Deer Oaks Office Park Owners Association v. State Farm Lloyds
ORDER GRANTING 12 Motion for Summary Judgment; DENYING 18 Motion for Partial Summary Judgment. Signed by Judge Nancy Stein Nowak. (rg)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
DEER OAKS OFFICE PARK
STATE FARM LLOYDS,
CIVIL ACTION NO.
ORDER GRANTING SUMMARY JUDGMENT
This order addresses the pending motions for summary judgment. This court
has jurisdiction over this case under 28 U.S.C. § 1332 because the citizenship of the
parties is diverse and the amount in controversy exceeds $75,000. I have jurisdiction to
adjudicate this dispute because the parties consented to the magistrate judge’s
jurisdiction.1 After considering the motions, the summary-judgment record, and the
applicable law, I grant summary judgment in favor of defendant State Farm Lloyds.
Nature of the case. This case arose from a dispute between an insured and its
insurer. The insured—plaintiff Deer Oaks Office Park Owners Association (Office
Park)—sued its insurer—State Farm Lloyds (State Farm)—complaining that State Farm
failed to defend Office Park in a state-court lawsuit. Office Park asked the court to
Docket entry # 6.
declare that State Farm is obligated under its insurance policy to defend Office Park.
Office Park also alleged that State Farm breached the insurance policy and violated the
Texas Insurance Code in denying coverage.
Background of this case. Office Park is “an office park condo association which
owns, maintains and regulates the ‘common areas’ between fifteen unconnected office
condos”2 located at 7272 Wurzbach, San Antonio, Texas. In the summer of 2007, Dr.
Thomas Jeneby, as an owner and operator of Palm Tree Holdings, LLC (Palm Tree),
sought to purchase one of the office-condo buildings at 7272 Wurzbach—building 8.
Jeneby planned to practice medicine from the ground floor of the building and lease the
second floor to other medical providers. The installation of an elevator for patient
access was important to Jeneby’s plans for the second floor as some patients are unable
to navigate stairs.
Despite the importance of the elevator, Jeneby purchased building 8 without
Office Park’s approval of the installation of an elevator. After purchasing the building,
Jeneby encountered problems with building maintenance. Unable to obtain permission
to install an elevator, and unhappy with property maintenance, Jeneby acted on behalf
of Palm Tree and sued Office Park in state court.3 Palm Tree complained that although
Docket entry # 1, attached complaint, ¶ 6.
Docket entry # 12, ex. 2A.
Jeneby was direct and forthright about the need for an elevator, Office Park
misrepresented what was needed to install an elevator, failed to repair and maintain
Jeneby’s building, and asked the state trial court to declare that Office Park lacked a
legal basis to deny the installation of an elevator.
When Office Park contacted State Farm about the lawsuit, State Farm refused to
defend Office Park. This lawsuit followed. Both Office Park and State Farm have
moved for summary judgment.
Office Park seeks partial summary judgment on its request for declaratory
judgment that State Farm is obligated to defend Office Park in Palm Tree’s lawsuit.4
State Farm seeks summary judgment on Office Park’s request for declaratory judgment,
Office Park’s claim that State Farm breached the insurance policy, and the claim about a
violation of the insurance code.5 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.”6
The insurance policy. The insurance policy at the center of this dispute is a
condominium/association insurance policy, covering the time period January 30, 2010 to
Docket entry # 18, p. 1.
Docket entry # 12, p. 2.
Fed. R. Civ. P. 56(a).
January 30, 2011. The policy includes a directors-and-officers endorsement obligating
State Farm to defend and indemnify Office Park for any claims or suits for damages
arising out of allegedly wrongful acts committed by Office Park’s directors and officers.7
Because Palm Tree alleged negligence and negligent misrepresentation by Office Park’s
officers and directors,8 Office Park sought representation under the directors-andofficers endorsement.
The directors-and-officers endorsement extended to any acts committed before
the coverage period,9 so long as Office Park did not have notice of a claim or suit before
the policy became effective.10 This latter point is where the parties disagree. The
parties agree that Palm Tree complained about conduct that occurred before the
Docket entry # 12, ex. 1, p. 24 of the policy (imaged in CM-ECF as p. 57) (“We will pay
those sums that the insured becomes legally obligated to pay as damages, because of
‘wrongful acts’ committed by an insured solely in the conduct of their management
responsibilities for the Condominium/Association.”).
Docket entry # 12, ex. 2A, Palm Tree’s original petition in the state-court lawsuit
(imaged in CM-ECF as pp. 74-87).
Docket entry # 12, ex. 1, directors and officers amendatory endorsement (imaged in
CM-ECF as p. 33) (defining “occurrence” as “a ‘wrongful act,’ including any related
conduct, during the policy period, which results in a claim made in writing or suit filed”)
Docket entry # 12, ex. 1, directors and officers optional coverage (imaged in CM-ECF
as p. 57) (stating that the directors-and-officers coverage “applies to ‘wrongful acts’
committed before this optional coverage became effective if the insured had no knowledge of
a claim or suit at the effective date of this option and there is no other applicable insurance”)
directors-and-officers coverage became effective on January 30, 2010, and that Palm
Tree filed suit after the policy became effective, but disagree about whether Office Park
had notice of Palm Tree’s claims before the insurance policy became effective. Office
Park maintains that it had no notice of Palm Tree’s claims before the policy’s effective
date. State Farm maintains Office Park had notice of Palm Tree’s claims before the
Applicable legal principles. Because this is a diversity case, Texas substantive
law applies.11 In Texas, Office Park as “the insured has the burden of establishing
coverage under the terms of the policy.”12 State Farm supported its motion with a letter
to show Office Park had notice of Palm Tree’s claims before the policy effective date.13
Based on the letter, State Farm argued that Office Park cannot meet its burden.
To preclude summary judgment, Office Park must raise a fact question about
whether it had notice of Palm Tree’s claim before the policy effective date. Office Park
did not rely on a fact question, but instead argued that the letter proves that it did not
See Am. Nat’l Gen. Ins. Co. v. Ryan, 274 F.3d 319, 328 (5th Cir. 2001) (“Under the Erie
doctrine, [federal courts] are bound in diversity cases to apply the substantive law of the
forum state as interpreted by the state’s highest court.”).
Gilbert Tex. Constr. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010).
See Ryan, 274 F.3d at 324 (explaining in a dispute about an insurer’s duty to defend, that in
Texas, the insured must show that claim against him is potentially within his policy’s
Docket entry # 12, ex. 2B (imaged in CM-ECF as pp. 99-101).
Whether the letter constitutes notice. The letter was authored by Jeneby’s
attorney, addressed to Office Park’s attorney, and dated September 23, 2009—before the
policy effective date. The letter traced Jeneby’s multiple complaints about Office Park
and attributed monetary losses to Office Park. In response to State Farm’s argument
that the letter constituted notice of Palm Tree’s claim, Office Park argued that the letter
did not constitute notice because the letter did not demand money. Emphasizing that
the policy does not define “claim,” Office Park relied on Fifth Circuit case law about the
meaning of “claim.”
In the relevant opinion, the Fifth Circuit instructed that, “Whether an insurance
contract is ambiguous is a question of law for the court to decide by looking at the
contract as a whole in light of the circumstances present when the contract was
entered.”14 The Fifth Circuit explained that, “When a contract is reasonably susceptible
of more than one meaning,…it is ambiguous and a court should adopt a construction
that favors the insured.”15 In applying these rules to the meaning of “claim,” the Fifth
Circuit stated the following about the meaning of “claim”:
Standing alone, the term “claim” is susceptible of more than one meaning.
Lawyers commonly use “claim” as a noun in at least three different senses:
Int’l Ins. Co. v. RSR Corp., 426 F.3d 281, 291 (5th Cir. 2005).
Int’l Ins. Co., 426 F.3d at 291.
(1) The aggregate of operative facts giving rise to a right enforceable by a
court; (2) The assertion of an existing right, such as a right to payment or
to an equitable remedy; (3) A demand for money, property, or a legal
remedy. Lay persons also use “claim” as a noun having more than one
meaning: (1) A demand for something due or believed to be due; (2) A
right to something, such as a title to a debt, privilege or thing in the
possession of another; (3) An assertion open to challenge. The [disputed]
policy does not expressly or by implication specify which meaning is
intended. Consequently, the policy itself is also susceptible of more than
Relying the foregoing authority, Office Park argued that under circumstances of this
case, “claim” means “a demand for money, property, or legal remedy.” Because the
letter did not explicitly demand money, property, or a legal remedy, Office Park argued
that the letter did not constitute notice of Palm Tree’s claims. Office Park’s use of
available case law is resourceful, but the argument fails.
In the relevant opinion, the Fifth Circuit “construe[d] the ambiguous noun
‘claim’ using its ordinary meaning that is most favorable to the insured in th[e] case,
that is, as the “assertion of a right” to hold the insured liable,” explaining “[t]his is
essentially the meaning that the district court adopted when it defined ‘claim’ in the
jury charge as ‘an assertion by a third party, that in the opinion of the third party, the
insured is liable to it for damages within the risks covered by the policy[.]’”17
Construing “claim” to mean “the assertion of a right to hold the insured liable” favors
Int’l Ins. Co., 426 F.3d at 291.
Int’l Ins. Co., 426 F.3d at 292.
the insured because the construction gives the insured the right to seek coverage
without waiting for the filing of a lawsuit. Under this construction, “[v]irtually any
assertion of exposure to liability within the risk covered by an insurance policy is a
claim, unless the assertion is made in circumstances so unusual that they negate
possibility of formal proceeding involving defense costs as well as liability.”18 The
construction favors Office Park as the insured because the policy did not require Office
Park to wait until Palm Tree filed a lawsuit to seek coverage. Instead, the policy
permitted Office Park to seek coverage for any assertion of exposure to liability within
the risk covered by the insurance policy.
Applying the same construction here, the letter constituted notice of Palm Tree’s
claims because it asserted the right to install an elevator, recoup loss rental income, and
obtain reimbursement for repair costs. The letter began with: “On behalf of my client I
am reiterating his demands.” The use of the word “demand’ placed Office Park on
notice that Jeneby asserted a right.
The letter summarized Jeneby’s complaints about Office Park’s failure to approve
the installation of an elevator in building 8 and his complaints about building
maintenance. The letter stated that Jeneby “is adamant that he bought this building in
reliance of the fact that he would be allowed to install an elevator, just as Dr. Patterson
Int’l Ins. Co., 426 F.3d at 292 (quoting Couch on Insurance § 191.10 (3d ed. 2000)).
and Dr. Larson were approved for and encouraged to do.” The letter complained that
Office Park’s president “reversed herself on two occasions—indicating that Dr. Larson
(a board member) was approved for an elevator because he was going to place the
elevator out of sight (in a stairwell) and then out of sight (between the buildings).” The
letter characterized the president as “confused and…obviously stalling.” The letter
reported that Palm Tree had “documented prospective tenants who have expressed an
interest but could not proceed due to elderly clients needing elevator access” and
complained about lost rental income.
The letter also complained about numerous maintenance problems, Jeneby’s lost
income when sewer pipes burst, Jeneby’s expenses to repair common areas, and Office
Park’s delay in approving maintenance. The letter summarized Jeneby’s position:
This back and forth has been going on for almost two years with expenses
and loss of business continuing to increase. My client does not have the
option of relenting, he has invested too much time and capital in his
business, and he is not going to relent. He has asked me to pursue
litigation in this matter if a satisfactory settlement on these issues can not
The letter concluded with, “If I have not heard a response back from your client
by October 2, 2009, then my client has instructed me to file suit in District Court.”
The only reasonable interpretation of the letter is that Palm Tree asserted a right
to hold Office Park liable for all of the costs Jeneby had spent and lost because of Office
Park’s acts. The letter’s bottom line was: If you do not comply with my demands, I will
sue you. Under any construction, the letter constituted a claim.
The letter constituted notice. Palm Tree gave Office Park notice on September 23,
2009—before the effective date of the policy. Because Office Park had notice before the
effective date of the policy, the claim fell outside of the policy and State Farm had no
duty to defend Office Park. For this reason, State Farm is entitled to summary
judgment on Office Park’s claim for declaratory judgment.
Having determined that State Farm had no duty to defend Office Park, no basis
exists for Office Park’s claims about breaching the insurance policy or violating the
Texas Insurance Code by denying coverage. State Farm is entitled to summary
judgment on those claims as well. Accordingly, I grant State Farm’s motion (docket
entry # 12) and deny Office Park’s motion (docket entry # 18).
SIGNED on February 15, 2012.
NANCY STEIN NOWAK
UNITED STATES MAGISTRATE JUDGE
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