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Certain Underwriters at Lloyd's of London v. Lowen Valley View, LLC

United States District Court, N.D. Texas, Dallas Division

July 21, 2017

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

          MEMORANDUM OPINION AND ORDER

          JANE J. BOYLE UNITED STATES DISTRICT JUDGE.

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

         I.

         BACKGROUND

         A. Factual History[1]

         This is an insurance coverage dispute involving hail damage to a hotel. Defendants Lowen Valley View, LLC and Panade II Ltd. d/b/a Hilton Garden Inn (collectively Defendants) own and operate the Hilton Garden Inn in Irving, Texas. Doc. 34, Defs.' Resp. to Pl.'s Mot. Summ. J. 4 [hereinafter Defs.' Resp.]. Underwriters issued a standard commercial property insurance policy (the Policy) to Defendants covering the hotel for the period from June 2, 2012, to June 2, 2013. Doc. 47, Pl.'s Br. in Supp. of Am. Mot. Summ. J. 2 [hereinafter Pl.'s Br.]. The Policy, by its terms, covered “direct physical loss or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Id. (referencing Doc. 48, Pl.'s App. in Supp. of Am. Mot. Summ. J. [hereinafter Pl.'s App.] 133, Ex. D, Building and Personal Property Coverage Form). The parties do not dispute that hail was a covered cause of loss under the Policy. See Doc. 11, Defs.' Answer & Countercls. ¶ 26; see also Doc. 47, Pl.'s Br. 11.

         In November 2014, Ajay Desai, the vice president of the company that manages the hotel, was evaluating the property for potential capital improvement projects. Doc. 34, Defs.' Resp. 5. Noticing that “the shingles on the top of the hotel looked bad, ” Desai contacted a roofing contractor, who inspected the property and found evidence of significant hail damage to the various roofing systems at the property. Id. On December 22, 2014, this roofing contractor obtained a weather history report from a company called Weather Fusion/Point Data, which noted several hail events at or near the hotel between the dates of January 1, 2006, and December 21, 2014. Id. (citing Doc. 48, Pl.'s App. 209-11, Ex. G, Weather Fusion/PointData Report).[2]

         Specifically, the report, dated December 22, 2014, noted nine events of hail “at location” between January 1, 2006, and December 21, 2014, five of which had “estimated maximum hail size” of greater than one inch. See Doc. 48, Pl.'s App. 209-11, Ex. G, Weather Fusion/Point Data Report. Of the nine hail events noted “at location, ” seven occurred before the policy period, one after, and one during, on June 13, 2012. See Id. The event with the largest “estimated maximum hail size” noted “at location” was on May 24, 2011. See Id. And of the five events with “estimated maximum hail size” greater than one inch, only the June 13, 2012 event occurred during the policy period; the other four occurred prior to the policy period. See id.

         Defendants' roofing contractor provided a copy of the Weather Fusion/PointData report to Desai, who in turn provided a copy to Defendants' insurance agent on December 29, 2014. Doc. 34, Defs.' Resp. 5; Doc. 47, Pl.'s Br. 3. Defendants' insurance agent filed a hail claim with Underwriters on behalf of Defendants on the same day. Doc. 34, Defs.' Resp. 5; Doc. 47, Pl.'s Br. 3. The description of the damage provided to Underwriters was “roof damage due to hail, ” and the date of loss listed on the Property Loss Notice was June 13, 2012, the date of the only hail event noted on the Weather Fusion/PointData report provided to the insurance agent that occurred during the policy period. Doc. 48, Pl.'s App. 204-05, Ex. E, Property Loss Notice.

         After receiving notice of the claim from the agent, Underwriters assigned the investigation of the claim to Frontier Adjusters, which sent an independent adjuster, Derek Phipps, to inspect the property for hail damage in mid-January 2015. Doc. 34, Defs.' Resp. 5; Doc. 47, Pl.'s Br. 4; Doc. 48, Pl.'s App. 231-38, Ex. J, Phipps Damage Estimate.[3] When assigned the job, Phipps received only the Property Loss Notice, which included no information about the Policy or its coverage and no special instructions for the inspection. Doc. 48, Pl.'s App. 205, Ex. E, Property Loss Notice; Doc. 33, Defs.' App. in Supp. of Resp. to Pl.'s Am. Mot. Summ. J. [hereinafter Defs.' App.] 52-55, Ex. D, Dep. of Derek Phipps.

         Before physically inspecting the property, Phipps consulted National Oceanic and Atmospheric Administration (NOAA) reports online, which he used to confirm that a hail storm had in fact occurred in the area and on the date of loss provided to him by Frontier Adjusters. Doc. 33, Defs.' App. 65-66, Ex. D, Dep. of Derek Phipps. Phipps's computer log notes from January 16, 2015, indicate that he found significant hail damage to the roofs and exterior siding upon inspection of the property. Id. at 412, Ex. K, Phipps Computer Log Notes. Phipps determined that the roofs would require replacement rather than repair, and on January 19, 2015, prepared an estimate of what it would cost to replace the roofs. Doc. 48, Pl.'s App. 231-38, Ex. J, Phipps Damage Estimate.[4] Phipps submitted his estimate to Frontier Adjusters through a web-based computer program. Doc. 33, Defs.' App. 73, Ex. D, Dep. of Derek Phipps.

         On March 2, 2015, Underwriters-through an authorized claims administrator, Peninsula Insurance Bureau-sent a “reservation of rights” letter to Defendants, which indicated that the initial investigation had revealed “potential coverage issues, ” namely “late reporting of the loss.” Id. at 239-42, Ex. K, Reservation of Rights Letter. Therefore, the letter stated, the investigation would proceed “under a full reservation of rights.” Id. It also directed Defendants to the specific policy language requiring “prompt notice of the loss or damage.” Id. (quoting Doc. 48, Pl.'s App. 35, Building and Personal Property Coverage Form, Part E.3.a.2). Finally, the letter noted that “any recommendations made by the adjuster [were] subject to the Underwriters' review and approval.” Id. at 242.

         Subsequently, Underwriters-through Frontier Adjusters-engaged a company called Haag Engineering to “determine the extent of hailstone impact damage to the roofing and siding” and to “evaluate when hail damage might have occurred.” Doc. 33, Defs.' App. 243, Ex. G, Haag Report No. 1. Haag's first report, dated April 8, 2015, noted that “[a] date of June 13, 2012 was provided with our assignment.” Id. at 244. After inspecting the property on March 17, 2015, and consulting weather history reports from the National Climatic Data Center, CoreLogic (formerly Weather Fusion, the same company that provided the initial weather history reports to Defendants' roofing contractor), and NOAA, Haag concluded that “the most recent hailstorm with hailstones large enough to cause the damage we observed was on June 13, 2012.” Id. at 250 (emphasis added). Notably, the CoreLogic report attached to Haag's report contained the same history of hail events found in the Weather Fusion/PointData report provided to Desai and Defendants' insurance agent prior to the filing of the claim. Compare Doc. 48, Pl.'s App. 209-11, Ex. G, Weather Fusion/PointData Report (provided to Desai and insurance agent), with Doc. 33, Defs.' App. 263-64, Ex. G, Haag Report No. 1 (CoreLogic report attached to Haag Report No. 1).

         A second report from Haag Engineering, ordered specifically to “discuss the likelihood that damage occurred between December 29, 2012 and December 29, 2014, ” again noted that Haag had “no reason to believe the dents occurred more recently than the June 13, 2012 date given.” Id. at 363-64, Ex. H, Haag Report No. 2 (emphasis added). This report also for the first time identified “June 13, 2012 as the most likely date damage occurred.” Id. at 363 (emphasis added). As discussed below, Defendants place much weight on this slight change in wording.

         In December 2015, Underwriters requested an Examination Under Oath of Ajay Desai, vice president of the hotel's property management company. Doc. 34, Defs.' Resp. 8. The Examination took place in January 2016. There, Desai described how he first noticed the condition of the roofs in November 2014 and how he sent the Weather Fusion/PointData report to the insurance agent, who Desai suspected then chose the date of loss to report to the insurer. See generally Doc. 33, Defs.' App. Ex. C, Exam. Under Oath of Ajay Desai; see also Doc. 48, Pl.'s App. 208, Ex. F, Exam. Under Oath of Ajay Desai (“I think they looked at the history and they probably saw which period had the highest amount of hail and -- I assume that's how they determined where to file the claim.”).

         A month later, on February 18, 2016, Underwriters denied Defendants' claim “based on [Defendants'] failure to give timely notice.” Doc. 48, Pl.'s App. 246-49, Ex. M, Denial Letter. The Denial Letter again directed Defendants to the “prompt notice” requirement in the Policy and stated that Defendants “failed to give notice of the damage to the Property until over two and a half years after the alleged hailstorm.” Id. at 248. The Letter indicated that this “late notice has prejudiced Underwriters' ability to properly investigate the claim and pay only for damage that occurred during the policy period.” Id. at 249.

         B. Procedural History

         On the same day, February 18, 2016, Underwriters also filed its Original Complaint and Request for Declaratory Judgment, asking the Court to declare “that there is no coverage under [the Policy] for the reported hail damage because Defendants violated the policy's notice condition and Underwriters suffered prejudice as a result.” Doc. 1, Pl.'s Original Compl. & Req. for Declaratory J. ¶ 21. Defendants later counterclaimed for declaratory judgment, breach of the insurance contract, and multiple violations of §§ 541 and 542 of the Texas Insurance Code. Doc. 11, Defs.' Answer & Countercls.[5]

         Underwriters now moves for summary judgment on Defendants' breach of contract and Texas Insurance Code counterclaims. Doc. 46, Pl.'s Am. Mot. Summ. J [hereinafter Pl.'s Mot.].[6]Defendants responded (Doc. 32), and Plaintiff replied (Doc. 43).[7] Therefore, Plaintiff's Motion is now ripe for review.

         II.

         LEGAL STANDARD

         Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute “is ‘genuine' if the evidence is sufficient for a reasonable jury to return a verdict for the non-moving party.” Burrell v. Dr. Pepper/Seven Up Bottling Grp., 482 F.3d 408, 411 (5th Cir. 2007). And a fact “is ‘material' if its resolution could affect the outcome of the action.” Id.

         The summary judgment movant bears the burden of proving that no genuine issue of material fact exists. Latimer v. Smithkline & French Labs., 919 F.2d 301, 303 (5th Cir. 1990). Usually, this requires the movant to identify “those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted). But if the non-movant ultimately bears the burden of proof at trial, the movant may satisfy its burden just by pointing to the absence of evidence supporting the non-movant's case. Id. at 322-23.

         If the movant meets that burden, then it falls to the non-movant to “show with significant probative evidence that there exists a genuine issue of material fact.” Hamilton v. Segue Software Inc., 232 F.3d 473, 477 (5th Cir. 2000) (internal quotation marks omitted) (citing Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir. 1994)). And significant probative evidence is just that: significant. See Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (per curiam). “[M]etaphysical doubt as to material facts, ” “conclusory allegations, ” “unsubstantiated assertions, ” or a mere “scintilla of evidence” will not do. Id.(internal citations and quotation marks omitted). Rather, “the non-movant must go beyond the pleadings and present specific facts indicating a genuine issue for trial.” Bluebonnet Hotel Ventures, L.L.C. v. Wells Fargo Bank, N.A., 754 F.3d 272, 276 (5th Cir. 2014) (citing Celotex, 477 U.S. at 324).

         To be sure, the court views evidence in the light most favorable to the non-movant when determining whether a genuine issue exists. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 2000). But it need not “sift through the record in search of evidence to support a party's opposition to summary judgment.” Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (quoting Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 & n.7 (5th Cir. 1992)). Simply put, the non-movant must “identify specific evidence in the record” and “articulate the precise manner in which that evidence supports [its] claim.” Id. If it cannot, then the court must grant summary judgment. Little, 37 F.3d at 1076.

         III.

         ANALYSIS

         A. Defendants' Evidentiary Objections

         Before turning to the merits of Plaintiff's Motion, the Court must first address Defendants' objections to Plaintiff's summary judgment evidence. Defendants object to paragraphs 10, 11, 12, 13, and 16 of the affidavit of Derek Phipps, which is attached as Exhibit H to Plaintiff's Amended Motion for Summary Judgment. Doc. 35, Defs.' Objs. to Pl.'s Evid. in Supp. of Summ. J. [hereinafter Defs.' Objs.].

         As noted above, Phipps was the independent adjuster sent by Frontier Adjusters-on behalf of Underwriters-to investigate the property a few weeks after the hail claim was filed. Doc. 34, Defs.' Resp. 5; Doc. 47, Pl.'s Br. 4. Plaintiff provided an affidavit from Phipps as part of its summary judgment evidence. See Doc. 48, Pl.'s App. 212-15, Ex. H, Aff. of Derek Phipps. The affidavit is dated July 25, 2016-roughly five months after the claim was denied and this lawsuit was filed-and it describes generally how Phipps's investigation was affected by the two and a half year gap between the time of the reported loss in June 2012 and the filing and investigation of the claim in December 2014 and January 2015. Id.

         The entirety of the challenged portion of Phipps's affidavit states the following:

10. “The late notice of the claim impacted the investigation in the following ways:
a. I was unable to inspect the insured property immediately after the loss.
b. I was unable to document the condition of the roof immediately following the Loss.
c. I was unable to determine if the roof or exterior elevations had been impacted by other weather events or other non-covered perils preceding the Loss.
d. I lost the opportunity to quantify the damage present at the insured premises immediately after the Loss.
e. I lost the opportunity to interview witnesses who may have known the prior condition of the roof and the impact of the Loss.
f. The condition of the roofs changed significantly between the time of the alleged hail storm and the date notice was finally given, making investigation of the existence and extent of the related damage nearly impossible.”
11. “As a result of the late notice of the claim, the investigation was severely hindered.”
12. “As a result of the late notice of the claim, I could not conduct a full and fair investigation of the circumstances surrounding the Loss in order to determine whether ...

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