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Allen v. Lloyds

Court of Appeals of Texas, Fifth District, Dallas

August 1, 2017


         On Appeal from the County Court at Law No. 2 Dallas County, Texas Trial Court Cause No. CC-12-02015-B

          Before Justices Francis, Myers, and Whitehill



         This is a dispute about whether a State Farm Lloyds homeowners insurance policy provides coverage under the dwelling foundation and water damage endorsements for damages to Charles and Julie Allen's home that they contend were caused by two plumbing leaks. Through several summary judgments and directed verdicts, the trial court concluded the Allens had not established the damages were covered by the policy and rendered a take-nothing judgment in favor of State Farm. The Allens challenge the trial court's various rulings and the take-nothing final judgment. We reverse the trial court's judgment and remand for further proceedings.

         I. Background

         The Allens' home was built in 2005 in Cedar Hill, Texas. Before 2009, the Allens had not had any problems with the home's foundation. Julie Allen testified a sewer pipe leaked in 2006 on the northeast corner of the house, but the leak did not affect the home. In late 2009, on two separate occasions two months apart, the water line leading from the water main meter to the Allens' house developed a leak near the meter. The two leaks together emptied over 244, 000 gallons of water onto the Allens' property. Sometime later, the Allens noticed their home was settling and cracking both inside and outside, primarily on the southwest side in the master bedroom, bathroom, and closet. The damages resulting from an unlevel floor were significant enough that Charles Allen, a wheelchair-bound paraplegic, had difficulty accomplishing his daily life tasks, such as showering and brushing his teeth. Although the standard homeowners policy did not cover foundation movement or damages from plumbing leaks, the Allens had purchased endorsements covering these perils and filed a claim with State Farm.

         State Farm sent Ricky Richards of Norseman Engineering to inspect the Allens' house and conduct an engineering evaluation in February 2010, two months after the second leak had been repaired. In his report prepared a month later, Richards noted that at the time of his inspection, the crawl space was standing in about three or four inches of water and the house was about two inches out of level. He did not dispute that the water in the crawl space was the cause of the foundation movement, which in turn was the cause of the damages. He concluded, however, that the plumbing leaks were not the source of the water in the crawl space or the resulting foundation movement because the yard had positive drainage away from the house and the leaks were located about seventy feet away from the house. Instead, he concluded that the source of the water in the crawl space and the resulting foundation movement was rainfall, which he said had been unusually heavy during that time. He took the following photographs during his inspection; the water main is up the hill in both photographs:

         (Image Omitted)

         Richards noted his observations of the exterior and interior of the house with respect to soil, slope, drainage, condition, and damages. He reviewed the water usage for the relevant periods and determined that the usage corresponded with the reported leaks. The water usage in October 2009 was approximately 80, 000 gallons above the usage the prior month; and in December 2009, the water usage was approximately 166, 000 gallons above the usage for the months before and after December. But he concluded that this "major discharge" did not enter the crawl space because of the location of the leaks and because the water followed the natural grade of the lawn, and "did not flow next to the perimeter grade beam, because the lawn at the southwest corner of the house slopes away from the foundation."

         Richards referred to a U.S.D.A. Conservation Survey for Dallas County to describe the characteristics of the soil in and around the Allens' residence. The survey indicated that the soil in that area was "corrosive and well drained." The permeability, which Richards said refers to the rate at which water can flow through the soil, was very slow; and the water capacity, which he said is the amount of water that the soil can hold before it becomes saturated, was high. According to the survey, "the vertical speed of water movement through soil with very slow permeability is less than 0.06 inches per hour." The survey also indicated that the soils in that area "have high to very high shrink/swell potential."

         Richards explained that the most common cause of foundation movement in a pier and beam foundation such as the Allens was shrinking or swelling of the soil due to changes in the moisture content. He made a diagram of the elevations and contours and concluded that the low areas in the foundation did not correlate with the flow pattern from the plumbing leaks and, instead, indicated settlement. He stated that the crawl space was flooded two months after the second leak was repaired, indicating "the current flooding is more closely associated with ongoing heavy rains in this area." Based on Richards' report, State Farm denied coverage.

         The Allens sued State Farm for breach of contract and insurance code violations. The trial court granted summary judgments in favor of State Farm on several issues. The claims remaining for trial were breach of contract and statutory violations.

         At trial, Charles Allen described seeing water coming out of the meter box and going downhill and traveling to the left, or southwest corner, of the house during the first leak. And he said when Richards conducted his inspection, the outside of the house was "very, very wet around like around that corner and in the front right there and around the side."

         Julie Allen testified that she saw a lot of water coming from the water main during both leaks. In December 2009, she drove into the driveway and saw water "kind of gushing out again in the same area." She walked over to the water main and then toward the house. She said the ground was saturated. She said if she could "draw the line, it would be straight towards the shower, that area there, " demonstrating on the photographs; the shower was located near the southwest corner of the house. She said she had "[n]o doubt" that the water from the plumbing leak "was coming down that way and going right at the house." She said she "walked over to the side of the house. My shoes would sink into - because there was so much water." Using photographs, Julie Allen demonstrated the areas she was talking about. She testified she believed the house had suffered deterioration, which she defined as a "breakdown of something, " as a result of the plumbing leaks.

         The Allens also presented testimony from three engineering experts, a residential building contractor, and the State Farm adjuster who handled the Allens' claim. Two of the Allens' experts, Tom Witherspoon and Ralph Mansour, disagreed with State Farm's expert and concluded that the damages to the Allens' house were caused by the plumbing leaks, not rainfall. The other expert, John Foose, was not presented as a causation expert. Witherspoon believed the plumbing trench that contained the water line from the main meter to the house acted as a conduit for the over 244, 000 gallons of water from the leaks and that some of that water went under the house into the crawl space. Mansour also believed the water from the leaks entered the crawl space and, while he testified that he believed the water passed through the surrounding soil to get there, he could not rule out that the water also followed the plumbing trench.

         State Farm's adjuster, Laura Milne, testified she went to the Allens' house on February 22, 2010. She said her "visual observation of the yard showed that the slope ran down and around the corner of the house." Referring to photographs, she said she walked around the house and the ground was wet. When asked where the water came from, she said "[t]he rain." She agreed that the gutters and swale took the rain away from the house and could not explain why "that whole area [was] soaked" if it was not from the plumbing leaks.

         Milne testified that the policy would provide coverage under the Dwelling Foundation Endorsement if the water from the plumbing leaks went under the home and caused foundation damage. But she said her inspection and the engineer's report revealed that the leak did not affect the house because the water went around the house. She said she recommended denial of the claim after looking at the yard and reviewing the engineer's report. She testified she conducted a reasonable investigation, but she also testified she did not test the water in the crawl space or make an effort to determine if the water that leaked underground could have entered the crawl space. She said she did not believe these actions were necessary because she did not "believe that the water went underneath that foundation to damage it. I believe the water went around the house."

         After the Allens rested their case-in-chief, State Farm moved for and the trial court granted four directed verdicts on liability and damages, taking the contract claim away from the jury. The trial court then rendered a final take-nothing judgment against the Allens, effectively dismissing the Allens' remaining statutory claim.

         On appeal, the Allens challenge many of the trial court's rulings. In five issues, they argue the trial court erred by

         ▪ directing a verdict on the contract claim when there was a fact issue regarding coverage under the two endorsements to the policy and whether the Allens proved damages;

         ▪ rendering a take-nothing judgment on the statutory claims; and

         ▪ granting summary judgment against them on their claim that State Farm's statutory violations were committed "knowingly."

         II. Breach of Contract

         The trial court granted a directed verdict against the Allens on their breach of contract claim. The Allens alleged that their insurance policy provided coverage for the damages to their home under both the dwelling foundation and water damage endorsements, and they argue that they presented expert testimony and fact witnesses to support their claims. State Farm moved for directed verdict regarding coverage under the Dwelling Foundation Endorsement arguing the Allens' experts presented no evidence the plumbing leaks caused the water in the crawl space. And State Farm moved for directed verdict regarding coverage under the Water Damage Endorsement arguing the damages were caused by foundation movement, not deterioration from a plumbing leak.

         A. Standard of Review

         A directed verdict is proper when the evidence is such that no other verdict can be reached and the moving party is entitled to judgment as a matter of law. Cooper v. Sanders H. Campbell/Richard T. Mullen, Inc., No. 05-15-00340-CV, 2016 WL 4487924, at *4 (Tex. App.- Dallas Aug. 24, 2016, no pet.) (mem. op.). We review an order granting a directed verdict using the standard of review for assessing the legal sufficiency of the evidence. Id. We consider all the evidence in the light most favorable to the nonmovant and resolve all reasonable inferences in the nonmovant's favor. Id. If a fact issue is raised on a material question, the issue must go to the jury and a directed verdict is not proper. Id. If a trial court's directed verdict is based on a question of law, we review that aspect of the ruling de novo. Id. A fact issue is raised if the evidence would allow reasonable, fair-minded jurors to differ in their conclusions. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003).

         B. Burdens of Proof

         The insured has the initial burden of proving the insurance policy provides coverage for the claimed damages. JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 603 (Tex. 2015). The burden then shifts to the insurer to plead and prove that the loss falls within an exclusion to coverage. Id. If the insurer proves an exclusion applies, the burden shifts back to the insured to prove an exception to the exclusion brings the claimed damages back into coverage. Id. "Generally, an endorsement or rider that provides specific coverage trumps an exclusion contained within the policy's primary forms." Id. at 605 n.7, 606. Because an endorsement provides coverage that would otherwise be excluded, the insured has the burden to prove the damages fall within the endorsement. See id.

         C. Dwelling Foundation Endorsement

         It is undisputed that the Dwelling Foundation Endorsement would provide coverage for the damages to the Allens' house if the foundation movement was caused by the plumbing leaks. The Allens presented the opinions of three engineers to establish damages and causation. In its motion for directed verdict, State Farm argued that the testimony of these experts was conclusory and speculative and constituted no evidence the plumbing leaks caused the foundation movement.

         Conclusory statements of an expert are legally insufficient evidence. Dallas Cty. v. Crestview Corners Car Wash, 370 S.W.3d 25, 55 (Tex. 2012). A conclusory opinion is an opinion without a basis, such as "Take my word for it, I know, " or an opinion with a basis that does not support the opinion. Rogers v. Zanetti, 518 S.W.3d 394, 405, 409 (Tex. 2017). A non-conclusory opinion is one that has "a 'demonstrable and reasoned basis on which to evaluate [the expert's] opinion.' This basis must come in the form of an answer to the question 'Why': Why did the expert reach that particular opinion?" Id. at 405 (quoting Elizondo v. Krist, 415 S.W.3d 259, 263 (Tex. 2013) & Burrow v. Arce, 997 S.W.2d 229, 236 (Tex. 1999)) (internal citation omitted).

         We examine each expert's testimony to determine whether it was conclusory and, as a result, no evidence of causation.

         1. John Foose

         John Foose, a civil engineer, testified that he prepared a report in November 2004 of the site upon which the Allens' house would be built. The formation in that area is known as Eagle Ford Shale and is "highly expansive." He said expansive soils cause many problems for structures. His report showed that he drilled two test borings near where the Allens intended to build their house and conducted tests of the soil and rock for use by a structural engineer in designing the foundation. He said he performed test borings on four or five other home sites in that area as well. None of the test borings showed the presence of underground water. He encountered Eagle Ford shale at a depth of about nine feet. His report described the soil strata in the borings and the plasticity index of the soil. He testified that a plasticity index above 35 indicates "a volatile soil" and the plasticity index at the Allens' site was "well above that." His report also noted that other tests indicated the soil was "very volatile."

         Foose recommended a pier and beam foundation or an elevated concrete slab support on piers. His report stated that if the designer and homeowner chose a pier and beam foundation, "[a] void must be created below the [perimeter] beams to prevent swelling soil exerting pressure on the bottom of the beam." He explained two methods of creating the void. The preferred method was to have the bottom of the perimeter beam a foot above ground level with soil retainers along the perimeter to prevent soil from collapsing into the space. The other method was to use carton forms under the perimeter beam to create the void. He said the void would be smaller and "great care must be taken to prevent the forms [from] collapsing when the concrete is placed." He testified he did not know which method was used on the Allens' house.

         Foose also recommended piers be used on the interior of the house, but he did not know if that had been done. He explained that using "spread footings or shallow footings" instead of piers on the interior "could be a problem" in the expansive clay soil.

         Foose testified generally that when a house is constructed, the plumber digs a trench from the water main to the house in which the plumber lays the water line to the house. He said typically the pipe goes underneath the perimeter beam, comes up into the crawl space, and is distributed to the kitchen, bathrooms, and other rooms where water is needed. He testified based on his experience that the soil in the "trench is normally more loosely compacted than the surrounding soil" and serves as a conduit for water when there is a leak. In other words, water from a leak will "migrate along the trench" and "wind up underneath the house" because gravity would "pull [the water] downhill, which in this case is toward the home." He explained that the soil is more loosely compacted in the trench because the plumber cannot use heavy equipment to compact the soil around the pipe because it would break the pipe. His report recommended that plumbing trenches be "backfilled with well-compacted natural clay soil to prevent water migrating beneath the slab through porous fill in the trenches."

         Foose referred to pictures of the Allens' home under construction in explaining his testimony. He admitted he did not have personal knowledge about how the trench at the Allens' home was backfilled. Foose testified that if water had traveled through the plumbing trench, he would expect to see water under the house and perhaps some evidence of it traveling along the trench. He testified that with "a big leak, ...

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