Peter Tsai and Barbara Tsai v. Liberty Mutual Insurance Company
01-14-00677-CV
| Tex. App. | Feb 11, 2015Background
- Peter and Barbara Tsai owned a townhouse; their neighbor (Monsour) installed a planter and an adjacent sprinkler system whose top was above the foundation but below the first‑floor hardwood.
- The T sais discovered cupping/warping of living room hardwoods in 2012; HSA Engineers concluded moisture migrated from the neighbor’s planter/sprinkler into the area beneath the flooring and caused repeated wet/dry cycles.
- Liberty Mutual insured the T sais, investigated (hired HSA and Sandtech), and denied the homeowners’ claim based on the policy’s water‑damage exclusion for (a) flood/surface water and (b) water below the surface that seeps through buildings/foundations.
- Plaintiffs sued Liberty Mutual (breach of contract and extra‑contractual claims) and Monsour (negligence); the trial court granted Liberty Mutual’s summary judgment and severed the judgment; the appeal challenged the coverage ruling.
- Liberty Mutual’s position: undisputed causation (sprinkler/planter surface/subsurface water migration) falls within the policy exclusions; therefore no breach and all related statutory/common‑law claims fail.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether policy excludes damage caused by water migrating from neighbor’s planter/sprinkler | Tsai: the invading water lost its "surface water" character and is not excluded; alternatively, exclusion ambiguous | Liberty: the water was surface water or subsurface water that seeped into the structure; policy unambiguously excludes both | Trial court granted summary judgment for Liberty Mutual; exclusion applies |
| Whether the "surface water" exclusion only covers water that flows directly across damaged surface | Tsai: exclusion should require direct surface flow onto the damaged flooring | Liberty: exclusion covers surface water that migrates by gravity into/under structures; no direct contact requirement | Exclusion construed to include surface water migrating into building; applies |
| Whether "water below the surface" excludes artificial/human‑caused subsurface water | Tsai: Adrian Associates supports limiting exclusion to naturally occurring subterranean water | Liberty: modern policy language expressly includes water below the surface "caused by or resulting from human or animal forces" — covers sprinkler runoff | The policy’s explicit language removes Adrian’s limitation; exclusion applies |
| Whether extra‑contractual claims survive if contract claim fails | Tsai: pursue Insurance Code/ DTPA/bad faith claims | Liberty: extra‑contractual claims require predicate breach (no breach here); plaintiffs did not preserve other grounds on appeal | Because no contract breach, related statutory/common‑law claims fail; appellate challenge limited to breach only |
Key Cases Cited
- Dietrich v. Goodman, 123 S.W.3d 413 (Tex. App. Houston [14th Dist.] 2003) (defines "surface water" as precipitation diffused over ground that does not form a defined watercourse)
- Valley Forge Ins. Co. v. Hicks Thomas & Lilienstern, 174 S.W.3d 254 (Tex. App. Houston [1st Dist.] 2004) (upheld surface‑water exclusion where diffuse floodwater migrated into man‑made structures; lead‑in clause defeats argument that water changed character)
- Adrian Associates Gen. Contractors v. Nat’l Surety Corp., 638 S.W.2d 138 (Tex. App. Dallas 1982) (interpreted "water below the surface" as ambiguous in earlier policy language limited to natural subterranean water)
- National Surety Corp. v. Adrian Associates, 650 S.W.2d 67 (Tex. 1983) (per curiam) (related approval/review of Adrian line of authority)
- Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex. 2006) (contract‑construction principles: read all provisions together; no ambiguity if only one reasonable meaning)
- Liberty Nat’l Fire Ins. Co. v. Akin, 927 S.W.2d 627 (Tex. 1996) (insured generally must establish breach of contract before extra‑contractual bad‑faith/statutory recovery)