2223 Lombardy Warehouse et al v. Mount Vernon Fire Insurance Company et al
Filing
41
MEMORANDUM OPINION AND ORDER denying 28 MOTION for Summary Judgment filed by Mount Vernon Fire Insurance Company. (Ordered by Senior Judge Sidney A Fitzwater on 4/12/2019) (Senior Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
2223 LOMBARDY WAREHOUSE,
LLC, et al.,
§
§
§
Plaintiffs,
§
§ Civil Action No. 3:17-CV-2795-D
VS.
§
§
MOUNT VERNON FIRE INSURANCE §
COMPANY,
§
§
Defendant.
§
MEMORANDUM OPINION
AND ORDER
In this removed action arising from an insurance coverage dispute, plaintiffs 2223
Lombardy Warehouse, LLC and Broadway Lindbergh, LLC allege that defendant Mount
Vernon Fire Insurance Company (“Mount Vernon”) and former defendant James Greenhaw
(“Greenhaw”)1 wrongfully denied plaintiffs’ hail-damage claim. Mount Vernon moves for
summary judgment.2 Because plaintiffs have produced sufficient evidence to create a
genuine dispute of material fact as to all of their claims, the court denies the motion.
1
Greenhaw was dismissed as a defendant by joint stipulation of dismissal on February
27, 2019. As the court explains below, his dismissal impacts the question whether the court
has subject matter jurisdiction.
2
Greenhaw moved for summary judgment in the same motion, but that part of the
motion is now moot in light of the joint stipulation of dismissal.
I
At issue is a Mount Vernon insurance policy (“the Policy”) covering plaintiffs’
commercial property located on Addison Road in Addison, Texas.3 The Policy was in effect
from December 8, 2015 until December 8, 2016. It excluded from coverage wear and tear,
inadequate maintenance, and similar causes of harm. The Policy also contained the
following limitation:
Limitations On Coverage For Roof Surfacing
...
B. The following applies with respect to loss or damage by wind
and/or hail to a building or structure[:] . . . We will not pay for
cosmetic damage to roof surfacing caused by wind and/or hail.
For the purpose of this endorsement, cosmetic damage means
that the wind and/or hail caused marring, pitting or other
superficial damage that altered the appearance of the roof
surfacing, but such damage does not prevent the roof from
continuing to function as a barrier to entrance of the elements to
the same extent as it did before the cosmetic damage occurred.
Ds. App. 516. The parties do not dispute that hail damage is covered except to the extent that
the Policy explicitly limits coverage.
In March 2017 a tenant at the property noticed a ceiling leak and informed plaintiffs’
representative George Kondos (“Kondos”) about the problem. Kondos hired a roofer, who
concluded that the property’s modified-bitumen roof had been damaged by hail. The roofer
3
In deciding this summary judgment motion, the court views the evidence in the light
most favorable to plaintiffs as the summary judgment nonmovants and draws all reasonable
inferences in their favor. See, e.g., Owens v. Mercedes-Benz USA, LLC, 541 F.Supp.2d 869,
870 n.1 (N.D. Tex. 2008) (Fitzwater, C.J.) (citing U.S. Bank Nat’l Ass’n v. Safeguard Ins.
Co., 422 F.Supp.2d 698, 701 n.2 (N.D. Tex. 2006) (Fitzwater, J.)).
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estimated that the damage occurred during a storm in March or April of 2016. Plaintiffs
submitted a claim to Mount Vernon on March 15, 2017. Mount Vernon in turn hired
independent adjuster Greenhaw to investigate on its behalf.
Greenhaw, along with a roofer hired by plaintiffs, inspected the property on March
16, 2017. After the inspection, Greenhaw submitted to Mount Vernon an estimate that
valued the cost of replacing the roof at $50,354.73. After speaking with Greenhaw, Mount
Vernon hired an engineer—Owen Tolson, P.E. (“Tolson”) of Tolson Engineering—to
investigate further.
Tolson concluded that there was hail damage to some metal
appurtenances on the roof, but no hail damage to the surface of the roof itself. Accordingly,
Greenhaw issued a second damage estimate, for $5,723.41, in April 2017. The second
estimate did not include a roof replacement. Because the total amount of the estimate was
less than plaintiffs’ deductible, Mount Vernon denied plaintiffs’ claim.
Plaintiffs filed this suit in Texas state court in August 2017. They assert claims for
breach of contract, violations of Tex. Ins. Code Ann. §§ 541-542 (West 2009 & Supp. 2018),
violations of the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”), Tex.
Bus & Com. Code Ann. §§ 17.41-17.63 (West 2011 & Supp. 2018), and breach of the
common-law duty of good faith and fair dealing.
After filing suit, plaintiffs hired Neil B. Hall, Ph.D., P.E., A.I.A. (“Dr. Hall) of
GroundTruth Forensics to conduct an inspection of the property. Dr. Hall concluded that a
hail storm on April 20, 2016 had caused “granule loss” in the upper layer of the modifiedbitumen roof. According to Dr. Hall, this granule loss would allow ultraviolet radiation to
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harden and eventually crack the lower layers of the roof, creating entry points for water. Dr.
Hall thus opined that hail damage had shortened the service life of the roof, and that the roof
needed to be replaced.
Plaintiffs brought suit in Texas state court against both Mount Vernon and Greenhaw.
Mount Vernon removed the case to this court based on diversity of citizenship, contending
that Greenhaw—a Texas citizen—had been improperly joined. Plaintiffs never moved to
remand. Mount Vernon and Greenhaw then filed the instant motion for summary judgment.
After briefing on the motion had been completed, the court raised sua sponte the question
whether it had subject matter jurisdiction and ordered the parties to brief the issue of
improper joinder. Mount Vernon filed a brief in accordance with the court’s order.
Greenhaw has been dismissed by joint stipulation. Because the court does not anticipate
receipt of further jurisdictional briefing, it now considers the question whether it has subject
matter jurisdiction, and, if it does, the merits of Mount Vernon’s summary judgment motion.
II
The court concludes that it has subject matter jurisdiction.
A
For a case to be removed based on diversity jurisdiction, “all persons on one side of
the controversy [must] be citizens of different states than all persons on the other side.”
Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008) (quoting McLaughlin
v. Miss. Power Co., 376 F.3d 344, 353 (5th Cir. 2004)). “The jurisdictional facts that support
removal must be judged at the time of the removal.” Gebbia v. Wal-Mart Stores, Inc., 233
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F.3d 880, 883 (5th Cir. 2000) (citations omitted). Moreover, under 28 U.S.C. § 1441(b), a
case cannot be removed based on diversity jurisdiction if any properly joined defendant is
a citizen of the state in which the action is brought (here, Texas).
In this case, both plaintiffs are citizens of Texas, and defendant Mount Vernon is a
citizen of Pennsylvania. Defendant Greenhaw is a citizen of Texas, thus destroying diversity.
But the subsequent dismissal of Greenhaw is sufficient to confer jurisdiction on this court.
Although diversity is ordinarily determined by the citizenship of the parties at the time that
the notice of removal is filed, see Gebbia, 233 F.3d at 883, “the dismissal of the party that
. . . destroyed diversity” has “long been an exception to the time-of-filing rule,” Grupo
Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 572 (2004) (citing Caterpillar Inc. v.
Lewis, 519 U.S. 61, 73 (1996) (concluding that federal court had jurisdiction over case where
complete diversity was lacking at time of removal, but jurisdictional defect was cured by
dismissal of diversity-destroying party before trial)); see also Burleson v. Coastal Recreation,
Inc., 572 F.2d 509, 514 (5th Cir. 1978) (“In this circuit we have permitted parties who were
not indispensable to be dropped from an action in order to achieve complete diversity either
on the motion of the parties or on the court’s own motion.”); Chau Van Nguy v. Sawyer, 2013
WL 4538203, at *1 (M.D. La. Aug. 27, 2013) (stating the same). Therefore, when the
parties4 dismissed Greenhaw by stipulation, the court obtained subject matter
4
The joint stipulation of dismissal, although filed by plaintiffs, contains the
representation “that all parties to this matter agree to this Stipulation of Dismissal pursuant
to F.R.C.P. 41(a)(1)(A)(ii).” Jt. Stip. Dismissal 1.
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jurisdiction—even if jurisdiction had previously been lacking.5
B
Moreover, the court agrees with Mount Vernon that Greenhaw was improperly joined.
The court therefore had subject matter jurisdiction at the time of removal, regardless of the
effect of Greenhaw’s dismissal.
1
The doctrine of improper joinder is a narrow exception to the rule of complete
diversity, and it “entitle[s] a defendant to remove to a federal forum unless an in-state
defendant has been ‘properly joined.’” Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573
(5th Cir. 2004) (en banc); see also Meritt Buffalo Events Ctr. LLC v. Cent. Mut. Ins. Co.,
2016 WL 931217, at *2 (N.D. Tex. Mar. 11, 2016) (Fitzwater, J.). The doctrine allows
federal courts to defend against attempts to manipulate their jurisdiction, such as by joining
nondiverse parties solely to deprive federal courts of diversity jurisdiction. See Smallwood,
385 F.3d at 576. Because “the effect of removal is to deprive the state court of an action
5
The fact that the court now has subject matter jurisdiction does not necessarily mean
that the removal of this case was statutorily proper: 28 U.S.C. § 1441(a) requires that “the
case be fit for federal adjudication at the time the removal petition is filed.” Caterpillar, 519
U.S. at 73. But statutory defects to removal, unlike jurisdictional defects, can be waived.
See Williams v. AC Spark Plugs Div. of Gen. Motors Corp., 985 F.2d 783, 787 (5th Cir.
1993) (“[E]ven if a statutory provision prohibits the defendant from removing the action and
the defendant removes despite a statutory proscription against such removal, the plaintiff
must object to the improper removal within thirty days after the removal, or he waives his
objection.”). In the present case, plaintiffs never objected to removal; to the contrary,
plaintiffs joined in Greenhaw’s dismissal from the case, apparently in lieu of responding to
Mount Vernon’s briefing on improper joinder. Plaintiffs have thus waived any procedural
objection to removal.
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properly before it, removal raises significant federalism concerns.” Gasch v. Hartford
Accident & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007) (quoting Carpenter v. Wichita
Falls Indep. Sch. Dist., 44 F.3d 362, 365-66 (5th Cir. 1995)). Therefore, the removal statute
is strictly construed, with “any doubt about the propriety of removal [being] resolved in favor
of remand.” Id. at 281-82. In determining whether a party was improperly joined, the court
“resolve[s] all contested factual issues and ambiguities of state law in favor of the plaintiff.”
Id. at 281. The party seeking removal bears a heavy burden to prove improper joinder.
Smallwood, 385 F.3d at 574.
Improper joinder is established by showing that there was either actual fraud in the
pleading of jurisdictional facts or that the plaintiff is unable to establish a cause of action
against the nondiverse defendant in state court. Parsons v. Baylor Health Care Sys., 2012
WL 5844188, at *2 (N.D. Tex. Nov. 19, 2012) (Fitzwater, C.J.) (citing Smallwood, 385 F.3d
at 573). Under the second alternative—the one at issue in this case—the test for improper
joinder is “whether the defendant has demonstrated that there is no possibility of recovery
by the plaintiff against an in-state defendant, which stated differently means that there is no
reasonable basis for the district court to predict that the plaintiff might be able to recover
against an in-state defendant.” Smallwood, 385 F.3d at 573; see also Travis v. Irby, 326 F.3d
644, 648 (5th Cir. 2003) (explaining that terms “no possibility” of recovery and “reasonable
basis” for recovery have essentially identical meaning, and holding that pleadings must show
more than “any mere theoretical possibility of recovery”). To assess “whether a plaintiff has
a reasonable basis of recovery under state law,”
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[t]he court may conduct a [Fed. R. Civ. P.] 12(b)(6)-type
analysis, looking initially at the allegations of the complaint to
determine whether the complaint states a claim under state law
against the in-state defendant. Ordinarily, if a plaintiff can
survive a Rule 12(b)(6) challenge, there is no improper joinder.
That said, there are cases, hopefully few in number, in which a
plaintiff has stated a claim, but has misstated or omitted discrete
facts that would determine the propriety of joinder. In such
cases, the district court may, in its discretion, pierce the
pleadings and conduct a summary inquiry.
Smallwood, 385 F.3d at 573 (footnotes omitted).
When deciding whether a defendant has been improperly joined, a federal district
court must apply the federal pleading standard. See Int’l Energy Ventures Mgmt., L.L.C. v.
United Energy Grp. Ltd., 818 F.3d 193, 207-08 (5th Cir. 2016) (on rehearing). This standard
requires the plaintiff to plead enough facts “to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it
asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also
Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right to relief
above the speculative level[.]”). “[W]here the well-pleaded facts do not permit the court to
infer more than the mere possibility of misconduct, the complaint has alleged—but it has not
‘shown’—‘that the pleader is entitled to relief.’” Iqbal, 566 U.S. at 679 (alteration omitted)
(quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain “a short
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and plain statement of the claim showing that the pleader is entitled to relief.” Although “the
pleading standard Rule 8 announces does not require ‘detailed factual allegations,’” it
demands more than “labels and conclusions.” Iqbal, 566 U.S. at 678 (quoting Twombly, 550
U.S. at 555). And “a formulaic recitation of the elements of a cause of action will not do.”
Id. (quoting Twombly, 550 U.S. at 555).
2
Mount Vernon has met its heavy burden of establishing improper joinder. The court
bases its analysis on plaintiffs’ state-court petition, and not on the first amended complaint
that plaintiffs filed in federal court, because, as noted above, diversity is ordinarily
determined at the time of removal. See, e.g., Rockbrook Realty Ltd. v. Travelers Lloyds Ins.
Co., 2016 WL 8674683, at *5 (N.D. Tex. Nov. 18, 2016) (Fitzwater, J.). The petition alleges
that Mount Vernon assigned Greenhaw to be the adjuster for plaintiffs’ hail-damage claim.
Greenhaw allegedly hired Tolson instead of inspecting the property himself, and then—based
on Tolson’s outcome-oriented inspection—wrote an estimate of damages that fell below
plaintiffs’ deductible. Plaintiffs allege that these actions violated Tex. Ins. Code Ann. §§
541.051, 541.060(a)(1), 541.060(a)(2)(A), 541.060(a)(3), 541.060(a)(4), 541.060(a)(7), and
541.061, as well as the common-law duty of good faith and fair dealing that Greenhaw
allegedly owed to plaintiffs.
Plaintiffs’ claims against Greenhaw under the Insurance Code fail as a matter of law.
Plaintiffs allege that Greenhaw violated § 541.051 by “making statements misrepresenting
the terms and/or benefits of the policy.” Pet. ¶ 24(1). But the only actions attributed to
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Greenhaw by the petition relate to the estimation of damages, and involve no representations
about the terms of the Policy itself. These actions are beyond the scope of § 541.051. See
Rockbrook, 2016 WL 8674683, at *3 (“Section 541.051 only applies, however, ‘to
misrepresentations regarding the policy at issue, not facts underlying a claim for coverage.’”
(quoting McClelland v. Chubb Lloyds Ins. Co. of Tex., 2016 WL 5791206, at *5 (W.D. Tex.
Sept. 30, 2016))).
Plaintiffs’ claim against Greenhaw under § 541.060(a)(1) fails for a similar reason.
Section 541.060(a)(1) prohibits “misrepresenting to a claimant a material fact or policy
provision relating to coverage at issue.” “The misrepresentation must be about the details
of a policy, not the facts giving rise to a claim for coverage.” Rockbrook, 2016 WL 8674683,
at *3 (quoting One Way Invs., Inc. v. Century Sur. Co., 2014 WL 6991277, at *4 (N.D. Tex.
Dec. 11, 2014) (Fitzwater, J.)). Greenhaw’s alleged misrepresentation, which is about the
amount of damage, if any, caused by hail, does not relate to the coverage at issue.
Plaintiffs cannot recover from Greenhaw under § 541.060(a)(2)(A), which prohibits
“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.” Greenhaw,
as an adjuster, has no settlement authority and therefore cannot be liable under
§ 541.060(a)(2)(A). See Rockbrook, 2016 WL 8674683, at *3.
Adjusters like Greenhaw also cannot be held liable under § 541.060(a)(3) and (a)(4).
“[A]n adjuster cannot be held liable under [§ 541.060(a)(4)(A) ] because an adjuster does not
have authority on behalf of the insurer to affirm or deny coverage of a claim to a
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policyholder.” Mainali Corp. v. Covington Specialty Ins. Co., 2015 WL 5098047, at *4
(N.D. Tex. Aug. 31, 2015) (Fitzwater, J.) (second alteration in original) (quoting One Way,
2014 WL 6991277, at *5).
“Similarly, an adjuster cannot be held liable under
§ 541.060(a)(3) because an adjuster has no obligation to provide a policyholder a reasonable
explanation of the basis in the policy for the insurer’s denial of a claim, or offer of a
compromise settlement of a claim.” Id.
Plaintiffs cannot recover from Greenhaw under § 541.060(a)(7) for refusing to pay
a claim without conducting a reasonable investigation.
Like [§ 541.060(a)(2) ] the bad behavior that the statute targets
is an insurer’s refusal to pay under certain circumstances. Those
who can be held liable are the insurance company or the
individual at the insurance company who refuses to pay the
claim, not the individual responsible for conducting the
investigation.
Rockbrook, 2016 WL 8674683, at *4 (alteration in original) (quoting One Way, 2014 WL
6991277, at *4).
Plaintiffs allege that Greenhaw violated various provisions of § 541.061. “Similar to
§ 541.051, § 541.061 prohibits misrepresentation of policy provisions.” Id. Plaintiffs do not
allege that Greenhaw misrepresented any terms of the Policy. “Relief under § 541.061 is
therefore unavailable.” Id. (citing Vasquez v. Wal-Mart Assocs., Inc., 2012 WL 2715691,
at *4 (N.D. Tex. July 9, 2012) (Fish, J.)).
Plaintiffs’ claim that Greenhaw breached his duty of good faith and fair dealing also
fails. “[U]nder Texas law, an independent insurance adjuster owes no duty of good faith and
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fair dealing to the insured.” Hall v. Am. Zurich Ins. Co., 2013 WL 12128719, at *2 (N.D.
Tex. Jan. 31, 2013) (Means, J.) (quoting Great W. Inn v. Certain Underwriters at Lloyds of
London, 2011 WL 1157620, at *5 (S.D. Tex. Mar. 24, 2011)); accord Wang v. Safeco Ins.
Co. of Ind., 2017 WL 2664207, at *4 (E.D. Tex. June 2, 2017); Kris Hosp. LLC v. Tri-State
Ins. Co. of Minn., 2017 WL 437424, at *6 (W.D. Tex. Jan. 31, 2017); CD Mgmt. Corp. v.
Nationwide Prop. & Cas. Ins. Co., 2009 WL 9072641, at *5 (S.D. Tex. July 28, 2009)
(Rosenthal, J.); see also Natividad v. Alexsis, Inc., 875 S.W.2d 695, 697-98 (Tex. 1994)
(stating that, in insurance context, duty of good faith and fair dealing only arises when there
is a contract giving rise to a special relationship).6 Plaintiffs do not allege the existence of
any contract between themselves and Greenhaw. Thus Greenhaw did not owe plaintiffs a
duty of good faith and fair dealing.
Because there is no possibility that plaintiffs can recover from Greenhaw, the court
concludes that Greenhaw was improperly joined.
III
Mount Vernon moves for summary judgment on several claims for which plaintiffs
will bear the burden of proof at trial, and on one affirmative defense for which Mount Vernon
will bear the burden.
6
The petition does not expressly call Greenhaw an independent claims adjuster. To
the extent this omitted fact bears on the propriety of Greenhaw’s joinder, the court may
pierce the pleadings and look at the evidence submitted in support of summary judgment.
See Smallwood, 385 F.3d at 573. The uncontroverted evidence indicates that Greenhaw was
employed by Vericlaim, Inc., and not by Mount Vernon.
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When a party moves for summary judgment on claims on which the opposing parties
will bear the burden of proof at trial, the moving party can meet its summary judgment
obligation by pointing the court to the absence of admissible evidence to support the
opposing parties’ claims. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the
moving party does so, the opposing parties must go beyond their pleadings and designate
specific facts showing that there is a genuine issue for trial. See id. at 324; Little v. Liquid
Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). An issue is genuine
if the evidence is such that a reasonable jury could return a verdict in the opposing parties’
favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The opposing parties’
failure to produce proof as to any essential element of a claim renders all other facts
immaterial. See TruGreen Landcare, L.L.C. v. Scott, 512 F.Supp.2d 613, 623 (N.D. Tex.
2007) (Fitzwater, J.). Summary judgment is mandatory if the opposing parties fail to meet
this burden. Little, 37 F.3d at 1076.
For claims on which the moving party will bear the burden of proof at trial, to be
entitled to summary judgment the movant “must establish ‘beyond peradventure all of the
essential elements of the claim.’” Bank One, Tex., N.A. v. Prudential Ins. Co. of Am., 878
F. Supp. 943, 962 (N.D. Tex. 1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780
F.2d 1190, 1194 (5th Cir. 1986)). This means that the movant must demonstrate that there
are no genuine and material fact disputes and that it is entitled to summary judgment as a
matter of law. See Martin v. Alamo Cmty. Coll. Dist., 353 F.3d 409, 412 (5th Cir. 2003).
“The court has noted that the ‘beyond peradventure’ standard is ‘heavy.’” Carolina Cas. Ins.
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Co. v. Sowell, 603 F.Supp.2d 914, 923-24 (N.D. Tex. 2009) (Fitzwater, C.J.) (quoting Cont’l
Cas. Co. v. St. Paul Fire & Marine Ins. Co., 2007 WL 2403656, at *10 (N.D. Tex. Aug. 23,
2007) (Fitzwater, J.)).
IV
The court now turns to plaintiffs’ breach of contract claim.
A
Plaintiffs have produced sufficient evidence to create a genuine dispute of material
fact regarding whether their claim is covered by the Policy. They rely on the opinion of their
retained expert, Dr. Hall, who opines that the roof was most likely damaged by hail on April
20, 2016, and that the damage to the roof is functional.
An insured cannot recover under an insurance policy unless the insured pleads and
proves facts that show that its damages are covered by the policy. See 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. Co. v. Gandy, 925 S.W.2d 696, 714 (Tex. 1996). Mount Vernon maintains that
Dr. Hall’s opinion constitutes no evidence because it is conclusory and baseless. In support,
Mount Vernon cites Seim v. Allstate Texas Lloyds, 2018 WL 5832106 (Tex. App. Nov. 8,
2018), withdrawn and reh’g en banc granted, No. 02-16-0050-CV (Tex. App. Feb. 25,
2019). In Seim the court disregarded Dr. Hall’s opinion on the cause of the plaintiffs’ interior
water damage. Noting that “[a] conclusory statement by an expert witness is insufficient to
raise a question of fact to defeat summary judgment,” the court found that “Hall’s report and
its supplement merely contain bare, baseless (and contradictory) opinions that fail to link his
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conclusions to the facts.” Id. at *4, *7. But unlike in the present case, in Seim Dr. Hall
submitted an initial report and a supplemental report that contradicted each other in critical
ways. See id. at *6-7. The Seim court, unable to reconcile how Dr. Hall drew “the opposite
conclusions from the same facts,” disregarded his conclusion that the damage at issue was
solely caused by a covered peril. Id. at *7.
In the present case, Dr. Hall’s conclusions are adequately supported by the underlying
facts. During his inspection of the property, Dr. Hall observed that the roof surface was
“peppered” with hail strikes—with a hail strike defined as “a nearly round location where the
granules have been removed to expose the asphalt-impregnated underlayment.” Ps. App.
104. He opined that these areas of degranulation will eventually become entry points for
water, thus constituting functional damage—although he did not observe any evidence of
existing leaks caused by degranulation. Moreover, he provided support for his conclusion
that the damage most likely occurred during the coverage period. In his review of publicdomain weather radar data, he found that hail fell within half a mile of the plaintiffs’ property
on April 20, 2016, thus making it the most probable date of loss. Both he and Tolson also
discussed data indicating that hail fell within a few miles of the property on March 23,
2016—another covered date. Dr. Hall did not consider any weather data from more than
three years before April 2016, because the coloration of the hail strikes on the roof indicated
that they were no more than three or four years old. Within that three-year window, Dr. Hall
found no eyewitness reports of any other storms that might have caused the damage he
observed. While the court expresses no opinion at this juncture on the weight or credibility
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of Dr. Hall’s conclusions, it holds that these conclusions are sufficiently supported as to
constitute admissible summary judgment evidence that can be relied on by a reasonable trier
of fact.
B
Mount Vernon posits that plaintiffs have not met their burden of segregating harm
resulting from concurrent causes. Although an insured who suffers damage from both
covered and excluded perils is not precluded from recovering, “[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. Millers Cas. Ins. Co. of Tex.,
866 S.W.2d 597, 601 (Tex. 1993). Because an insured can only recover for covered events,
the burden of segregating the damage attributable solely to the covered event is a coverage
issue for which the insured carries the burden of proof. See Wallis v. United Servs. Auto.
Ass’n, 2 S.W.3d 300, 303 (Tex. App. 1999, pet. denied). “It is essential that the insured
produce evidence which will afford a reasonable basis for estimating the amount of damage
or the proportionate part of damage caused by a risk covered by the insurance policy.”
Travelers Indem. Co. v. McKillip, 469 S.W.2d 160, 163 (Tex. 1971). “[F]ailure to segregate
covered and noncovered perils is fatal to recovery.” Comsys Info. Tech. Servs., Inc. v. Twin
City Fire Ins. Co., 130 S.W.3d 181, 198 (Tex. App. 2003, pet. denied); Dall. Nat’l Ins. Co.
v. Calitex Corp., 458 S.W.3d 210, 227 (Tex. App. 2015, no pet.) (holding there was no
reasonable basis for estimating amount of damage caused by risk covered by the insurance
policy).
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According to Mount Vernon, Dr. Hall’s testimony indicates that plaintiffs’ roof was
damaged by both covered and non-covered causes of loss. Dr. Hall testified that some of the
degranulation of the roof was caused by ordinary wear and tear rather than by a hail storm.
The court agrees that this is evidence of concurrent causes, thus triggering plaintiffs’ burden
to provide evidence by which a jury might reasonably apportion the resulting harm.7
Plaintiffs have met this burden. Plaintiffs are not obligated to present “overwhelming
evidence that would allow a jury to flawlessly segregate covered . . . from non-covered”
damages, or to provide “precise percentages.” Nasti v. State Farm Lloyds, 2015 WL 150468,
at *4 (S.D. Tex. Jan. 9, 2015) (first quoting Fiess v. State Farm Lloyds, 392 F.3d 802, 808
(5th Cir. 2004)). Although Dr. Hall himself made no attempt to segregate wear-and-tear
damage from hail damage, he provided a reasonable basis on which a jury may do so. His
testimony that a covered hail storm was the “predominant” cause of damage to plaintiffs’
roof could be understood to mean that a majority, that is, greater than 50%, of the cost of the
roof replacement is attributable to the storm. Ps. App. 27. Moreover, Dr. Hall proposed a
7
Dr. Hall also testified that he could not completely rule out the effects of prior storms:
while it was “more likely than not” that all hail damage occurred on April 20, 2016, it was
also possible that some damage had occurred earlier. Ds. App. 343. This testimony does not
require the jury to apportion damage between covered and non-covered storms, however;
instead, it presents a credibility issue as to whether Dr. Hall is correct that all storm damage
occurred on the same covered date. Cf. Southland Lloyds Ins. Co. v. Cantu, 399 S.W.3d 558,
576 (Tex. App. 2011, pet. denied) (“[T]he jury here was not required to guess what
percentage of the damage was caused by the hailstorm; instead, the jury was faced with a
credibility question: the Cantus claimed all the damage itemized in Barton’s report was due
to hail, while Southland claimed some of the damage was caused by ordinary wear and
tear.”).
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methodology for segregating harm that is simple enough for a lay jury to apply (at least
roughly): one could start with photographs of areas of the roof that, according to Dr. Hall,
are clearly damaged by wear and tear;8 find those same areas on aerial photographs of the
roof; and subtract the approximate percentage of the roof clearly damaged by wear and tear
from the remainder of the roof that was damaged by hail. Cf. Fiess, 392 F.3d at 808 (“A jury
could deduce that the excess mold damage in walls affected by continuous water intrusions
is attributable to a covered loss. In addition, the jury could conclude that the mold
contamination located above the maximum height reached by the flood waters is attributable
to a covered loss. This is all that the doctrine of concurrent causation requires.”). Dr. Hall’s
testimony suffices to provide a reasonable basis on which a jury could segregate damages.9
C
Mount Vernon also maintains that plaintiffs failed to provide prompt notice of their
8
The areas that Dr. Hall identified are a patch surrounding a glass flue that was likely
damaged by heat, a patch around a cooling unit that may have been damaged by standing
water, and areas that appear to be affected by wind abrasion. Dr. Hall suggested that this
wear-and-tear damage would appear as “dark spots” on aerial photographs of the roof.
9
Additionally, Dr. Hall and plaintiffs advance the theory that “[b]ecause the randomly
distributed hail across the entire roof caused sufficient damage, the fact that the roof may
have weathering or wear and tear is irrelevant, because it requires an entire roof replacement
from the scattered hail.” Ps. Br. 20-21. The court does not base its holding on this theory.
“Texas courts have rejected the ‘dominant or efficient cause test’ that allows an insured to
recover for losses caused by an excluded peril if the covered peril was found to have been
the dominant cause of the loss.” State Farm Lloyds v. Kaip, 2001 WL 670497, at *3 n.7
(Tex. App. 2001, pet. denied) (quoting U.S. Fire Ins. Co. v. Matchoolian, 583 S.W.2d 692,
693 (Tex. Civ. App. 1979, writ ref’d n.r.e.)). Plaintiffs must segregate damages at trial.
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claim, as the Policy requires.10 Essentially, Mount Vernon contends that plaintiffs failed to
comply with a condition precedent in the Policy. See Flores v. Allstate Tex. Lloyd’s Co., 278
F.Supp.2d 810, 815 (S.D. Tex. 2003). Because failure to comply with a condition precedent
is an affirmative defense, Mount Vernon bears the burden of proof and must establish all
elements of its defense beyond peradventure. See id. at 813; Bank One, Tex., 878 F. Supp.
at 962.
“Texas courts have held that where ‘the policy does not define the term “prompt,” we
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 Exploration, Inc., 757 S.W.2d 432, 435 (Tex.
App. 1988, no writ)). In addition to showing that plaintiffs did not provide notice within a
reasonable time, Mount Vernon must establish that it was prejudiced by the delay. See
Hamilton Props. v. Am. Ins. Co., 643 Fed. Appx. 437, 440 (5th Cir. 2016) (per curiam)
(citing Ridglea, 415 F.3d at 480). “Prejudice can arise when the failure to timely notify
results in the insurer’s ‘inability to investigate the circumstances of an occurrence to prepare
adequately to adjust or defend any claims.’” Id. at 440-41 (quoting Blanton v. Vesta Lloyds
Ins. Co., 185 S.W.3d 607, 615 (Tex. App. 2006, no pet.)).
Mount Vernon has not established beyond peradventure that it was prejudiced by
plaintiffs’ 11-month delay in providing notice of their claim. Mount Vernon contends,
10
The Policy requires the insured to “[g]ive . . . prompt notice of the loss or damage”
in the event that a loss or damage occurs. Ds. App. 500.
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without citing evidence, that the delay “may” have denied it the opportunity to document the
condition of the roof immediately after the April 2016 hail storm. Ds. Br. 21. But Mount
Vernon fails to explain why its inability to immediately inspect the roof is significant.
Indeed, Mount Vernon’s experts, Greenhaw and Tolson, were both able to conclude that
there is no functional hail damage to plaintiffs’ roof—notwithstanding plaintiffs’ delay in
reporting the claim. If there was no hail damage in March 2017, then there was no hail
damage in April 2016, and an earlier inspection of the property would not have changed the
result of Mount Vernon’s investigation. Mount Vernon’s own evidence thus undercuts its
prejudice argument. See Herrera v. State Farm Lloyds, 2016 WL 10821984, at *3 (S.D. Tex.
May 6, 2016) (concluding that insurer was not prejudiced by 700-day delay where insurer’s
representative was nonetheless able to affirmatively differentiate between hail damage and
wear-and-tear damage); cf. Hamilton Props., 643 Fed. Appx. at 439, 441 (finding that insurer
was prejudiced where insured’s delay made it impossible for insurer to determine whether
hail damage was caused by a covered storm or by subsequent, non-covered storms).
V
The court next turns to plaintiffs’ extra-contractual claims for violations of the DTPA,
the Insurance Code, and the common-law duty of good faith and fair dealing.
A
Mount Vernon contends that plaintiffs’ extra-contractual claims fail because plaintiffs
have not submitted proof of any damages beyond the denial of their claim. This argument
is inconsistent with recent Texas case law as recognized by the Fifth Circuit. Mount Vernon
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relies on Parkans Int’l LLC v. Zurich Ins. Co., 299 F.3d 514 (5th Cir. 2002), which states
that, under Texas law, “[t]here can be no recovery for extra-contractual damages for
mishandling claims unless the complained of actions or omissions caused injury independent
of those that would have resulted from a wrongful denial of policy benefits.” Id. at 519. But
this language from Parkans has been abrogated by USAA Texas Lloyds Co. v. Menchaca, 545
S.W.3d 479 (Tex. 2018). See Aldous v. Darwin Nat’l Assurance Co., 889 F.3d 798, 799 (5th
Cir. 2018) (on rehearing) (acknowledging abrogation of Parkans). According to Menchaca,
“an insured who establishes a right to receive benefits under an insurance policy can recover
those benefits as ‘actual damages’ under the statute if the insurer’s statutory violation causes
the loss of the benefits.” Menchaca, 545 S.W.3d at 495. The court has already determined
that a genuine issue of material fact exists as to whether the hail damage to plaintiffs’ roof
is covered by the insurance policy. See supra § IV. Thus plaintiffs’ claims do not fail due
to plaintiffs’ failure to produce evidence of extra-contractual damages.
B
Mount Vernon also posits that plaintiffs have failed to present any evidence of bad
faith. To recover under their common-law and statutory bad-faith claims, plaintiffs must
produce evidence that Mount Vernon acted in bad faith. See Higginbotham v. State Farm
Mut. Auto. Ins. Co., 103 F.3d 456, 460 (5th Cir. 1997) (“Texas courts have clearly ruled that
[DTPA and Insurance Code] claims require the same predicate for recovery as bad faith
causes of action in Texas.”); Sheffield v. Allstate Veh. & Prop. Ins. Co., 2018 WL 4076513,
at *4-5 (N.D. Tex. July 3, 2018) (Ray, J.) (same). “To prove that an insurer acted in bad faith
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in violation of Texas common law, an insured must show that the insurer failed to settle the
claim even though it ‘knew or should have known that it was reasonably clear that the claim
was covered.’” Lee v. Caitlin Specialty Ins. Co., 766 F.Supp.2d 812, 818 (S.D. Tex. 2011)
(quoting Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 54–55 (Tex. 1997)). “Plainly put,
an insurer will not be faced with a tort suit for challenging a claim of coverage if there was
any reasonable basis for denial of that coverage.” Higginbotham, 103 F.3d at 460 (citing
Emmert v. Progressive Cty. Mut. Ins. Co., 882 S.W.2d 32, 36 (Tex. App. 1994, writ denied)).
But “denying a claim solely in reliance on an expert’s report does not shield the insurer from
bad faith liability ‘if there is evidence that the report was not objectively prepared or the
insurer’s reliance on the report was unreasonable.’” Lee, 766 F.Supp.2d at 818 (quoting
State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 448 (Tex. 1997)).
Plaintiffs have adduced enough evidence of bad faith to survive summary judgment.
They focus on the initial estimate that Greenhaw prepared after his inspection of plaintiffs’
property, which included the cost of replacing the entire roof. After submitting the first
estimate, Greenhaw contacted a representative of Mount Vernon “because of the . . . potential
exposure” on the claim. Ps. App. 48. Mount Vernon’s representative directed Greenhaw to
hire an engineer to inspect the property. After Tolson submitted his report, Mount Vernon’s
representative told Greenhaw to exclude the roof replacement from his next estimate.
Plaintiffs interpret this evidence to mean that Greenhaw originally believed that a roof
replacement was necessary, but that Mount Vernon instructed him to change his
recommendation for the purpose of wrongly denying plaintiffs’ claim. This interpretation
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of the evidence, if believed by the jury, would render unreasonable Mount Vernon’s reliance
on Tolson’s report and Greenhaw’s second estimate. See Lee, 766 F.Supp.2d at 818.
Mount Vernon counters with Greenhaw’s deposition testimony that his first estimate
was a “reserve estimate”—i.e., a rough estimate of the insurer’s maximum possible exposure
for a given claim. The purpose of the initial estimate was to ensure that Mount Vernon set
aside enough reserve to satisfy the claim; it was not an estimate of covered damages. A
reasonable jury may in fact believe this testimony. But a reasonable jury could also reject
this testimony. Greenhaw’s initial estimate was not labeled as a reserve estimate; to the
contrary, it purported to be “based upon the actual damages viewed by the . . . adjuster at the
time of the inspection of this loss.” Ps. App. 57. The only evidence suggesting it was a
reserve estimate is Greenhaw’s own testimony. Thus in order to conclude at the summary
judgment stage that a reasonable jury could only find that Greenhaw’s first estimate was a
reserve estimate, the court would have to disregard a number of evidentiary inferences that
could be made in plaintiffs’ favor and determine that Greenhaw is a credible witness. The
court cannot do so under the summary judgment standard. See, e.g., Ford v. Potter, 2008
WL 4791511, at *4 & n.8 (N.D. Tex. Nov. 4, 2008) (Fitzwater, C.J.) (citing Portis v. First
Nat’l Bank of New Albany, 34 F.3d 325, 331 (5th Cir. 1994)) (indicating that credibility
issues “cannot be decided on summary judgment”); Owens v. Mercedes-Benz USA, LLC, 541
F.Supp.2d 869, 870 n.1 (N.D. Tex. 2008) (Fitzwater, C.J.) (citing U.S. Bank Nat’l Ass’n v.
Safeguard Ins. Co., 422 F.Supp.2d 698, 701 n.2 (N.D. Tex. 2006) (Fitzwater, J.))
(interpreting evidence in light most favorable to summary judgment nonmovant and drawing
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all reasonable inferences in his favor). Accordingly, the court holds that there is a genuine
issue of material fact whether Mount Vernon acted in bad faith, and that the existence of this
fact issue precludes summary judgment in this respect.
*
*
*
For the foregoing reasons, the court concludes that it has subject matter jurisdiction,
and it denies Mount Vernon’s motion for summary judgment.
SO ORDERED.
April 12, 2019.
_________________________________
SIDNEY A. FITZWATER
SENIOR JUDGE
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