent a “reservation of rights” letter to Defendants, which indicated that the
initial investigation had revealed “potential coverage issues,” namely “late reporting of the loss.” Id.
at 239–42, Ex. K, Reservation of Rights Letter. Therefore, the letter stated, the investigation would
proceed “under a full reservation of rights.” Id. It also directed Defendants to the specific policy
language requiring “prompt notice of the loss or damage.” Id. (quoting Doc. 48, Pl.’s App. 35,
Building and Personal Property Coverage Form, Part E.3.a.2). Finally, the letter noted that “any
recommendations made by the adjuster [were] subject to the Underwriters’ review and approval.”
Id. at 242.
Subsequently, Underwriters—through Frontier Adjusters—engaged a company called Haag
Engineering to “determine the extent of hailstone impact damage to the roofing and siding” and to
“evaluate when hail damage might have occurred.” Doc. 33, Defs.’ App. 243, Ex. G, Haag Report
No. 1. Haag’s first report, dated April 8, 2015, noted that “[a] date of June 13, 2012 was provided
with our assignment.” Id. at 244. After inspecting the property on March 17, 2015, and consulting
weather history reports from the National Climatic Data Center, CoreLogic (formerly Weather
Fusion, the same company that provided the initial weather history reports to Defendants’ roofing
contractor), and NOAA, Haag concluded that “the most recent hailstorm with hailstones large
enough to cause the damage we observed was on June 13, 2012.” Id. at 250 (emphasis added).
Notably, the CoreLogic report attached to Haag’s report contained the same history of hail events

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found in the Weather Fusion/PointData report provided to Desai and Defendants’ insurance agent
prior to the filing of the claim. Compare Doc. 48, Pl.’s App. 209–11, Ex. G, Weather
Fusion/PointData Report (provided to Desai and insurance agent), with Doc. 33, Defs.’ App. 263–64,
Ex. G, Haag Report No. 1 (CoreLogic report attached to Haag Report No. 1).
A second report from Haag Engineering, ordered specifically to “discuss the likelihood that
damage occurred between December 29, 2012 and December 29, 2014,” again noted that Haag had
“no reason to believe the dents occurred more recently than the June 13, 2012 date given.” Id. at
363–64, Ex. H, Haag Report No. 2 (emphasis added). This report also for the first time identified
“June 13, 2012 as the most likely date damage occurred.” Id. at 363 (emphasis added). As discussed
below, Defendants place much weight on this slight change in wording.
In December 2015, Underwriters requested an Examination Under Oath of Ajay Desai, vice
president of the hotel’s property management company. Doc. 34, Defs.’ Resp. 8. The Examination
took place in January 2016. There, Desai described how he first noticed the condition of the roofs
in November 2014 and how he sent the Weather Fusion/PointData report to the insurance agent,
who Desai suspected then chose the date of loss to report to the insurer. See generally Doc. 33, Defs.’
App. Ex. C, Exam. Under Oath of Ajay Desai; see also Doc. 48, Pl.’s App. 208, Ex. F, Exam. Under
Oath of Ajay Desai (“I think they looked at the history and they probably saw which period had the
highest amount of hail and -- I assume that’s how they determined where to file the claim.”).
A month later, on February 18, 2016, Underwriters denied Defendants’ claim “based on
[Defendants’] failure to give timely notice.” Doc. 48, Pl.’s App. 246–49, Ex. M, Denial Letter. The
Denial Letter again directed Defendants to the “prompt notice” requirement in the Policy and stated

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that Defendants “failed to give notice of the damage to the Property until over two and a half years
after the alleged hailstorm.” Id. at 248. The Letter indicated that this “late notice has prejudiced
Underwriters’ ability to properly investigate the claim and pay only for damage that occurred during
the policy period.” Id. at 249.
B.

Procedural History
On the same day, February 18, 2016, Underwriters also filed its Original Complaint and

Request for Declaratory Judgment, asking the Court to declare “that there is no coverage under [the
Policy] for the reported hail damage because Defendants violated the policy’s notice condition and
Underwriters suffered prejudice as a result.” Doc. 1, Pl.’s Original Compl. & Req. for Declaratory J.
¶ 21. Defendants later counterclaimed for declaratory judgment, breach of the insurance contract,
and multiple violations of §§ 541 and 542 of the Texas Insurance Code. Doc. 11, Defs.’ Answer &
Countercls.5
Underwriters now moves for summary judgment on Defendants’ breach of contract and

5

Underwriters subsequently requested and was granted leave to file an Amended Complaint
incorporating additional allegations but no new causes of action (Doc. 20, Pl.’s Unopposed Mot. for Leave
to File Am. Compl.; Doc. 21, Electronic Order Granting Mot. for Leave), which Plaintiff then filed on July
11, 2016. Confusingly, Plaintiff actually filed its Amended Complaint twice. See Docs. 22 and 23. These
documents appear to be identical, so the Court considers the later-filed (Doc. 23) to be the operative
pleading.
In another strange turn of events, Defendants never filed an updated answer in response to Plaintiff’s
Amended Complaint. Nor has Plaintiff, for that matter, ever filed an answer to Defendants’ counterclaims.
Thus, although both sides are technically in default, neither has raised the issue, and the parties appear to
be proceeding with the understanding that Defendants’ original Answer and Counterclaims (Doc.
11)—though filed in response to Plaintiff’s Original Complaint (Doc. 1)—also serves as a responsive pleading
to Plaintiff’s later-filed Amended Complaint (Doc. 23). Therefore, so will the Court. See Superior Edge, Inc.
v. Monsanto Co., 44 F. Supp. 3d 890, 893 n.2 (D. Minn. 2014) (citing Cartier v. Wells Fargo Bank, N.A., 547
F. App’x 800, 804 (8th Cir. 2013) (“Under these circumstances, we conclude the district court acted within
its discretion to treat the motion to dismiss the original complaint as a motion to dismiss the amended
complaint.”)).

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Texas Insurance Code counterclaims. Doc. 46, Pl.’s Am. Mot. Summ. J [hereinafter Pl.’s Mot.].6
Defendants responded (Doc. 32), and Plaintiff replied (Doc. 43).7 Therefore, Plaintiff’s Motion is
now ripe for review.
II.
LEGAL STANDARD
Summary judgment is appropriate “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).
A dispute “is ‘genuine’ if the evidence is sufficient for a reasonable jury to return a verdict for the
non-moving party.” Burrell v. Dr. Pepper/Seven Up Bottling Grp., 482 F.3d 408, 411 (5th Cir. 2007).
And a fact “is ‘material’ if its resolution could affect the outcome of the action.” Id.
The summary judgment movant bears the burden of proving that no genuine issue of material
fact exists. Latimer v. Smithkline & French Labs., 919 F.2d 301, 303 (5th Cir. 1990). Usually, this
requires the movant to identify “those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate
the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
6

Plaintiff initially filed a motion for summary judgment on July 27, 2016 (Doc. 24), then asked to
withdraw it the following day (Doc. 25), which the Court allowed (Doc. 26). Plaintiff later re-filed its motion
for summary judgment in November 2016. Doc. 29. The following month, however, recognizing the Court’s
local rule requiring that a motion, brief, and appendix be filed as separate documents, Plaintiff requested leave
to re-file its motion in accordance with that rule (Doc. 41), which the Court granted (Doc. 45). Plaintiff then
filed the present Amended Motion for Summary Judgment (Doc. 46), Brief in Support (Doc. 47), and
Appendix (Doc. 48) in December 2016, the only difference from the November 2016 filing being that the
motion, brief, and appendix are now separate documents. Thus, although the Court acknowledges November
2, 2016, as the date of filing, all references in this opinion are to the Amended Motion (Doc. 46) and its
attendant documents.
7

Defendants later requested (Doc. 78), and were granted (Doc. 83), leave to file several supplemental
documents in opposition to Plaintiff’s motion for summary judgment.

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(internal quotation marks omitted). But if the non-movant ultimately bears the burden of proof at
trial, the movant may satisfy its burden just by pointing to the absence of evidence supporting the
non-movant’s case. Id. at 322–23.
If the movant meets that burden, then it falls to the non-movant to “show with significant
probative evidence that there exists a genuine issue of material fact.” Hamilton v. Segue Software Inc.,
232 F.3d 473, 477 (5th Cir. 2000) (internal quotation marks omitted) (citing Conkling v. Turner, 18
F.3d 1285, 1295 (5th Cir. 1994)). And significant probative evidence is just that: significant. See
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (per curiam). “[M]etaphysical doubt
as to material facts,” “conclusory allegations,” “unsubstantiated assertions,” or a mere “scintilla of
evidence” will not do. Id.(internal citations and quotation marks omitted). Rather, “the non-movant
must go beyond the pleadings and present specific facts indicating a genuine issue for trial.”
Bluebonnet Hotel Ventures, L.L.C. v. Wells Fargo Bank, N.A., 754 F.3d 272, 276 (5th Cir. 2014)
(citing Celotex, 477 U.S. at 324).
To be sure, the court views evidence in the light most favorable to the non-movant when
determining whether a genuine issue exists. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 2000). But
it need not “sift through the record in search of evidence to support a party’s opposition to summary
judgment.” Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (quoting Skotak v.
Tenneco Resins, Inc., 953 F.2d 909, 915–16 & n.7 (5th Cir. 1992)). Simply put, the non-movant must
“identify specific evidence in the record” and “articulate the precise manner in which that evidence
supports [its] claim.” Id. If it cannot, then the court must grant summary judgment. Little, 37 F.3d
at 1076.

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III.
ANALYSIS
A.

Defendants’ Evidentiary Objections
Before turning to the merits of Plaintiff’s Motion, the Court must first address Defendants’

objections to Plaintiff’s summary judgment evidence. Defendants object to paragraphs 10, 11, 12, 13,
and 16 of the affidavit of Derek Phipps, which is attached as Exhibit H to Plaintiff’s Amended
Motion for Summary Judgment. Doc. 35, Defs.’ Objs. to Pl.’s Evid. in Supp. of Summ. J. [hereinafter
Defs.’ Objs.].
As noted above, Phipps was the independent adjuster sent by Frontier Adjusters—on behalf
of Underwriters—to investigate the property a few weeks after the hail claim was filed. Doc. 34,
Defs.’ Resp. 5; Doc. 47, Pl.’s Br. 4. Plaintiff provided an affidavit from Phipps as part of its summary
judgment evidence. See Doc. 48, Pl.’s App. 212–15, Ex. H, Aff. of Derek Phipps. The affidavit is
dated July 25, 2016—roughly five months after the claim was denied and this lawsuit was filed—and
it describes generally how Phipps’s investigation was affected by the two and a half year gap between
the time of the reported loss in June 2012 and the filing and investigation of the claim in December
2014 and January 2015. Id.
The entirety of the challenged portion of Phipps’s affidavit states the following:
10. “The late notice of the claim impacted the investigation in the following ways:
a. I was unable to inspect the insured property immediately after the loss.
b. I was unable to document the condition of the roof immediately following
the Loss.
c. I was unable to determine if the roof or exterior elevations had been
impacted by other weather events or other non-covered perils preceding the
Loss.
d. I lost the opportunity to quantify the damage present at the insured
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premises immediately after the Loss.
e. I lost the opportunity to interview witnesses who may have known the prior
condition of the roof and the impact of the Loss.
f. The condition of the roofs changed significantly between the time of the
alleged hail storm and the date notice was finally given, making investigation
of the existence and extent of the related damage nearly impossible.”
11. “As a result of the late notice of the claim, the investigation was severely
hindered.”
12. “As a result of the late notice of the claim, I could not conduct a full and fair
investigation of the circumstances surrounding the Loss in order to determine
whether the damage resulted from a covered peril.”
13. “Based on the Xactimate pricing, the late notice of the claim increased the
estimated cost to repair the damage to the Property.”
....
16. “Based on the Xactimate pricing, the estimated cost to repair the damage to the
Property increased during the thirty-month delay in the reporting of the claim. The
cost to repair the damage to the Property would have been $47,802.67 less if the
claim was reported immediately following the Loss.”
Id. ¶¶ 10–13, 16.
Defendants’ objections to these paragraphs fall into two categories. First, Defendants object
to paragraphs 10, 11, and 12 because, Defendants argue, the statements are conclusory, fall within
the realm of expert testimony, and conflict with Phipps’s (later) deposition testimony. Doc. 35, Defs.’
Objs. 2–5. Second, Defendants object to paragraphs 13 and 16 because, according to Defendants,
“they mischaracterize facts in evidence.” Id. at 5.
A lay witness’s testimony is limited to that which is within his “personal knowledge of the
matter,” as required by Federal Rule of Evidence 602. Fed. R. Evid. 602. Lay witness opinion
testimony is “limited to those opinions or inferences which are (a) rationally based on the perception

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of the witness, (b) helpful to a clear understanding of the witness’ [sic] testimony or the
determination of a fact in issue, and (c) not based on scientific, technical, or other specialized
knowledge within the scope of Rule 702.” United States v. Cooks, 589 F.3d 173, 179–80 (5th Cir.
2009) (citing Fed. R. Evid. 701). “[T]he distinction between lay and expert witness testimony is that
expert testimony results from a process of reasoning which can be mastered only by specialists in the
field.” United States v. Yanez Sosa, 513 F.3d 194, 200 (5th Cir. 2008). Lay testimony, on the other
hand, “must be the product of reasoning processes familiar to the average person in everyday life.”
Cooks, 589 F.3d at 180 (citing United States v. Garcia, 413 F.3d 201, 215 (2d Cir. 2005)).
Looking first at the statements in paragraphs 10, 11, and 12, the Court disagrees with
Defendants that the statements are conclusory or within the realm of expert testimony. With the
exception of paragraph 10(f), the Court finds that the statements are merely facts within Phipps’s
personal knowledge or opinions rationally based upon his perception of the facts. For example, it is
a temporal fact that Phipps “was unable to document the condition of the roof immediately following
the loss,” which necessarily impacted his ability to investigate the “circumstances surrounding the
Loss.” Doc. 48, Pl.’s App. 214, Ex. H., Aff. of Derek Phipps ¶¶ 10, 11, 12.
Turning to paragraph 10(f), however, the Court agrees with Defendants. Paragraph 10(f)
states that the “condition of the roofs changed significantly between the time of the alleged hail
storm and the date notice was finally given.” Id. ¶ 10(f). But the rest of Phipps’s affidavit belies his
personal knowledge of the condition of the roofs at the time of the June 2012 hail storm. Because
Phipps was unable to inspect the roofs immediately following the June 2012 storm, and because he
is not designated as a roofing expert in this case, he cannot definitively state that these roofs

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“changed significantly” during the time between the storm and his inspection. Therefore,
Defendants’ objection is SUSTAINED on this point and paragraph 10(f) is STRICKEN from the
record.
As for Defendants’ argument that the remainder of paragraphs 10, 11, and 12 conflicts with
Phipps’s deposition testimony, the Court is not convinced. The Court disagrees with Defendants that
Phipps’s affidavit conflicts with his later-given deposition testimony. Defendants argue that Phipps’s
affidavit stating that his investigation was impaired by the two-and-a-half-year lapse in time between
the claimed date of loss and the filing and investigation of the insurance claim conflicts with his latergiven deposition testimony that he was able to provide a complete estimate of the cost to replace the
roofs in January 2015. Doc. 35, Defs.’ Objs. 3–5.
Phipps’s ability to provide an estimate of what it would cost to repair the damage he observed
does not speak to whether this investigation was hampered in any way. See Hamilton Props. v. Am.
Ins. Co., No. 3:12-CV-5046-B, 2014 WL 3055801, at *10 (N.D. Tex. July 7, 2014) (noting that “the
ability to conduct the investigation does not necessarily speak to the investigation’s quality”), aff’d,
643 F. App’x 437 (5th Cir. 2016). Furthermore, the Court finds that Phipps’s September 2016
deposition testimony is, in fact, quite consistent with his previous affidavit. See, e.g., Doc. 33, Defs.
App. 121–22, Ex. D, Dep. of Derek Phipps (“Q: Would it be fair to say that the more time passes
after a hail event damages a property, the harder it is to tell when that damage occurred? A: That’s
fair to say. Q: Would it be fair to say that, if there are multiple hail events that caused damage to the
property, the more time passes, the harder it would get to determine which damage was incurred on
which date? A: I would agree with that.”).

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Turning to Defendants’ objections to paragraphs 13 and 16, the Court disagrees that these
paragraphs mischaracterize any facts in evidence. Defendants’ objection centers on Phipps’s use of
the Xactimate computer program to compare the cost to replace the roofs in June 2012 versus the
cost to replace them two and a half years later in January 2015. According to Plaintiff, Xactimate is
a commonly used comprehensive software solution allowing insurance companies to estimate
materials and labor prices for a specific time and place based on a constantly updated database of
prices. Doc. 47, Pl.’s Br. 17; see also Doc. 34, Defs.’ Resp. 10–11 (acknowledging that “Xactimate is
typically used in the insurance industry to prepare estimates and provide the estimator with unit costs
from a particular area of the state or country and for a particular time”).
Phipps used Xactimate to prepare an estimate following his inspection in January
2015—using January 2015 pricing—which came to $472,028.08. Doc. 48, Pl.’s App. 214, Ex. H, Aff.
of Derek Phipps ¶¶ 8–9. Phipps later ran the numbers again using June 2012 pricing, which produced
an estimate of $424,225.41. Id. ¶ 15–16. So according to Phipps’s calculations, if Defendants had
reported the damage in June 2012 immediately after the storm that allegedly caused it instead of
waiting until December 2014, then—assuming the loss was covered—the cost to repair the damage
in June 2012 would have been $47,802.67 less based on materials and labor costs at that time. Id.
¶ 16. Thus, according to Phipps, “[b]ased on the Xactimate pricing, the late notice of the claim
increased the estimated cost to repair the damage to the Property.” Id. ¶ 13.
Defendants contend that “[t]he fact that the estimate prepared using the January 2015
pricing was higher than the estimate prepared using the June 2012 pricing does not prove that the
late notice of claim increased the estimated cost to repair the damage to the Property, but rather

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proves that Phipps could have utilized June 2012 pricing at any time during his investigation.” Doc.
35, Defs.’ Objs. 5. Put differently, Defendants argue that merely plugging different dates into a
computer program does not demonstrate that the two-and-a-half-year delay resulted in prejudice to
Plaintiff. But Defendants take no issue with Phipps’s use of Xactimate generally to estimate repair
costs. Rather, they object to the implications of his calculations. The affidavit merely states that
Xactimate comes up with one number using June 2012 pricing and another number using January
2015 pricing. The Court fails to see how these statements regarding calculations performed by Phipps
mischaracterize any facts in evidence.
In conclusion, Defendants’ objections to Plaintiff’s summary judgment evidence, namely
paragraphs 10, 11, 12, 13, and 16 in the affidavit of Derek Phipps, are OVERRULED with the
exception of paragraph 10(f), which the Court STRIKES from the record. The Court turns now to
the merits of Plaintiff’s Motion for Summary Judgment.
B.

Plaintiff’s Motion for Summary Judgment
Underwriters moves for summary judgment on Defendants’ counterclaims for breach of

contract and violation of the Texas Insurance Code. The Court reviews each of Defendants’
counterclaims in turn below.
1.

Defendants’ Breach of Contract Counterclaim

Defendants contend that the damage to their property was the result of a hail storm that
occurred during the policy period, and therefore Plaintiff breached the insurance contract when it
denied Defendants’ claim. Doc. 11, Defs. Answer & Countercls. ¶ 46.
Under Texas law, “[a]n insurance policy is a contract and is therefore subject to rules of

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contract interpretation.” F.D.I.C. v. Firemen’s Ins. C. of Newark, N.J., 109 F.3d 1084, 1087 (5th Cir.
1997) (citing Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994)). “The elements of a
breach of contract claim are: (1) the existence of a valid contract; (2) performance tendered by
[Defendants]; (3) breach of the contract by [Underwriters]; and (4) damages to [Defendants]
resulting from that breach.” Wright v. Christian & Smith, 950 S.W.2d 411, 412 (Tex. App.—Houston
[1st Dist.] 1997, no writ). Further, “Texas law clearly states that for an insurance company to be
liable for a breach of its duty to satisfy a claim presented by its insured, the insured must prove that
its claim falls within the insuring agreement of the policy.” Data Specialties, Inc. v. Transcontinental
Ins. Co., 125 F.3d 909, 911 (5th Cir. 1997). And “[t]he insured bears the initial burden of showing
that there is coverage . . . .” Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 553 (5th Cir.
2004). That is to say that for Underwriters to be liable for breach of the insurance contract,
Defendants must first prove that the claim was covered under the Policy.
Underwriters argues two grounds for summary judgment on Defendants’ breach of contract
counterclaim. First, Plaintiff argues that Defendants cannot prove that the claimed damage resulted
from a covered peril because Defendants have provided no evidence segregating the damage
attributable to the June 13, 2012 storm from damage attributable to the various other storms
documented as occurring outside of the policy period in the years before and after the Policy was in
effect. Doc. 46, Pl.’s Mot. 1–2. Second, Plaintiff contends that Defendants failed to comply with their
duty under the Policy to provide prompt notice of the loss, which Plaintiff argues prejudiced its ability
to investigate the claim and increased the cost to replace the roofs. Id. at 2. The Court considers the
parties’ arguments below.

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i. Covered loss
“An insured cannot recover under an insurance policy unless facts are pleaded and proved
showing that damages are covered by his policy.” Emp’rs Cas. Co. v. Block, 744 S.W.2d 940, 944
(Tex. 1988), overruled in part on other grounds by State Farm Fire & Cas. v. Gandy, 925 S.W.2d 696
(Tex. 1996). To be sure, an insured who suffers damage from both covered and excluded perils is not
precluded from recovering for the covered loss, but “[w]hen covered and excluded perils combine
to cause an injury, the insured must present some evidence affording the jury a reasonable basis on
which to allocate the damage.” Lyons v. Miller Cas. Ins. Co. of Tex., 866 S.W.2d 597, 601 (Tex.
1993). “[T]he burden of segregating the damage attributable solely to the covered event is a coverage
issue for which the insured carries the burden of proof.” One Way Invs., Inc. v. Century Sur. Co., No.
3:14-CV-2839-D, 2016 WL 5122124, at *2 (N.D. Tex. Sept. 21, 2016) (citing Wallis v. United Servs.
Auto. Ass’n, 2 S.W.3d 300, 303 (Tex. App.—San Antonio 1999, pet. denied)). And “[f]ailure to
provide evidence upon which a jury or court can allocate damages between those that resulted from
covered perils and those that did not is fatal to an insured party’s claim.” Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa. v. Puget Plastics Corp., 735 F. Supp. 2d 650, 669 (S.D. Tex. 2010).
Here, Underwriters concedes that “the Policy covers damage by a windstorm or hail event
which occurred during the Policy period – June 2, 2012 to June 2, 2013.” Doc. 47, Pl.’s Br. 11. But
it argues that Defendants have failed to provide any evidence either that the present damage is solely
due to the June 13, 2012 storm or upon which a jury could reasonably allocate the present damage
between the June 2012 storm and several documented hail events occurring outside the coverage
period. Id. at 11–12. In support, Underwriters points to the fact that Defendants’ own weather

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history reports—provided first to Desai and then by Desai to the insurance agent—show eight hail
events outside of the policy period that could have caused the damage. Id. Plaintiff also notes that
Defendants didn’t even select the date of loss for the insurance claim themselves; rather, the
insurance agent selected the date after reviewing the weather reports and seeing that one hail event
occurred during the policy period. Id. at 12.
Rather than pointing to evidence upon which a jury could reasonably allocate damages,
Defendants instead focus on their contention that “all of [sic] damage was from the June 13, 2012
storm.” Doc. 34, Defs.’ Resp. 13. In support, Defendants contend that Underwriters “was in
possession of at least three documents establishing June 13, 2012 as the date of loss when they made
the decision to deny Defendants’ claim.” Doc. 34, Defs.’ Resp. 2. The three documents Defendants
reference are the damage estimate and related computer log notes of Derek Phipps and the first and
second reports prepared by Haag Engineering. Id. As discussed below, however, neither these
documents nor any other evidence submitted by Defendants raise a genuine issue of material fact as
to whether the damage was entirely due to the June 13, 2012 storm or from which a jury could
reasonably segregate the damages between storms.
Beginning with the Phipps Damage Estimate and related computer log notes, Defendants
contend that Phipps “had no problem connecting the hail damage to the 2012 storm.” Doc. 34,
Defs.’ Resp. 6. For support, Defendants point to the fact that Phipps’s estimate lists “June 13, 2012"
in the “Date of Loss” field, and a computer log note by Phipps on January 16, 2015, states that
“[t]he roof materials are totaled by hail on the reported and documented DOL.” Id. Contrary to
Defendants’ contention that Phipps tied the damage to the June 2012 storm, however, Phipps’s

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deposition is replete with testimony that he was not making any recommendations with regard to
coverage, but instead was hired merely to investigate the extent of the damage and estimate the cost
to repair or replace the roofs. See, e.g., Doc. 33, Defs.’ App. 44, Ex. D, Dep. of Derek Phipps
(“Q: . . . . And you also made a recommendation to Frontier about coverage? A: No. Just
documented the damage and made recommendations for repairs.”); id. at 83 (“Q: And you made
those recommendations from damage by hail as a result of the June 13th, 2012 storm; correct? A:
Due to hail damage. Q: But specifically due to the June 13th, 2012 storm; correct? A: At that time
I wasn’t questioning the date of loss.”); id. at 119 (“Q: And were you able to determine, during your
inspection, when the hail damage was caused? A: That wasn’t part of my inspection.”); id. at 120
(“Q: So it was clear to you at the time that the damage that you saw was caused by hail? A: Yes. Q:
And you just weren’t sure when it was caused? A: Correct.”).
As for the notation of “June 13, 2012" as the “Date of Loss” on the estimate and in the
computer log notes, Phipps testified that he was merely repeating the date of loss provided to him.
Id. at 81 (“A: I did reference the provided date of loss because I wasn’t questioning that at the
time.”); id. at 102 (“Q: . . . . The only storm that you identified anywhere in your estimate, your
notes, your reports was the June 13th, 2012 storm; true? A: That’s the date of loss I used, yes. Just
to be clear, I wasn’t there to determine the date of loss.”); id. at 124 (“Q: . . . . Just tell us what you
meant by that note, please. A: I just meant that the hail -- date of loss that was reported, there was
hail on that date.”); id. (“A: I guess I was just reiterating that the -- the date of loss that they gave
to me that we documented, that there was hail on that date.”).
Far from establishing that Phipps attributed the damage solely to the June 13, 2012 storm,

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the evidence merely demonstrates that there was hail damage observed at the property as of January
2015 and that weather history reports reviewed by Phipps as part of his inspection confirmed that
a storm had occurred at the location on June 13, 2012, neither of which Plaintiff contests.
Defendants’ attempt to conjure a causation opinion out of Phipps’s parroting the date of loss he’d
received with his assignment is unconvincing. Thus, Phipps’s estimate and log notes do little more
than support a point that is not actually in dispute—that the June 13, 2012 storm could have caused
the damage. “Whether the storm actually did—and to what extent—remains unclear.” Hamilton,
2014 WL 30555801, at *5 (emphasis added).
Turning to the Haag reports, Defendants argue that “Haag concluded in their April 8, 2015
report (Report No. 1) that the hail damage to the hotel was from the June 13, 2012 storm.” Doc. 34,
Defs.’ Resp. 7. What the first Haag report actually states is that the June 13, 2012 storm was “the
most recent hailstorm with hailstones large enough to cause the damage.” Doc. 33, Defs.’ App. 250,
Ex. G, Haag Report No. 1 (emphasis added). As mentioned above, Haag had also reviewed—and
provided to Underwriters as an attachment to its first report—the same Weather Fusion/PointData
weather history information showing four other hail events with estimated maximum hail size of
greater than one inch at the property prior to the coverage period. Id. at 263–64.
As for the second Haag report, Defendants make much of the following statement: “We
considered other sources of information and they helped us confirm June 13, 2012 as the most likely
date damage occurred.” Doc. 33, Defs.’ App. 363, Ex. H, Haag Report No. 2 (emphasis added). This
statement is unsurprising, however, considering the context of the second Haag report, which was
specifically addressing “the likelihood that damage occurred between December 29, 2012 and

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December 29, 2014,” the two-year period prior to the date the claim was filed. See id. Significantly,
a subsequent Haag report confirmed that “[t]here have been multiple hail events at this location.”
Doc. 33, Defs.’ App. 372, Ex. I, Haag Report No. 3. This third report noted that “[h]ail as great as
1.50-inch diameter hail was reported on March 10, 2010, 4.25-inch diameter hail on May 24, 2011,
2.75-inch diameter hail on April 3, 2012 and 2.75-inch diameter hail on June 13, 2012.” Id. at
371–72. All but the last are outside of the policy period.
Additionally, a letter from Haag Engineering dated August 11, 2016, clarifies that Haag
Report No. 2 “inadvertently referred to June 13, 2012, as the ‘most likely’ date that damage occurred
instead of the ‘most recent,’ as was concluded in [the] April 8, 2015, report.” Doc. 33, Defs.’ App.
402, Ex. J, Haag Report No. 4. The letter goes on to state that “it was never our intention to suggest
that June 13, 2012, was the known date or the only date that dents/damage occurred at this
property” and that “[m]eteorological study has been performed that identifies additional dates in
[sic] which conditions were conducive to hail at the site prior to June 2012.” Id. at 403. Plaintiff also
provided an affidavit from Timothy Marshall, Principal Engineer and Meteorologist at Haag
Engineering, dated May 20, 2016, reiterating that “hail greater than one inch in diameter likely fell
at the Property on four dates: a) March 10, 2010, b) May 24, 2011, c) April 3, 2012, and d) June 13,
2012.” Doc. 48, Pl.’s App. 245, Ex. L, Aff. of Timothy Marshall.
Defendants submitted several supplemental documents from Frontier Adjusters and
Peninsula Insurance Bureau which Defendants argue demonstrate that “the damage to Defendants’
property was caused by a hail storm on June 13, 2012" and that “Plaintiffs [sic] disregarded their own
adjuster and expert when they wrongfully denied Defendants’ claim.” Doc. 78-1, Defs.’ Mot. for

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Leave to File Suppl. Record 2. According to Defendants, these documents show that Plaintiff
“conducted a result-oriented investigation, first deciding they would not pay the claim and then
seeking evidence to justify [its] position.” Id. at 4. Thus, Defendants appear to infer from these letters
and computer log notes between Frontier Adjusters and Peninsula Insurance Bureau regarding the
progress of the claim that, because these third-parties took steps to investigate and estimate the
claimed damage, they must have attributed the damage to the June 2012 storm, which Plaintiff then
ignored.
First, the Court notes that whether an insurer ignores a third-party adjuster’s
recommendation regarding coverage is irrelevant to the inquiry of whether the damage is ultimately
covered by the policy. For instance, an insurer may hire twenty adjusters that all tell it that the
damage is covered. But if they all happen to be wrong, the damage is still not covered. Thus, the
insurer could not be held liable for breach of the insurance contract for denying the claim. Such
evidence would seem more relevant to a common law bad faith or statutory violation claim.
Second, far from establishing that the damage was due solely to the June 2012 storm,
Defendants’ supplemental documents actually support Plaintiff’s position that it questioned the date
of loss prior to denying the claim based on the lapse of time between the reported date of loss and
the date the claim was filed. See, e.g., Doc. 79, Defs.’ Suppl. Records, Ex. B at 15 (computer log note
dated June 11, 2015, from employee of Frontier Adjusters documenting Underwriters’s request for
additional investigation of “any hail storms” occurring “for two years prior to” the date of claim and
inquiry into “[h]ow much damage would they have caused”). Thus, the Court finds that these
documents bring Defendants no closer to establishing June 13, 2012, as the sole cause of damage,

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or to providing a reasonable basis upon which a fact finder could segregate the damage between the
June 2012 storm and other storms noted in the various weather reports in the record and in
Underwriters’s possession at the time the claim was denied.
In sum, Underwriters has provided competent summary judgment evidence that a noncovered peril—namely multiple hail events outside the coverage period—could have caused the
damage. Therefore, “[Defendants] had the burden of establishing evidence to allow the jury to
segregate covered losses from non-covered losses.” Atwill v. State Farm Lloyds, No. 304CV1343-K,
2006 WL 1118155, at *2 (N.D. Tex. Apr. 27, 2006). But Defendants have provided no evidence
of the condition of the roofs either immediately before or immediately after the June 2012 storm.
“Federal courts applying Texas law have held that summary judgment is appropriate in cases where
[parties] fail to raise a genuine issue regarding the amount of damage attributable to covered losses.”
Clements v. State Farm Lloyds, No. H-05-0923, 2006 WL 5157426, at *13 (S.D. Tex. July 25, 2006)
(citing Fiess v. State Farm Lloyds, 392 F.3d 802, 807, 808 (5th Cir. 2004)); Garza v. Allstate Tex.
Lloyds, No. Civ.A.M-04-270, 2005 WL 2388254, at *4 (S.D. Tex. Sept. 28, 2005) (“As [insurer] has
provided some evidence that excluded perils caused the damage in question, and as [insured] has
failed to set forth any evidence that would allow the trier of fact to segregate covered losses from
uncovered losses, the Court GRANTS [insurer’s] Motion for Summary Judgment as to
[insured’s] . . . claim.”).
Because Defendants have failed to provide any evidence that would allow the trier of fact to
segregate covered losses from non-covered losses, the Court concludes they have failed to raise a
genuine issue of material fact on this point. As a result, Plaintiff is entitled to summary judgment on

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Defendants’ breach of contract counterclaim for this reason alone.
ii. Prompt notice
Although the Court’s conclusion above is dispositive of Defendants’ breach of contract
counterclaim, the Court nevertheless considers Underwriters’s “prompt notice” argument for
summary judgment as well. The Policy provides that in the event of loss or damage, Defendants must
“[g]ive [Underwriters] prompt notice of the loss or damage.” Doc. 48, Pl.’s App. 141, Ex. D, Building
and Personal Property Coverage Form. Underwriters contends that Defendants failed to comply with
this provision by not reporting the damage for over 30 months, which Underwriters argues prejudiced
it in two ways: (1) by depriving it of the opportunity to fairly investigate the cause, nature, and extent
of the loss closer in time to when it allegedly occurred; and (2) by increasing the cost to repair the
damage. Doc. 47, Pl.’s Br. 1–2. Accordingly, Underwriters contends it was relieved of any obligation
to perform under the Policy. Id. at 2. In other words, Underwriters argues it was not required to pay
the claim because Defendants breached the “prompt notice” provision of the Policy.
Defendants, on the other hand, argue that “[t]he nature of the loss was such that it was not
immediately discoverable” and that Defendants “reported the loss reasonably promptly after they
learned about the damage” in November 2014. Doc. 34, Defs.’ Resp. 2. Moreover, according to
Defendants, “any delay on the part of Defendants in reporting the loss resulted in no prejudice to
Certain Underwriters, or at the very least there is a genuine issue of material fact as to whether
Certain Underwriters was prejudiced.” Id.
As the parties appear to acknowledge, Texas has adopted a notice-prejudice rule when
analyzing notice provisions in occurrence-based insurance policies like this one. See PAJ, Inc. v.

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Hanover Ins. Co., 243 S.W.3d 630, 634–35 (Tex. 2008); see also Ridglea Estate Condo. Ass’n v.
Lexington Ins. Co., 415 F.3d 474, 479–80 (5th Cir. 2005). Accordingly, demonstrating the insured’s
late notice of a claim alone is not enough to support an insurer’s defense that the insured breached
the policy’s notice requirement; rather, the insurer must also establish that it was prejudiced by such
delay. See Ridglea, 415 F.3d at 479–80. As explained below, the Court finds that Underwriters has
met both prongs.
a.

Unreasonable delay

The parties do not dispute the date of the alleged loss—June 13, 2012—or the date
Defendants first provided notice of the damage to Underwriters—December 29, 2014, the date of
the claim. They simply disagree on whether this delay of over two and a half years violates the
“prompt notice” requirement in the Policy.
The Policy does not define “prompt notice,” but “Texas courts have held that where ‘the
policy does not define the term “prompt,” [courts] construe the term as meaning that notice must
be given within a reasonable time after the occurrence.’” Ridglea Estate Condo. Ass’n v. Lexington Ins.
Co., 415 F.3d 474, 479 (5th Cir. 2005) (quoting Stonewall Ins. Co. v. Modern Expl., Inc., 757 S.W.2d
432, 435 (Tex. App.—Dallas 1988, no writ)). And in cases with similar policy language to the
language here, the Supreme Court of Texas has held that property damage “occurs” when actual
physical damage to the property occurs. See Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267
S.W.3d 20, 23–30 (Tex. 2008). Thus, in this case, the damage occurred on June 13, 2012, the date
of the storm that Defendants allege caused the actual physical damage to the property.
“While generally a question of fact, reasonableness becomes a question of law if the facts are

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undisputed.” Alaniz v. Sirius Int’l Ins. Corp., 626 F. App’x 73, 76 (5th Cir. 2015). Other courts have
held that similar periods of time were not prompt—i.e., not reasonable—as a matter of law in cases
involving hail damage. See, e.g., id. at 76–78 (affirming district court finding that notice was not
prompt as a matter of law where hail storm occurred in March 2012 but insured did not provide
notice until February 2014); Herrera v. State Farm Lloyds, No. 5:15-cv-148, 2016 WL 1076911, at
*3 (S.D. Tex. Mar. 18, 2016) (holding that almost two years between storm and notice was
“unreasonable as a matter of law”); Montemayor v. State Farm Lloyds, No. 1:15-cv-173, 2016 WL
4921553, at *2–3 (S.D. Tex. Apr. 7, 2016) (finding two-year delay unreasonable as a matter of law);
Gayton v. Great Lakes Reinsurance (UK) PLC, No. 7:14-CV-229, 2014 WL 12538129, at *3–4 (S.D.
Tex. Aug. 11, 2014) (“Because the . . . delay of almost two years is totally unexplained and without
excuse, the Court finds the delay unreasonable as a matter of law.”); Galvan v. Great Lakes
Reinsurance PLC, No. 7:14-CV-465, 2015 WL 12552009, at *2–3 (S.D. Tex. Apr. 15, 2015) (“While
there is no bright line rule, the Court finds that waiting eighteen months to report a loss, especially
when no excuse is proffered for the delay, is not ‘prompt’ as a matter of law.”). And in a case with
strikingly similar facts to those of this case, this Court has previously held that 19 months was not
prompt as a matter of law. Hamilton, 2014 WL 3055801, at *8.
Defendants attempt to distinguish these cases from the present facts by arguing that the 30month delay should be excused because Defendants “did not initially notice the damage” and
because, according to Defendants, “[a] reasonable policyholder cannot report a loss that they could
not have reasonably discovered yet.” Doc. 34, Defs.’ Resp. 16, 17. Defendants offer the following
facts in support of their argument: (1) “the hail damage did not cause interior leaks to the hotel

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which would have put Defendants on notice of the damage”; (2) “Defendants do not conduct
routine inspection of the roofs because they can only be accessed by a crane or lift”; (3) “Defendants
did not have a protocol to evaluate the hotel after hail storms”; and (4) “Defendants were not aware
that the hail storm had been severe enough to cause any damage to the roof.” Id. at 16. Indeed, Mr.
Desai was apparently totally oblivious to the fact that a hail storm—which totaled the hotel’s
roofs—had even occurred. See Doc. 33, Defs.’ App. 6, Ex. B, Aff. of Ajay Desai ¶ 4 (“I was not aware
of the damage to the property caused by the June 13, 2012 hailstorm until November 2014. At the
time of the storm in 2012, no guests reported damage to their vehicles or other property caused by
hail. Likewise, none of my staff or employees reported any damage or water leaks to the hotel caused
by hail. I am also not aware of any other businesses in the area that sustained damages from the
storm.”); see also id. at 28, Ex. C, Exam. Under Oath of Ajay Desai (“Q: Do you have any personal
recollection of the hailstorm that occurred on -- supposedly occurred -- here in the area on June 13,
2012? A: No. Q: Don’t remember it? A: Don’t remember it.”). In essence, Defendants argue their
good faith and a sort of discovery rule should toll their “reasonable” time period for reporting the
damage.
Overlooking Defendants’ apparent lack of routine preventative maintenance protocols as to
their roofs, as well as evidence that the damage was visible to the naked eye from the ground,8 the

8

Although Defendants contend they had “no reasonable way of knowing there was damage to the
roof without someone getting up onto the roof with a lift or crane” (Doc. 34, Defs.’ Resp. 16), Mr. Desai
testified under oath that he first noticed in November 2014—coincidentally, while “evaluating the property
for potential capital improvements” (id.)—that “[w]hen you drive up to the hotel, the shingles look really
bad.” Doc. 33, Defs.’ App. 18, Ex. C, Exam. Under Oath of Ajay Desai. Defendants have not argued or
provided any evidence that the damage from the June 2012 storm first manifested in November 2014. In fact,
Defendants acknowledge that “the type of roof damage at issue is not the type which becomes more severe
over time . . . .” Doc. 34, Defs.’ Resp. 21. Desai also testified that he visited the property approximately once

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Court notes that Texas law requires prompt notice “within a reasonable time after the occurrence,”
not within a reasonable time of discovery of the damage. Ridglea, 415 F.3d at 479 (emphasis added).
“The date that the physical damage is or could have been discovered is irrelevant . . . .” Don’s Bldg.
Supply, 267 S.W.3d at 24; Hamilton, 2014 WL 3055801, at *8 (finding plaintiff’s insistence that he
gave notice “as soon as he reasonably realized that a covered claim may exist” insufficient). As
established above, the damage “occurred” in this case, according to Defendants, on June 13, 2012.
Thus, the Court has no problem finding that Defendants’ notice—given over 30 months after the
damage allegedly occurred—was not prompt as a matter of law. See Hamilton, 2014 WL 3055801,
at *8. Having found that Defendants’ notice of the claim was not prompt as a matter of law, the
Court now considers whether Underwriters was prejudiced by the late notice.
b.

Prejudice

As noted above, Underwriters must also show that it was prejudiced by Defendants’ late
notice. See Ridglea, 415 F.3d at 479–80. Underwriters relies primarily on the affidavit of Derek Phipps
to demonstrate how it was prejudiced by Defendants’ late notice of hail damage. First, Underwriters

a week. Doc. 33, Defs.’ App. 18, Ex. C., Exam. Under Oath of Ajay Desai. Presumably, then, the “bad” roofs
would have been visible to Mr. Desai every week when he drove up to the hotel between the date of the
storm and November 2014.
Furthermore, as mentioned above, the damage is not only to the roofs but also to the hotel’s siding.
See, e.g., Doc. 33, Defs.’ App. 412, Ex. K, Phipps Computer Log Notes (noting that the “exterior EIFS has
hail damage on each elevation requiring repairs and bids from two local stucco/eifs contractors”). And though
Derek Phipps noted that distinguishing hail damage from other types of damage might require some level of
expertise, he also testified that there was clearly damage to the hotel’s siding which was visible from the
ground. Compare Doc. 33, Defs.’ App. 100, Ex. D, Dep. of Derek Phipps (“Q: Do you agree that, in order to
determine damage to EIFS from hail, as opposed to some other type of loss or wear and tear, that you need
some sort of experience or training? A: I think so. Q: It’s not something that the average person is going to
be able to identify; would you agree with that? A: Typically, yeah.”), with Doc. 33, Defs.’ App. 127–28
(“Q: . . . . With your naked eye, if you’re walking at ground level, at this hotel, at this property . . . can you
see damage to the EIFS siding? A: You can. Q: And do you need a ladder to see that? A: No. Q: Do you need
a lift to see that? A: No. I found the damage as we were walking around it . . . .”).

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points to the ways Phipps’s inspection was impacted, such as his inability to document the condition
of the roofs until more than two years after the alleged date of loss or to determine how the roofs had
been impacted by other weather events or non-covered perils such as wear and tear in the
intervening time period. Doc. 47, Pl.’s Br. 15 (citing Doc. 48, Pl.’s App. 212–15, Ex. H, Aff. of Derek
Phipps). Second, Underwriters argues that Defendants’ late notice “also prejudiced Underwriters[
] because the cost to repair the damage to the Property increased significantly during the thirtymonth delay.” Id. at 16. As evidence, Underwriters points to the calculations of Derek Phipps,
described in Phipps’s affidavit, using Xactimate to show that the estimate would have been
$47,802.67 less if the claim was reported immediately following the loss so that Phipps could have
used June 2012 pricing data rather than January 2015 pricing data. Id. at 17 (citing Doc. 48, Pl.’s
App. 212–15, Ex. H, Aff. of Derek Phipps). Accordingly, Underwriters contends it was “relieved of
any obligation to perform under the contract and [is] entitled to summary judgment on Defendants’
breach of contract [counter]claim.” Doc. 46, Pl.’s Mot. 2.
Defendants respond that “any delay on the part of Defendants in reporting the loss resulted
in no prejudice to Certain Underwriters, or at the very least there is a genuine issue of material fact
as to whether Certain Underwriters was prejudiced.” Doc. 34, Defs.’ Resp. 2. According to
Defendants, while late notice may create an environment where prejudice can occur, Underwriters
has failed to bridge the gap to demonstrate that it occurred in this case. Id. at 19 (citing Trumble, 304
F. App’x at 244). As discussed above, Defendants attempt to refute statements in Phipps’s affidavit
that he had difficulty investigating the damage with the fact that he was ultimately able to complete

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an estimate of the cost to replace the damaged roofs. See id. at 19–20.9 Thus, Defendants reason that
because Phipps was able to provide an estimate of the cost to replace the damage he observed in
January 2015 to Frontier Adjusters, who then passed the estimate along to Peninsula Insurance
Bureau and ultimately to Underwriters, Phipps’s investigation—and therefore Underwriters’s
investigation—must not have been prejudiced. Therefore, Defendants insist summary judgment is
inappropriate.
“When an insurer must prove it was prejudiced by the insured’s failure to comply with the
notice provisions, ‘the recognized purposes of the notice requirements form the boundaries of the
insurer’s argument that it was prejudiced; a showing of prejudice generally requires a showing that
one of the recognized purposes has been impaired.’” Blanton v. Vesta Lloyds Ins. Co., 185 S.W.3d 607,
612 (Tex. App.—Dallas 2006, no pet.) (quoting 13 Couch on Insurance § 186:14 (3d ed. 2005)).
“The purpose of the notice requirement is to enable an insurer to promptly investigate the
circumstances of an accident while the matter is still fresh in the minds of the witnesses, to prevent
fraud, and to enable [the insurer] to form an intelligent estimate of its rights and liabilities under the
policy so that it may adequately prepare to defend any claim that may arise.” Stonewall, 757 S.W.2d
at 435 (citing Weaver v. Hartford Accident & Indem. Co., 570 S.W.2d 367, 369 (Tex. 1978); Emp’rs
Cas. Co. v. Glen Falls Ins. Co., 484 S.W.2d 570, 575 (Tex. 1972)). Thus, “prejudice from failure to
notify timely arises from inability to investigate the circumstances of an occurrence and prepare
adequately to adjust or defend any claims . . . .” Blanton, 185 S.W.3d at 615.

9

Defendants also point to the letters and computer log notes between Frontier Adjusters and
Peninsula Insurance Bureau mentioned above to argue that because the claim appeared to be moving along
through the claims process, Underwriters was “able to conduct a full, fair and complete investigation of
Defendants’ loss.” Doc. 78-1, Defs.’ Mot. for Leave to File Suppl. Record 2.

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But “an insurer must offer ‘more than the mere fact that it cannot employ its normal
procedures in investigating and evaluating the claim.’” Trumble Steel Erectors, Inc. v. Moss, 304 F.
App’x 236, 244 (5th Cir. 2008) (per curiam) (quoting Transportes Ferreos de Venezuela II CA v. NKK
Corp., 239 F.3d 555, 561 (3d Cir. 2001)). The insurer must show that it was prejudiced “in some
tangible way.” Berkley Reg’l Ins. Co. v. Phila. Indem. Ins. Co., 690 F.3d 342, 349 (5th Cir. 2012).
Though the existence of prejudice is generally a fact question, the Court may decide the issue on
summary judgment “if the undisputed facts establish prejudice sufficient to relieve an insurer of its
obligations.” St. Paul Guardian Ins. Co. v. Centrum G.S. Ltd., 383 F. Supp. 2d 891, 902 (N.D. Tex.
2003).
Other courts have held that an affidavit from an insurer listing the ways that an insured’s
failure to give prompt notice prejudiced the insurer “was sufficient to establish prejudice as a matter
of law.” See, e.g., Camacho v. Allstate Texas Lloyds, No. 7:14-CV-581, 2015 WL 12532486, at *3
(S.D. Tex. May 20, 2015) (“This Court has previously held that an affidavit from a claims manager
for the defendant insurer listing the ways that the plaintiff’s failure to give prompt notice prejudiced
the insurer was sufficient to establish prejudice as a matter of law under the facts of that case.”). The
Court has already noted that the simple fact that an estimate of damages was “completed” says
nothing of that investigation’s quality. See Hamilton, 2014 WL 3055801, at *10. Instead, Phipps
explains in both his affidavit and his deposition how his investigation was impacted. See Doc. 48, Pl.’s
App. 212–15, Ex. H, Aff. of Derek Phipps; see also Doc. 33, Defs.’ App. 131–33, Ex. D, Dep. of
Derek Phipps. “[P]rejudice from failure to notify timely arises from the inability to investigate the
circumstances of an occurrence to prepare adequately to adjust or defend any claim . . . .” Blanton,

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185 S.W.3d at 615 (emphasis added). Thus, Defendants’ attempt to twist the fact that Phipps was
able to provide a damage estimate into an opinion that the damage he saw was due to the storm on
the date of loss provided to him and that, therefore, he must have been able to complete a full and
fair investigation is unpersuasive.
Yet even if the Court were to disregard Phipps’s sworn testimony as to how his inspection was
impacted by the delay, the Court would still find as a matter of law that the late notice resulted in
tangible prejudice to Underwriters because the evidence shows that the cost to repair the damage
increased by $47,802.67, or roughly ten percent, between June 2012 and January 2015. Underwriters
provided evidence, utilizing the Xactimate estimating program, that if Defendants had reported the
loss immediately after the June 2012 storm, the cost to repair the damage would have been
$424,225.41 at that time. Doc. 47, Pl.’s Br. 17 (citing Doc. 48, Pl.’s App. 212–15, Ex. H, Aff. of
Derek Phipps; id. at 250–257, Ex. N, Phipps Damage Estimate (June 2012 pricing)). But because
Defendants reported the loss on December 29, 2014, the cost to complete the same repairs using
January 2015 pricing was $472,028.08. Id. (citing Doc. 48, Pl.’s App. 212–15, Ex. H, Aff. of Derek
Phipps; id. at 231–38, Ex. J, Phipps Damage Estimate (January 2015 pricing)).
As noted above, Defendants do not appear to take issue with Plaintiff’s use of Xactimate in
general or even the estimates it generated in this case specifically. Rather, Defendants argue that
“[t]he fact that Phipps could have used the June 2012 Xactimate pricing at any point during the
investigation, is actually proof that Certain Underwriters could have avoided any prejudice caused
by the time delay.” Doc. 34, Defs.’ Resp. 21. Confusingly, Defendants appear to argue that because
Underwriters has no evidence of how the condition of the roofs changed between the time of the

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June 2012 storm and the time Defendants filed their claim—because Defendants did not report the
damage for over two and a half years—that Underwriters cannot show that the cost to repair the
damage increased during that time. On the contrary, the Court can imagine no better evidence of
tangible prejudice than pricing data demonstrating that the cost to repair the damage increased
during the period of delay, regardless of whether the condition of the roofs changed during that
period.
Furthermore, Plaintiff would have had no reason to use the June 2012 pricing “at any point
during the investigation” because there was not even an insurance claim until December 29, 2014.
Therefore, construing the facts in the light most favorable to Defendants, the Court finds as a matter
of law that Underwriters was prejudiced by Defendants’ failure to provide prompt notice. Thus,
Plaintiff is entitled to summary judgment on Defendants’ breach of contract counterclaim on this
ground as well.
2.

Defendants’ Texas Insurance Code Counterclaims

The Court turns next to Defendants’ counterclaims for violations of the Texas Insurance
Code and Underwriters’s motion for summary judgment thereupon. Defendants contend that
Underwriters “violated several provisions of Texas Insurance Code § 541.060 by, among other things
(1) conducting an unreasonable, untimely, and results-oriented investigation; (2) refusing to affirm
or deny coverage within a reasonable time; and (3) attempting to coerce Defendants into accepting
a grossly unfair and inadequate offer and signing a release.” Doc. 34, Defs.’ Resp. 29–30. Regarding
their § 542 counterclaims, Defendants argue Underwriters “failed to timely acknowledge the claim,
failed to conduct a reasonable and timely investigation, and refused to affirm or deny coverage within

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a reasonable time in violation of Chapter 542 of the Texas Insurance Code, known as the Texas
‘Prompt Payment of Claims Act’ (PPCA).” Id. at 31.
Underwriters moved for summary judgment on each of these counterclaims, arguing that
Defendants’ Insurance Code claims necessarily fail because the breach of contract counterclaim fails
and Defendants cannot show any independent injury outside of the claim for benefits under the
Policy. Doc. 47, Pl.’s Br. 18–19. According to Underwriters, because the loss was not covered under
the Policy, Defendants cannot recover for a statutory violation without injury independent of the
policy benefits, which Defendants cannot, or at least have not, shown. For the reasons that follow,
the Court agrees with Underwriters. Therefore, summary judgment in favor of Underwriters is
warranted on Defendants’ Texas Insurance Code counterclaims.
i.

Section 541

Defendants contend that Underwriters breached § 541 of the Texas Insurance Code by
“disregard[ing] all evidence in [its] possession which clearly established that Defendants’ loss was a
covered loss,” by “delay[ing] communicating a coverage decision to the insured for almost 15
months,” and by “attempting to coerce [Defendants] to settle the claim for an amount lower than
the covered damages and to sign a complete release of liability by threatening to pursue a declaratory
judgment action.” Doc. 34, Defs.’ Resp. 30, 31.
Section 541 prohibits an insurer from “failing to attempt in good faith to effectuate a prompt,
fair, and equitable settlement of . . . a claim with respect to which the insurer’s liability has become
reasonably clear” or “refusing to pay a claim without conducting a reasonable investigation with
respect to the claim.” Tex. Ins. Code Ann. § 541.060(a)(2)(A), (7). Other prohibited conduct

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includes failing to affirm or deny coverage or submit a reservation of rights to a policyholder within
a reasonable time, or “undertaking to enforce a full and final release of a claim from a policyholder
when only a partial payment has been made, unless the payment is a compromise settlement of a
doubtful or disputed claim.” Id. § 541.060(4), (6).
Liability under § 541 of the Texas Insurance Code is analyzed under the same standard as
common-law bad faith claims. See Hamilton Props. v. Am. Ins. Co., 643 F. App’x 437, 442 (5th Cir.
2016) (citing Tex. Mut. Ins. Co. v. Sara Care Child Care Ctr., Inc., 324 S.W.3d 305, 317 (Tex.
App.—El Paso 2010, pet. denied)). An insurer breaches its common law duty of good faith and fair
dealing “if the insurer knew or should have known that it was reasonably clear that the claim was
covered,” but nevertheless denied or unreasonably delayed paying it. Universe Life Ins. Co. v. Giles,
950 S.W.2d 48, 55–56 (Tex. 1997). “Evidence establishing only a bona fide coverage dispute does
not demonstrate bad faith.” State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex. 1998).
Generally, “there can be no claim for bad faith when an insurer has promptly denied a claim
that is in fact not covered.” Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995). An
exception exists, however, when an insurer’s conduct is “so extreme, that it would cause injury
independent of the policy claim.” Id. (citing Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 214 (Tex.
1988), overruled on other grounds by Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012)).
Underwriters argues that Defendants have neither alleged nor proven that they suffered any
injury independent of the denial of policy benefits. Doc. 47, Pl.’s Br. 19. Therefore, according to
Underwriters, because Defendants cannot prevail on their breach of contract counterclaim, they
likewise cannot succeed on their extra-contractual claims under the Texas Insurance Code. Id. at

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18–20. Defendants, for their part, argue that the confusing state of Texas law regarding whether
“independent injury” is required when the only damages sought are unpaid coverage benefits
necessitates that this Court hold off on deciding the motion for summary judgment until the Texas
Supreme Court issues its opinion in USAA Tex. Lloyds Co. v. Menchaca, which addressed the exact
question at issue here. Doc. 34, Defs.’ Resp. 23.
Fortunately, the Texas Supreme Court delivered its opinion in Menchaca on April 7, 2017.
See USAA Tex. Lloyds Co. v. Menchaca, No. 14-0721, 2017 WL 1311752 (Tex. Apr. 7, 2017). In
Menchaca, the Supreme Court articulated the issue as follows:
The primary question in this case is whether an insured can recover policy benefits
as actual damages caused by an insurer’s statutory violation absent a finding that the
insured had a contractual right to the benefits under the insurance policy.
Id. at *4. After reaffirming the general rule that “an insured cannot recover policy benefits as
damages for an insurer’s statutory violation if the policy does not provide the insured a right to
receive those benefits,” the court went on to clarify the application of the “independent injury” rule.
Id. According to Menchaca, “if an insurer’s statutory violation causes an injury independent of the
loss of policy benefits, the insured may recover damages for that injury even if the policy does not
grant the insured a right to benefits.” Id. Or stated in the negative, “an insured cannot recover any
damages based on an insurer’s statutory violation if the insured had no right to receive benefits under
the policy and sustained no injury independent of a right to benefits.” Id.
Here, the Court has already determined that Defendants have failed to raise a genuine issue
of material fact on their counterclaim for breach of contract. In other words, Defendants have not
demonstrated that the claimed damage was “covered” under the Policy. Or in the language of

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Menchaca, they have not demonstrated a “right to receive benefits under the policy.” Id. Therefore,
Defendants’ only route to damages for a statutory violation would be to demonstrate that they
suffered an “injury independent of a right to benefits.” Id.
Defendants have provided no evidence, and indeed do not even attempt to argue, that
Underwriters’s conduct was “so extreme” as to cause “injury independent of a right to benefits” under
the Policy. Stoker, 903 S.W.2d at 341. Rather, Defendants argue that “the so-called ‘independent
injury’ rule . . . simply does not apply to cases like this one . . . where the actual damages sought are
coverage benefits due under the policy.” Doc. 34, Defs.’ Resp. 24. Thus, Defendants assume
independent injury is not required in this case because they assume the claimed damages are covered.
Yet the Court has concluded that the claimed damages are not covered as a matter of law.
So independent injury is required. And Defendants have failed to provide any evidence to raise a fact
issue that the alleged statutory violations caused any injury independent of the policy benefits sought.
See Mid–Continent Cas. Ins. Co. v. Eland Energy, Inc., 709 F.3d 515, 521 (5th Cir. 2013) (observing
that “in seventeen years since [Stoker,] no Texas court has yet held that recovery is available for an
insurer’s extreme act . . . .”). Therefore, without addressing whether the specific alleged conduct
would constitute a violation of § 541, the Court finds that Underwriters is entitled to summary
judgment on Defendants’ § 541 counterclaims because Defendants cannot succeed on their breach
of contract claim as a matter of law, and they have provided no evidence of injury independent of
the policy benefits.
ii.

Section 542

The Court next considers Defendants’ counterclaim that Underwriters violated § 542 of the

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Insurance Code. Defendants contend that, “[i]n addition to breaching the contract and failing to
pay a covered claim in bad faith violation of Chapter 541, Certain Underwriters failed to timely
acknowledge the claim, failed to conduct a reasonable and timely investigation, and refused to affirm
or deny coverage within a reasonable time in violation of Chapter 542 of the Texas Insurance Code,
known as the Texas ‘Prompt Payment of Claims Act’ (PPCA).” Doc. 34, Defs.’ Resp. 31. Defendants
argue that between the date of the Reservation of Rights Letter in March 2015 and the request for
an Examination Under Oath of Desai in December 2015, Underwriters “inspected the property
several times but never provided [Defendants] with any of the several reports and estimates Certain
Underwriters obtained.” Id. at 32. According to Defendants, “[a]ll evidence discovered during their
investigation indicated that [Defendants’] loss was covered, but Certain Underwriters delayed
making a coverage decision” and eventually “disregarded all evidence in their possession” and denied
the claim. Id.
“The Prompt Payment of Claims Act prohibits insurers from delaying the payment of firstparty claims.” Trammel Crow Residential Co. v. Va. Sur. Co., 643 F. Supp. 2d 844, 857 (N.D. Tex.
2008) (citing Tex. Ins. Code Ann. §§ 542.051–.061). It “establishes a series of claim-handling and
claim-payment deadlines for insurers” and “provides additional damages when an insurer wrongfully
refuses or delays payment of a claim.” Weiser-Brown Operating Co. v. St. Paul Surplus Lines Ins. Co.,
801 F.3d 512, 518 (5th Cir. 2015) (citing Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d
1, 16 (Tex. 2007)). “[T]o maintain a claim under Chapter 542 of the Texas Insurance Code, a party
must show: (1) ‘a “first-party” claim under an insurance policy’; (2) ‘the insurer’s liability for that
claim’; and (3) ‘the insurer’s failure to follow one or more sections of the statute with respect to

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handling that claim.’” Johnson v. Safeco Ins. Co. of Ind., No. 3:15-CV-1939-B, 2017 WL 879211, at
*10 (N.D. Tex. Mar. 6, 2017) (citing Hulcher Servs., Inc. v. Great Am. Ins. Co., No. 4:14-CV-231,
2015 WL 3921903, at *11 (E.D. Tex. June 25, 2015); Weiser-Brown, 801 F.3d at 518). In other
words, liability for the claim is a precondition to liability under Chapter 542. Id. (citing Wellisch v.
United Servs. Auto. Ass’n, 75 S.W.3d 53, 57 n.2 (Tex. App.—San Antonio 2002, pet. denied)).
Again without reaching the merits, the Court can quickly dispose of Defendants’ Chapter 542
counterclaim. Here, the Court has already determined that Defendants cannot succeed on their
breach of contract counterclaim as a matter of law. Therefore, they cannot show that the insurer is
“liable for the claim,” as is required to prove a violation of § 542. Accordingly, in light of the Court’s
previous determination that Underwriters is not liable for Defendants’ claim under the Policy,
Underwriters is entitled to summary judgment on Defendants’ counterclaim for violation of § 542
of the Texas Insurance Code.
3.

Declaratory Judgment

This lawsuit originated as a declaratory judgment action by Underwriters, asking for
“judgment against Defendants declaring that there is no coverage under policy number
NJL440003612 for the reported hail damage because Defendants violated the policy’s notice
condition and Underwriters suffered prejudice as a result.” Doc. 1, Original Compl. & Req. for
Declaratory J. ¶ 21; see also Doc. 23, 1st Am. Original Compl. & Req. for Declaratory J. ¶ 22
(requesting same). In response, Defendants, in addition to filing the counterclaims for breach of
contract and violations of the Texas Insurance Code addressed above, requested a declaratory
judgment of their own: “that the Policy provides coverage for the cost to repair the damaged

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property, less only a deductible, among other things.” Doc. 11, Defs.’ Answer & Countercls. ¶ 45.
Underwriters did not mention its request for, or Defendants’ counterclaim for, declaratory
judgment in its motion for summary judgment. But “district courts are widely acknowledged to
possess the power to enter summary judgments sua sponte, so long as the losing party was on notice
that [it] had to come forward with all of [its] evidence.” Celotex Corp. v. Catrett, 477 U.S. 317, 326
(1986).
The Fifth Circuit “has reversed summary judgment were a moving party’s memorandum failed
to raise a point ‘in a manner that would be sufficient to put the [non-moving party] on notice that
failure to present evidence of [the elements of each of its claims] could be grounds for summary
judgment.’” Tramago, L.P. v. Euler-Hermes Am. Credit Indem. Co., 602 F. App’x 981, 984 (5th Cir.
2015) (quoting John Deere Co. v. Am. Nat’l Bank, Stafford, 809 F.2d 1190, 1191 (5th Cir. 1987)). But
that is not the case here.
The whole purpose of Underwriters’s declaratory judgment action was to secure a finding that
the Policy did not provide coverage for the claimed loss. Defendants, on the other hand, requested
the opposite declaration—a finding of coverage. Because resolution of the parties’ respective
declaratory judgment claims amounts simply to a resolution of the coverage issue, the Court finds
that Plaintiff’s motion for summary judgment on Defendants’ counterclaim for breach of contract
was sufficient to put Defendants on notice that they needed to bring all of their evidence in support
of their requested declaration of coverage. Thus, in holding above that Defendants cannot succeed
as a matter of law on their breach of contract counterclaim, the Court has in effect declared “no
coverage.” Therefore, the Court finds that Defendants were “on notice that [they] had to come

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forward with all of their evidence.” Thomas v. EMC Mortg. Corp., 499 F. App’x 337, 341 (5th Cir.
2012) (quoting Celotex, 477 U.S. at 326). For that reason, summary judgment in favor of
Underwriters on the claims for declaratory relief is also warranted at this time.
IV.
CONCLUSION
For the reasons stated above, summary judgment is GRANTED in favor of Underwriters on
Defendants’ counterclaims for breach of the insurance contract and violations of the Texas Insurance
Code, and these claims are DISMISSED with prejudice. Accordingly, the Court also GRANTS
summary judgment sua sponte in favor Underwriters on its request for declaratory relief and DENIES
sua sponte Defendants’ request for declaratory relief.10 An Order of Final Judgment will follow.

SO ORDERED.
SIGNED: July 21, 2017.
_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE

10

Because this order is dispositive of the case, Underwriters’s Objections to Defendants’ Expert
Witness Disclosure (Doc. 58) is OVERRULED as moot at this time. Additionally, the parties’ Joint Motion
for Status Conference (Doc. 90) is also DENIED as moot.

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