Case Information
*0 FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS 2/11/2015 1:15:47 PM CHRISTOPHER A. PRINE Clerk *1 ACCEPTED 01-14-00677-CV FIRST COURT OF APPEALS HOUSTON, TEXAS 2/11/2015 1:15:47 PM CHRISTOPHER PRINE CLERK
NO. 01-14-00677-CV IN THE COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS PETER TSAI AND BARBARA TSAI, Appellants , v.
LIBERTY MUTUAL INSURANCE COMPANY, Appellee .
ON APPEAL FROM THE 269TH JUDICIAL DISTRICT COURT OF HARRIS COUNTY, TEXAS BRIEF FOR APPELLEE
LIBERTY MUTUAL INSURANCE COMPANY Richard A. Sheehy State Bar No. 18178600 J. Mark Kressenberg State Bar No. 11725900 Shelley Rogers
State Bar No. 17186250 2500 Two Houston Center 909 Fannin Street
Houston, Texas 77010-1003 (713) 951-1000 – Telephone (713) 951-1199 – Facsimile Email: rsheehy@sheehyware.com Attorneys for Defe ndant and Appellee Oral Argument Requested Liberty Mutual Insurance Company
Identity of Parties and Counsel Pursuant to Rule 38.2(a), Texas Rules of Appellate Procedure, the following is a list of all parties and counsel involved in this case. This list is included so that
the Justices of this Court may evaluate possible disqualification or recusal from
participation in the decision of this case on appeal:
Counsel for Defendant and Appellee Liberty Mutual Insurance Company:
Richard A. Sheehy
State Bar No. 18178600
Email: rsheehy@sheehyware.com
J. Mark Kressenberg
State Bar No. 11725900
Email: jkressenberg@sheehyware.com
Shelley Rogers
State Bar No. 17186250
Email: srodgers@sheehyware.com
Sheehy, Ware & Pappas, P.C.
2500 Two Houston Center
909 Fannin Street
Houston, Texas 77010
Telephone: (713) 951-1000
Facsimile: (713) 951-1199
Counsel for Plaintiffs and Appellants Peter Tsai and Barbara Tsai
Daniel F. Crowder
State Bar No. 00796419
Email: dfcrowder@thecrowderlawfirm.com
The Crowder Law Firm
2211 Norfolk Street, Suite 610
Houston, Texas 77098
Telephone: (713) 523-1200
Facsimile: (713) 523-1266
ii
Table of Contents
Identity of Parties and Counsel ................................................................................. ii
Table of Contents ..................................................................................................... iii
Table of Authorities ................................................................................................. iv
Statement of the Case ................................................................................................. 2
Statement Regarding Oral Argument ........................................................................ 2
Issues Presented ......................................................................................................... 3
Statement of Facts ...................................................................................................... 3
Summary of the Argument ......................................................................................... 8
Argument and Authorities .......................................................................................... 9
A. Plaintiffs’ claim was excluded under the policy because the loss was caused by “surface water.” ........................................................... 11 B. Plaintiffs’ claim was excluded under the policy because the loss was caused by water under the surface. .............................................. 17 C. The exclusion for water damage is not ambiguous. ............................ 19 D. The Court should affirm the summary judgment on grounds other than breach of contract. .............................................................. 21 Conclusion ............................................................................................................... 24
Certificate of Compliance ........................................................................................ 24
Certificate of Service ............................................................................................... 25
iii
Table of Authorities
Cases
Adrian Associates General Contractors v. National Surety Corp .,
638 S.W.2d 138 (Tex. App.—Dallas 1982, writ ref’d n.r.e.) ............... 17, 18, 20 Betco Scaffolds Co., Inc. v. Houston United Cas. Insurance Co. ,
29 S.W.3d 341 (Tex. App. – Houston [14 th Dist.] 2000, no pet.) ..................... 22 Bunting v. State Farm Lloyds ,
2000 WL 191672 (N.D. Tex. 2000) .................................................................. 22 Crocker v. American National General Insurance Co. ,
211 S.W.3d 928 (Tex. App. – Dallas 2007, no pet.) ......................................... 16 DiBello v. Charlie Thomas Ford ,
288 S.W.3d 118 (Tex. App. ˗ Houston [1 st Dist.] 2009, no pet.) ...................... 22
Dietrich v. Goodman ,
123 S.W.3d 413 (Tex. App. – Houston [14 th Dist.] 2003, no pet.) ............ 11, 12 Diversified Financial Systems v. Hill, Heard, O’Neal, Gilstrap & Goetz, P.C. ,
63 S.W.3d 795 (Tex. 2001) ................................................................................. 2 Douglas v. State Farm Lloyds ,
37 F.Supp.2d 532 (S.D. Tex. 1999) ................................................................... 23 Fiess v. State Farm Lloyds ,
202 S.W.3d 744 (Tex. 2006) ............................................................................. 19 Gates v. State Farm County Mutual Ins. Co. of Texas ,
53 S.W.3d 826 (Tex. App. – Dallas 2001, no pet.) ........................................... 22 General Accident Insurance Co. v. Unity/Waterford Fair Oaks ,
288 F.3d 651 (5 th Cir. 2002) ................................................................................ 9 Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London ,
327 S.W.3d 118 (Tex. 2010) ............................................................................... 9 Liberty National Fire Insurance Co. v. Akin,
927 S.W.2d 627 (Tex. 1996) ...................................................................... 22, 23 iv
McAfee Inc. v. Agilysys, Inc. ,
316 S.W.3d 820 (Tex. App. – Dallas 2010, no pet.) ......................................... 22 Michaelski v. Wright ,
444 S.W.3d 83 (Tex. App. – Houston [1 st Dist.] 2014, no pet.) ........................ 15 National Surety Corp. v. Adrian Associates ,
650 S.W.2d 67 (Tex. 1983) ............................................................................... 17 National Union Fire Insurance Co. v. CBI Industries ,
907 S.W.2d 517 (Tex. 1995) ............................................................................. 20 Ohio Cas. Group of Ins. Cos. v. Chavez ,
942 S.W.2d 654 (Tex. App. ˗ Houston [14th Dist.] 1997, writ denied) ............ 19
Pinnacle Anesthesia Consultants v. St. Paul Mercury Ins. Co. ,
359 S.W.3d 389 (Tex.App.—Dallas 2012, pet. denied) ...................................... 9 Progressive County Mutual Insurance Co. v. Boyd,
177 S.W.3d 919 (Tex. 2005) ............................................................................. 23 Raburn v. KJI Bluechip Investments ,
50 S.W.3d 699 (Tex. App. – Fort Worth 2001, no pet.) .................................... 12 Republic Insurance Co. v. Stoker,
903 S.W.2d 338 (Tex. 1995) ...................................................................... 22, 23 Robertson v. Home State Co. Mutual Insurance Co. ,
348 S.W.3d 273 (Tex.App.—Ft. Worth 2011, pet. denied) ................................ 9 Spicewood Summit Office Condominiums Association, Inc. v. American First
Lloyd’s Insurance Co. ,
287 S.W.3d 461 (Tex. App. - Austin 2009, pet. denied) ................................... 23 State Farm Lloyds v. Marchetti ,
962 S.W.2d 58 (Tex. App. – Houston [1 st Dist.] 1997, pet. denied) .... 14, 19, 20 Sun Underwriters Insurance Co. v. Brinkley ,
233 S.W.2d 153 (Tex. Civ. App. – Fort Worth 1950, writ ref’d) ..................... 14 Taylor v. Allstate Ins. Co. ,
356 S.W.3d 92 (Tex. App. – Houston [1 st Dist.] 2011, pet. denied) ................. 22 v
Texas Woman’s University v. The Methodist Hospital ,
221 S.W.3d 267 (Tex. App. – Houston [1 st Dist.] 2006, no pet.) ............... 12, 15 Transamerica Co. v. Raffkind ,
521 S.W.2d 935 (Tex. Civ. App. – Amarillo 1975, no writ) ............................. 14 Valley Forge Insurance Co. v. Hicks Thomas & Lilienstern ,
174 S.W.3d 254 (Tex. App. – Houston [1 st Dist.] 2004, pet. denied) . 13, 15, 16, Vest v. Gulf Ins. Co. ,
809 S.W.2d 531 (Tex. App.—Dallas 1991, writ denied) .................................. 20 Statutes
T EX . W ATER C ODE § 11.086 .................................................................................... 11
Rules
T EX . R. A PP . P. 9.4(i)(3) ........................................................................................... 24
T EX . R. A PP . P. 38.1(f) ............................................................................................. 22
T EX . R. A PP . P. 38.2(a) .............................................................................................. ii
vi
NO. 01-14-00677-CV IN THE COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS PETER TSAI AND BARBARA TSAI, Appellants , v.
LIBERTY MUTUAL INSURANCE COMPANY, Appellee .
ON APPEAL FROM THE 269TH JUDICIAL DISTRICT COURT OF HARRIS COUNTY, TEXAS BRIEF FOR APPELLEE
LIBERTY MUTUAL INSURANCE COMPANY To the Honorable Court of Appeals :
Defendant and Appellee Liberty Mutual Insurance Company (“Liberty Mutual”) files this brief in support of a summary judgment entered in its favor in
Cause No. 2013-61457-A; Peter Tsai and Barbara Tsai v. Howard P. Monsour,
Jr., et al. ; in the 269 th Judicial District Court of Harris County, Texas before the
Honorable Daniel Hinde, Judge Presiding.
Statement of the Case Plaintiffs Peter Tsai and Barbara Tsai (“Plaintiffs”) brought this action against Liberty Mutual and Defendant Howard Monsour after their home suffered
water damage to the hardwood floors in the living room. (C.R. 4, 24). The claim
against Liberty Mutual was for insurance coverage for the loss. ( Id. ). Monsour was
Plaintiffs’ neighbor. Plaintiffs claim that his sprinkler system and landscaping
caused the water damage. ( Id. ); see also (C.R. 111)(engineering report).
Plaintiffs and Liberty Mutual both filed motions for summary judgment.
(C.R. 34, 172). The trial court granted Liberty Mutual’s motion and denied
Plaintiffs’ motion. (C.R. 415, 417). The court then severed the claims against
Liberty Mutual into a separate case making the summary judgment final. (C.R.
429); see Diversified Financial Systems v. Hill, Heard, O’Neal, Gilstrap & Goetz,
P.C. , 63 S.W.3d 795 (Tex. 2001)(“As a rule, the severance of an interlocutory
judgment into a separate cause makes it final.”). Plaintiff took this appeal from that
judgment. (C.R. 442). [1]
Statement Regarding Oral Argument Liberty Mutual would welcome the chance to present oral argument to the Court if the Court believes that oral argument would be helpful. However, the
Court may affirm the summary judgment based on settled legal principles.
Issues Presented
(1) The trial court properly granted Liberty Mutual’s motion for summary judgment because exclusions in the insurance policy barred coverage for Plaintiffs’
claims.
(2) The exclusions in the insurance policy were not ambiguous.
(3) Plaintiffs have not preserved any challenge to the court’s ruling on causes of action other than breach of contract.
Statement of Facts Plaintiffs lived on Hermann Lake Drive in Houston. (C.R. 49, 173). Their home was a townhouse with a zero lot line in a gated community. (C.R. 106, 113,
130). Because of the zero lot line, the side of Plaintiffs’ home was next to their
neighbors’ yards. ( Id. ). Their neighbors to the north had installed a pool and
landscaped their yard in 2007. (C.R. 106, 113). With Plaintiffs’ permission, the
neighbors placed a planter and a bed with a sprinkler system right next to and
covering Plaintiffs’ slab as part of the 2007 work. ( Id. ). Although the neighbor who
did the work did not use the sprinkler system much, that situation changed in 2010
when Monsour bought the property. (C.R. 113).
In March 2012, Plaintiffs noticed “cupping” of the hardwood floors in their living room. (C.R. 107, 174). “Cupping” is an uneven appearance of the flooring
where the edges of the board are higher than the center. (C.R. 111). The wood
flooring was elevated above the foundation slab surface. (C.R. 112). Plaintiffs were
not certain of the cause and thought initially that the use of a steam cleaner may
have caused the floor to warp. (C.R. 106. 107).
Plaintiffs had homeowners’ insurance coverage with Liberty Mutual at the time of the loss. (C.R. 49). In August 2012, Plaintiffs made a claim with Liberty
Mutual for the damage to the flooring. (C.R. 108); see also (Brief for Plaintiffs at
1)(Plaintiffs seek coverage for damages caused by water infiltration). Lisa Levy, an
adjuster for Liberty Mutual, visited Plaintiffs’ home on August 22 and saw that the
hardwood floors were indeed buckling in the living room. (C.R. 106). She
suspected that the next-door neighbor’s pool, sprinkler system, and runoff from the
neighbor’s flower bed might be causing the damage. (C.R. 106). She hired HSA
Engineers to provide an in-depth inspection and evaluation to determine the cause
of the damage. (C.R. 106, 110). In turn, HSA hired Sandtech Construction to see if
a problem with the plumbing was causing the damage. (C.R. 119, 124).
Sandtech inspected the premises on September 5, 2012 and concluded that the plumbing system was not the cause of the leak. (C.R. 158). HSA also inspected
the premises at length and ruled out water entry through the exterior roof, windows
and doors of the home. (C.R. 112, 114-16, 119). HSA then focused on the flower
bed which included the sprinkler system as a potential source of the problem. (C.R.
120).
The flower bed had been built up to a level above the top of Plaintiffs’ foundation. (C.R. 112, 120); (Brief for Plaintiffs at 5), citing (C.R. 120)(top of the
foundation was below the top of the flower bed); (C.R. 112, 120); (C.R. 118, 120)
(planter was about the same elevation as the top of the first level wood floor and
higher than the top of the foundation slab). The engineers found that the flower
bed’s drainage was inadequate so that some of the excess moisture penetrated into
the area on top of the slab but below the hardwood floors. ( Id. ).
Taking these factors and its other findings into account, HSA concluded that the damage was caused primarily by moisture migrating under the wood floor from
the neighbor’s flower bed at the north edge of Plaintiffs’ property. (C.R. 116-121);
e.g. , (C.R. 118)(“investigation revealed evidence that the cupped appearance of the
boards was reasonably attributed to moisture migrating under the wood floor from
the planter on the north edge of the property”). The path of “least resistance” for
the water was to seep over the top of the foundation and migrate to the area below
the wood floors. (C.R. 120).
Plaintiffs agree with the engineers’ conclusions. (Brief for Plaintiffs at 3)(the home flooded because of sprinkler water); ( Id. at 5)(lengthy summary of HSA
reports); ( Id. at 4)(quoting adjuster’s report that damage was caused by moisture
migrating under the wood floor from the planter). HSA was simply “unable to
locate additional moisture sources that could reasonably result in this cupped wood
condition.” (C.R. 164); accord (C.R. 24)(Plaintiffs claim that Monsour’s sprinkler
system caused the water damage).
Liberty Mutual denied Plaintiffs’ insurance claim after HSA finished its investigation and issued its report. (C.R. 164). The policy provided insurance
coverage against risks of direct physical loss subject to coverage limits and certain
exclusions. (C.R 52). The letter denying Plaintiffs’ claim relied on and quoted the
policy provisions which excluded from coverage any damage caused by surface
water or water below the surface that seeped or leaked through a building,
foundation, or other structure:
Section 1 - Exclusions
A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
***
3. Water Damage
Water Damage means:
a. Flood, surface water , waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; b. [inapplicable]; or
c. Water…below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building , sidewalk, driveway, foundation , swimming pool or other structure ; caused by or resulting from human or animal forces or any act of nature.
(C.R. 64, 65)(emphasis added). Liberty Mutual relied on these exclusions 3(a) and
3(c) to deny the claim.
After receiving the letter from Liberty Mutual, Plaintiffs brought this action against the insurance company for coverage and against Monsour, their neighbor,
for negligence. (C.R. 4, 24). Plaintiffs agree that Monsour’s sprinkler system and
landscaping caused the water damage to their floors. ( Id. ); (Brief for Plaintiffs at 3)
(“The Tsai home flooded because of sprinkler water.”); ( Id. at 5-6)(summary of
HSA report). Both Plaintiffs and Liberty Mutual filed motions for summary
judgment on the application of the exclusions in the insurance policy. (C.R. 34,
172). The trial court granted Liberty Mutual’s motion and denied Plaintiffs’
motion. (C.R. 415, 417). The Court then severed the claims against Liberty Mutual
into a separate case making the summary judgment final. (C.R. 429). Plaintiffs
took this appeal from that judgment. (C.R. 442).
Summary of the Argument The resolution of this case is simple based on the language of the policy and the undisputed cause of Plaintiffs’ damages. The language of the policy is clear:
“water damage” is specifically excluded from coverage if it is caused by “surface
water” or “water…below the surface of the ground, including water which…seeps
or leaks through a building,…foundation,…or other structure…” (C.R. 64, 65).
There is no dispute that the damage to Plaintiffs’ floors resulted from water that
seeped into Plaintiffs’ residence from their neighbor’s flower bed.
The water that entered Plaintiffs’ home was either “surface water” as that term is understood in law, or “water below the surface of the ground.” It has to be
one or the other. The water either trickled across the surface of the planter, or
seeped into the planter, and then migrated into the space between the foundation
and the wood flooring. The Court may, but need not, decide which water path was
involved here because coverage for damage caused by both surface and sub-
surface water was excluded under the policy. Thus, there can be no breach of the
insuring agreement.
Plaintiffs did not challenge the Court’s ruling on their claims other than breach of contract so the Court should affirm the judgment on those other claims.
Even so, Plaintiffs’ claims for extra-contractual relief fail with their claim for
breach of contract.
Argument and Authorities The trial court properly granted Liberty Mutual’s motion for summary judgment because the damage to Plaintiffs’ flooring was excluded under the
insurance policy.
The burden of proof in this case is well settled. Plaintiffs have the burden to establish coverage under the terms of the insurance policy. If they prove coverage,
Liberty Mutual then has to show that the loss is within an exclusion. If Liberty
Mutual proves that an exclusion applies, the burden shifts back to Plaintiffs to
show that an exception to the exclusion brings the claim back within coverage.
Pinnacle Anesthesia Consultants v. St. Paul Mercury Ins. Co. , 359 S.W.3d 389,
392 (Tex.App.—Dallas 2012, pet. denied), citing Gilbert Texas Construction, L.P.
v. Underwriters at Lloyd’s London , 327 S.W.3d 118, 124 (Tex. 2010); see also
Robertson v. Home State Co. Mutual Insurance Co. , 348 S.W.3d 273, 276-77
(Tex.App.—Ft. Worth 2011, pet. denied). “Where an exclusion is specific in its
language, and a loss falls within the language, Texas courts have properly held the
loss to be an excluded one.” (Brief for Plaintiffs at 11), citing General Accident
Insurance Co. v. Unity/Waterford Fair Oaks , 288 F.3d 651 (5 th Cir. 2002)
(unpublished opinion)(applying Texas law).
Here, there is no dispute that the main source of the water that caused the damage to Plaintiffs’ floors was the sprinkler system installed by their neighbor to
the north. (Brief for Plaintiffs at 3)(“The Tsai home flooded because of sprinkler
water.”). Liberty Mutual denied the claim when it learned that the damage fell
within the policy’s “water damage” exclusions. Liberty Mutual’s decision was
supported by HSA’s investigation and analysis which Plaintiffs did not and do not
dispute. In fact, Plaintiffs named Monsour as a Defendant, alleging that he was
negligent in the management of his sprinkler system which proximately caused the
damage due to “the water infiltration.” (C.R. 4, 24).
This loss fell squarely under the policy’s specific policy exclusion of “water damage.” Both parties agree that the damage to Plaintiffs’ home was caused by
“water infiltration” resulting from the neighbor’s sprinkler system adjacent to
Plaintiffs’ foundation. (C.R. 24, 111-12). There is no evidence of any other
possible source of the water. Liberty Mutual’s decision to deny coverage on the
basis of the exclusions was correct, and Plaintiffs, as a matter of law, could not
establish an essential element of their breach of contract claim: a “breach” of the
policy by Liberty Mutual.
The HSA report explained how the water from the planter that ran along the outside north wall entered Plaintiffs’ home. The top of the planter was above the
foundation but below the wood floor. (C.R. 112, 120). The water from the planter
then migrated over the top of the foundation and under the wood floor. (C.R. 120);
(Brief for Plaintiffs at 3)(water entered the home above the foundation but below
the floor). This repeated water migration and infiltration below the wood flooring
resulted in significant and repeated wet/dry cycles. (C.R. 120-21). The humid and
moist condition under the floor caused moisture in excess of what the wood could
absorb and release which resulted in the warped or “cupped” condition. ( Id. ).
A. Plaintiffs’ claim was excluded under the policy because the loss was caused by “surface water.”
The exclusion in the policy clearly applies by its terms to damage caused by surface water. (C.R. 65). Plaintiffs argue that the water that migrated under their
floors was not “surface water” because it did not meet the common law definition
or because of its changed status. (Brief for Plaintiffs at 12-14). They argue that for
the “surface water” exclusion to apply, the damage would have to be a direct
consequence of water flowing across the surface of the wood floors. (Brief for
Plaintiffs at 14); (C.R. 180)(Plaintiffs’ motion for summary judgment). This
argument ignores the evidence in this case and misapplies the controlling case law.
The courts have discussed “surface waters” at length in the context of the common law, riparian rights and T EX . W ATER C ODE § 11.086 (person may not
impound or divert the natural flow of surface water to damage the property of
another); see Dietrich v. Goodman , 123 S.W.3d 413, 417 (Tex. App. – Houston
[14 th Dist.] 2003, no pet.)(“surface water” has been used differently in different
contexts). Even using Plaintiffs’ definition from Dietrich , the water here was
indeed “surface water.” (Brief for Plaintiffs at 12).
After a discussion of the term, the Court in Dietrich concluded that “surface water” is “simply water or natural precipitation diffused over the surface of the
ground until it either evaporates, is absorbed by the land, or reaches a bed or
channel in which it is accustomed to flow.” ( Id. at 418), citing Raburn v. KJI
Bluechip Investments , 50 S.W.3d 699, 704 (Tex. App. – Fort Worth 2001, no pet.).
A “distinguishing feature” of surface water is that it is never found in a natural
watercourse. ( Id. ). The Court also concluded that the “chief characteristic” of
“surface water” as used in the Water Code is that “it does not follow a defined
course or channel and does not gather into or form a natural body of water.” ( Id. );
Texas Woman’s University v. The Methodist Hospital , 221 S.W.3d 267, 278 (Tex.
App. – Houston [1 st Dist.] 2006, no pet.).
Using this analysis, the sprinkler water that migrated into Plaintiffs’ home was certainly surface water. It did not evaporate on the flower bed or it would not
have gone into the home; it was not absorbed by the land or it would not have gone
into the home. It met the “distinguishing feature” or “chief characteristic” of
surface water because it did not follow or form a natural watercourse or body of
water. Indeed, even Plaintiffs appear to agree. See (Brief for Plaintiffs at 13)
(another chief characteristic of surface water is that it does not maintain its identity
and existence as a body of water which distinguishes it from water flowing in a
natural watercourse). [2]
The sprinkler system placed excessive water on the surface of the flower bed and planter. That surface was above the foundation but below the wood floors. The
water migrated by gravity taking the path of least resistance which was under the
flooring. There, it caused a condition that resulted in wet/dry cycles in that area,
which in turn caused the wood boards to warp. The water was diffused over the
surface of the flower bed and planter and reached the area below the flooring by
gravity. The water did not flow through or reach any “natural channel.”
This Court in Valley Forge Insurance Co. v. Hicks Thomas & Lilienstern , 174 S.W.3d 254 (Tex. App. – Houston [1 st Dist.] 2004, pet. denied) dealt with the
same policy exclusion. In that case, Buffalo Bayou flooded downtown Houston
after Tropical Storm Allison. Water rushed through several downtown buildings
and eventually reached the building where the law firm had its offices. The water
damaged the electrical system and the firm had to move to temporary offices to
continue its law practice. The firm made a claim under its insurance policy with
Valley Forge for lost business income and other expenses.
The insurance company denied the claim. That policy, as here, excluded coverage for flood and surface waters. Compare ( Id. at 257) with (C.R. 65). In
*20 addition, the policy in the cited case, and the case at bar, excluded damages caused
directly or indirectly by floor or surface water “regardless of any other cause or
event that contributed concurrently or in any sequence to the loss.” ( Id. ). The trial
court granted summary judgment to the law firm.
This Court reversed and rendered judgment for the insurance company. The Court rejected the firm’s argument that the character of the water had changed
from flood or surface water to “plain old generic water.” ( Id. ); compare (Brief for
Plaintiff at 12)(“Invading water is generic rather than surface water.”). The Court
found that the policy provisions were not ambiguous and concluded that the water
had not changed in character to avoid the plain reading of the exclusion.
In reaching this conclusion, this Court distinguished the opinions cited by the law firm in Sun Underwriters Insurance Co. v. Brinkley , 233 S.W.2d 153 (Tex.
Civ. App. – Fort Worth 1950, writ ref’d); Transamerica Co. v. Raffkind , 521
S.W.2d 935 (Tex. Civ. App. – Amarillo 1975, no writ), and State Farm Lloyds v.
Marchetti , 962 S.W.2d 58 (Tex. App. – Houston [1 st Dist.] 1997, pet. denied).
Plaintiffs rely on those cases here. (Brief for Plaintiffs at 13). In the three cited
cases, unlike here, the composition of the water was altered in some fashion.
Equally as important, the insurance policies in those cases did not have the “lead in
clause” excluding coverage regardless of other contributing causes. The Liberty
Mutual policy here has that same controlling and distinguishing lead in clause.
In its summary, this Court pointed out that the storm deluged the area and created a large amount of surface water. Once the water entered downtown
buildings, “it behaved as strong waters behave.” 174 S.W.3d at 259. The water did
not change or dilute its nature. “It simply flowed onward, as flood and surface
water is wont to do, obeying the law of gravity and flowing into man-made
underground structures.” ( Id. ); see also Texas Woman’s University v. Methodist
Hospital , 221 S.W.3d 267, 279 (Tex. App. – Houston [1 st Dist.] 2006, no
pet.)(rainfall did not lose its designation as diffuse surface water under Water Code
when the water ran off and moved by gravity even if channeled by man made
changes to the natural formation of the land); Michaelski v. Wright , 444 S.W.3d 83
(Tex. App. – Houston [1 st Dist.] 2014, no pet.)(discussion of primary holdings in
Texas Woman’s Hospital ).
The same situation happened here although the volume of water was markedly less. The character of the water that entered Plaintiffs’ home did not
change. Both parties’ summary judgment evidence revealed that “water…
migrate[d] to the lower interior area below the wood floor of the Tsai residence.”
(C.R. 94)(HSA report). To quote this Court from Valley Forge : “It did not back up
into a sewer line, cause a water main to burst, comingle with water from an
underground swimming pool, or otherwise change or dilute its nature.” As the
water from Buffalo Bayou in Valley Forge , the water from the flower bed here, “as
flood and surface water is wont to do,” obeyed the law of gravity and flowed under
the wood flooring but above the foundation, a “man-made underground structure.”
174 S.W.3d at 259. In principle, what happened here and in Valley Forge was the
same, and the insurance policies in Valley Forge and here had the same exclusion
and “lead in clause.” The result should be the same.
The Liberty Mutual exclusion in plain and unambiguous language applies to damage caused by surface water, whether the surface water was “caused by or
resulting from human…forces or act of nature.” The water that fell upon the
surface of the flower bed and the planter was the result of human forces by the
sprinkler system and natural forces by rainfall. Any damage caused by this surface
water is excluded regardless of any other cause or event contributing concurrently
or in any sequence to the loss. But for the surface water from the neighbor’s
watering and the rainfall, there would be no damage. Plaintiffs’ argument that the
water that ran across the surface of the planter or through the planter and entered
their home is not “surface water” ignores the facts and settled Texas law. The
exclusion for flood and surface water applied by its clear terms. See also Crocker
v. American National General Insurance Co. , 211 S.W.3d 928 (Tex. App. – Dallas
2007, no pet.)(water flowing over man made elevated surface is “surface water”
under policy exclusion).
B. Plaintiffs’ claim was excluded under the policy because the loss was caused by water under the surface.
In addition to surface water, the Liberty Mutual policy specifically excludes damage caused by water below the surface of the ground. Thus, even if the water
from Monsour’s sprinkler system was not “surface water” after it went over the
surface of the planter, any water damage is excluded anyway under the part of the
exclusion that excludes coverage for “water…below the surface of the ground,
including water which…seeps or leaks through a building,…foundation, or other
structure; caused by or resulting from human or animal forces or any act of nature.
(C.R. 65).
Plaintiffs’ argument to avoid this exclusion is outlined in one page in their brief. (Brief for Plaintiffs at 16). They claim that the exclusion does not apply
based on a single case from the Court of Appeals in 1982 that had different policy
language. Adrian Associates General Contractors v. National Surety Corp ., 638
S.W.2d 138, 140-141 (Tex. App.—Dallas 1982, writ ref’d n.r.e.), approved ,
National Surety Corp. v. Adrian Associates , 650 S.W.2d 67 (Tex. 1983)(per
curiam). They made the same brief argument, relying on the same case, in the trial
court. (C.R. 181).
As in this Court, Plaintiffs’ reliance on Adrian Associates is misplaced because of a controlling difference in the policy language. The exclusion at issue in
the cited case provided:
In addition to the exclusions in the policy to which this endorsement is attached, this policy does not insure against: (c)(3) Water below the surface of the ground, including that which exerts pressure on or flows, seeps or leaks through sidewalks, driveways, foundations, walls, basement or other floors, or through doors, windows or any other openings in such sidewalks, driveways, foundations, walls or floors….
638 S.W.2d at 139. Based on this policy language, the Court concluded that
subterranean waters subject to the exclusion referred only to water of a “natural
origin” and would not include water from an artificial source. ( Id. at 140). The
Court observed, “Although the Insurance Company contends that the exclusion
applies to all water whatever the source, we conclude that if it was intended to do
so, then the Insurance Company would have said so.” ( Id. ).
Well, that is exactly what happened here, perhaps in response to the opinion.
The Liberty Mutual water damage exclusion, unlike the exclusion quoted by the
Court in Adrian Associates , specifically defines “water damage” to include both
surface water and water below the surface of the ground “ caused by or resulting
from human or animal forces or any act of nature .” (C.R. 65). The exclusion
applies to all water below the surface of the ground, including that from a
neighbor’s sprinkler system that drains through the soil of a planting bed and then
seeps into and runs over the adjacent building foundation. If the water from the
sprinkler system and rainfall was not “surface water,” it clearly had to be “water
below the surface of the ground which seeps or leaks through a building,
foundation or other structure caused by human forces or any act of nature,” which
is also subject to a policy exclusion. (C.R. 65)(irrelevant words omitted). Plaintiffs’
argument that the “water’s origin was never subterranean” is either incorrect or
means that the water was surface water subject to another policy exclusion. (Brief
for Plaintiffs at 7). The argument also contradicts Plaintiffs’ claim that the damage
was due to saturated soil. (Brief for Plaintiffs at 14).
C. The exclusion for water damage is not ambiguous.
A court should read all parts of an insurance policy together, giving meaning to every sentence, clause and word to avoid rendering any portion inoperative or
meaningless. Fiess v. State Farm Lloyds , 202 S.W.3d 744, 748 (Tex. 2006); State
Farm Lloyds v. Marchetti , 962 S.W.2d 58, 60 (Tex. App. ˗ Houston [1 st Dist.]
1997, pet. denied). A policy provision is not ambiguous simply because the parties
interpret it differently. ( Id. ). The ambiguity must be evident from the insurance
policy itself and cannot be created by introducing evidence of intent outside the
policy. ( Id. at 747).
If an insurance policy provision has only one reasonable interpretation, it is not ambiguous. ( Id. at 746). “Courts should not strain to find an ambiguity, if, in
doing so, they defeat the probable intentions of the parties, even though the insured
may suffer an apparent harsh result as a consequence.” Ohio Cas. Group of Ins.
Cos. v. Chavez , 942 S.W.2d 654, 658 (Tex. App. ˗ Houston [14th Dist.] 1997, writ
denied) quoting Vest v. Gulf Ins. Co. , 809 S.W.2d 531, 533 (Tex. App.—Dallas
1991, writ denied). As Plaintiffs themselves point out: “If a written contract is so
worded that it can be given a definite or certain legal meaning, then it is not
ambiguous.” (Brief for Plaintiffs at 9), citing National Union Fire Insurance Co. v.
CBI Industries , 907 S.W.2d 517, 520 (Tex. 1995). [3]
The exclusions at issue in this case are not ambiguous. In Valley Forge , this Court held that the “surface water” and the lead-in language in the exclusion were
not ambiguous. ( Id . at 258)(Applying [the rules of contract interpretation], we
conclude that the contested policy provisions in this case are not ambiguous. We
consider the flood and surface water exclusion, in conjunction with the lead-in
clause, to be dispositive of the issue of coverage….”). Nothing in the exclusion
requires the water to come into direct contact with the damaged flooring or flow
directly from the surface of the ground onto the damaged flooring. In fact, the lead-
in language makes it clear that there are no such requirements.
In a similar way, the “water below the surface” exclusion is not ambiguous.
In Adrian Associates , the only reason the Court in that case found “water below the
surface of the ground” to be ambiguous was because it was not clear if it referred
to all water or just water of natural origin. 638 S.W.2d at 140. The exclusion in this
*27 case does not have that ambiguity, because it clearly and unequivocally states that
“water damage” includes both surface water and water below the surface of the
ground “ caused by or resulting from human or animal forces or any act of nature .”
(emphasis added). To limit the water damage exclusion to “water below the surface
of the ground” only if it is from natural subterranean origins is to ignore and render
meaningless the “ caused by or resulting from human or animal forces or any act of
nature ” language in the exclusion.
D. The Court should affirm the summary judgment on grounds other than breach of contract.
Plaintiffs brought causes of action against Liberty Mutual for breach of contract and violations of the Deceptive Trade Practices Act and Insurance Code.
(C.R. 24). Liberty Mutual moved for summary judgment on all Plaintiffs’ common
law and statutory causes of actions. (C.R. 34). The trial court granted the motion
and ordered that Plaintiffs take nothing from Liberty Mutual on “all claims that
Plaintiffs have pled or could have pled” against Liberty Mutual, which includes
Plaintiffs’ causes of action for breach of contract and statutory violations. (C.R.
415).
In this Court, Plaintiffs only challenged the trial court’s ruling on the claim for breach of contract. (Brief for Plaintiffs at 9)(Plaintiffs only reference breach of
contract). ( Id. at 21)(Plaintiffs argue fact issue exists on whether Liberty Mutual
breached the insurance contract). The Court should affirm the summary judgment
on all other claims because Plaintiffs never challenged that ruling. T EX . R. A PP . P.
38.1(f); Taylor v. Allstate Ins. Co. , 356 S.W.3d 92 (Tex. App. – Houston [1 st Dist.]
2011, pet. denied); DiBello v. Charlie Thomas Ford , 288 S.W.3d 118 (Tex. App. ˗
Houston [1 st Dist.] 2009, no pet.); McAfee Inc. v. Agilysys, Inc. , 316 S.W.3d 820
(Tex. App. – Dallas 2010, no pet.).
Even so, the Court may affirm the summary judgment on these causes of action on the merits. Because there was no breach of contract, Plaintiffs extra-
contractual claims fail as well under the facts of this case. See Gates v. State Farm
County Mutual Ins. Co. of Texas , 53 S.W.3d 826, 830 (Tex. App. – Dallas 2001,
no pet.)(because policyholders lost on breach of contract coverage claims, they
could not, as a matter of law, recover on their common law or statutory bad faith
claims); Betco Scaffolds Co., Inc. v. Houston United Cas. Insurance Co. , 29
S.W.3d 341, 348 (Tex. App. – Houston [14 th Dist.] 2000, no pet.)(same).
In Liberty National Fire Insurance Co. v. Akin, 927 S.W.2d 627, 629 (Tex. 1996), the Supreme Court recognized that “in most circumstances, an insured may
not prevail on a bad faith claim without first showing that the insurer breached the
contract.” See also Republic Insurance Co. v. Stoker, 903 S.W.2d 338, 341 (Tex.
1995); Bunting v. State Farm Lloyds , 2000 WL 191672 at *4 (N.D. Tex. 2000)(not
published)(“Having found that defendant did not breach the insurance policy, these
extra-contractual claims fall like a house of cards.”).
The requirement of a valid breach of contract claim, as articulated by the Supreme Court in Akin , applies to liability for common law claims for bad faith as
well as statutory claims under the Texas Insurance Code and the Texas Deceptive
Trade Practices Act. Progressive County Mutual Insurance Co. v. Boyd, 177
S.W.3d 919, 922 (Tex. 2005)(an insurer’s liability for violation of the Texas
Insurance Code and Deceptive Trade Practices Act incorporates the same standard
as common law bad faith); Spicewood Summit Office Condominiums Association,
Inc. v. American First Lloyd’s Insurance Co. , 287 S.W.3d 461, 468 (Tex. App. -
Austin 2009, pet. denied)(same); see also Douglas v. State Farm Lloyds , 37
F.Supp.2d 532, 544 (S.D. Tex. 1999)(extra-contractual tort claims pursuant to the
Texas Insurance Code and Deceptive Trade Practices Act require the same
predicate for recovery as bad faith causes of action). Because Plaintiffs’ breach of
contract claim fails, their claims for both statutory and common law bad faith fail
as well. As a result, the Court should affirm the summary judgment on all claims
on both procedural and substantive grounds. [4]
Conclusion
The summary judgment in favor of Liberty Mutual should be affirmed. Respectfully submitted, SHEEHY, WARE & PAPPAS, P.C. By:
Richard A. Sheehy State Bar No. 18178600 J. Mark Kressenberg State Bar No. 11725900 Shelley Rogers State Bar No. 17186250 2500 Two Houston Center 909 Fannin Street
Houston, Texas 77010-1003 (713) 951-1000 – Telephone (713) 951-1199 – Facsimile Email: rsheehy@sheehyware.com Attorneys for Defendant and Appellee Liberty Mutual Insurance Company Certificate of Compliance
Pursuant to Rule 9.4(i)(3), I certify that this Brief for Appellee, beginning with the Statement of Facts, and ending after the Conclusion, contains 5,097
words, as measured by a computer program used to prepare the brief.
Richard A. Sheehy
Certificate of Service This will certify that a true and correct copy of this document has been forwarded to all counsel of record pursuant to the Texas Rules of Appellate
Procedure on the 11th day of February 2015.
Via E-Service
Daniel F. Crowder
Crowder, LLP
2211 Norfolk, Suite 610
Houston, Texas 77098
Richard A. Sheehy [2264081]
[1] The claim against Monsour is still pending.
[2] As discussed below, if Plaintiffs claim the water diffused into the ground, and then migrated into the home, the damage still would not be covered by the policy because of the exclusion for water below the surface of the ground. ( Infra at 17). However, that claim is probably less likely because the top of the flower bed was above the foundation but below the wood flooring.
[3] Plaintiffs’ arguments based on their own reasonable interpretation of the policy apply only if the exclusions are ambiguous, which they are not. (Brief for Plaintiffs at 18-19); State Farm Lloyds v. Marchetti , 962 S.W.2d at 60; Valley Forge Insurance Co. v. Hick Thomas & Lilienstern , 174 S.W.3d at 257.
[4] There are two limited exceptions to the breach of contract requirement as outlined by the Court in Republic Ins. Co. v. Stoker , 903 S.W.2d 338 (Tex. 1995): (1) the carrier commits an act so extreme that it would cause an injury independent of the policy claim; or (2) the carrier fails to investigate the claim timely. Plaintiffs have not alleged either exception here.