United States District Court, S.D. Texas, Houston Division
MEMORANDUM OPINION AND ORDER
H. Miller, Senior United States District Judge.
motions are pending before the court: plaintiff AmGuard
Insurance Company's (“AmGuard”) motion for
summary judgment (Dkt. 45) against defendants Lone Star Legal
Aid (“Lone Star”), BXS Insurance, Inc.
(“BXS”), and intervenor AIG Specialty Insurance
Company (“AIG”) (collectively,
“Defendants”); Defendants' motion for partial
summary judgment against AmGuard (Dkt. 51); cross motions to
exclude expert witness testimony (Dkts. 53, 54); and
Defendants' objections to AmGuard's summary judgment
evidence (Dkt. 62). The deadlines for responses and replies
have elapsed, and the motions are now ripe for consideration.
Having considered the motions, responses, replies, record
evidence, and applicable law, the court is of the opinion
that AmGuard's motion (Dkt. 45) should be GRANTED in
part, and DENIED in part; Defendants' motion for partial
summary judgment (Dkt. 51) should be DENIED; the motions to
exclude (Dkts. 53, 54) should be DENIED; and Defendants'
objections (Dkt. 62) should be SUSTAINED in part.
case involves an insurance coverage dispute between AmGuard
and Lone Star. Lone Star, through its insurance broker and
co-defendant BXS, obtained an insurance policy from AmGuard
covering Lone Star's principal office building
(“Building”) located at 1415 Fannin Street in
Houston, Texas and other Lone Star properties for the period
between June 10, 2017 and June 10, 2018
(“Policy”). Dkt. 45 at 7. The Policy included a
Protective Safeguards Endorsement (“PSE”) that
added certain conditions precedent and exclusions.
Id. Among other things, the PSE specifically
required Lone Star to maintain an automatic sprinkler system
in the Building. Id.; Dkt. 45-1 at 112.
August 28, 2017, the Building was damaged when flooding from
Hurricane Harvey caused an explosion in an electric utility
vault that resulted in a fire inside the Building. Dkt. 45 at
7. Because the Building did not have an automatic sprinkler
system prior to the fire, AmGuard denied Lone Star's loss
claim. Id. at 7.
filed this suit against Lone Star and BXS seeking a
declaration of the rights and obligations of the parties
under the Policy. Dkt. 1. Lone Star and BXS each answered and
filed counterclaims against AmGuard seeking declaratory
relief, and asserting contractual, extra-contractual, and
statutory claims. Dkt. 26, 28. AIG intervened after
purchasing portions of Lone Star's claims against
AmGuard. Dkt. 29.
now moves for summary judgment on all claims because, AmGuard
argues, whether coverage for the claimed damage exists is a
dispositive issue that may be determined as a matter of law
on the Policy's express language. Dkt. 45. Defendants
respond that summary judgment on their breach of contract
claim is in order because the lack of an automatic sprinkler
system did not contribute to the fire damage and the Texas
Insurance Code precludes AmGuard from denying coverage due to
a breach of a fire insurance policy that did not contribute
to the claimed damage. Dkt. 51.
shall grant summary judgment when a “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] fact is genuinely in dispute
only if a reasonable jury could return a verdict for the
nonmoving party.” Fordoche, Inc. v. Texaco,
Inc., 436 F.3d 388, 392 (5th Cir. 2006). The moving
party bears the initial burden of demonstrating the absence
of a genuine issue of material fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 323, 106 S.Ct. 2540 (1986). If
the moving party meets its burden, the burden shifts to the
non-moving party to set forth specific facts showing a
genuine issue for trial. Fed.R.Civ.P. 56(e). The court must
view the evidence in the light most favorable to the
non-movant and draw all justifiable inferences in favor of
the non-movant. Envtl. Conservation Org. v. City of
Dallas, 529 F.3d 519, 524 (5th Cir. 2008).
asserts that no genuine issue of material fact exists and
judgment as a matter of law in its favor is appropriate
because the plain language of the contract is unambiguous and
disposes of all claims. Dkt. 45. In response, Defendants
argue that the plain, unambiguous language of the contract
supports judgment in its favor, or alternatively, a provision
of the Texas Insurance Code (known as the Anti-Technicality
Statute) precludes AmGuard from denying coverage in this case
unless Lone Star's breach of the insurance contract
contributed to the claimed damage. Dkt. 51. Defendants also
submitted evidence to support their claim that Lone
Star's breach did not contribute to the claimed damage.
Id. AmGuard denies the Anti-Technicality Statute
applies in this case, but also submits evidence to show that
the claimed damage would have been less but for Lone
Star's breach. Dkt. 56. Both sides have objected to the
summary judgment evidence offered by the other. Dkts. 53, 54,
62. The court will consider each of these arguments in turn.
Plain Language of the Policy
parties do not dispute that Texas law controls the
interpretation of the Policy. Under Texas Law, insurance
policies are interpreted “under the well-established
rules of contract construction.” Great Am. Ins. Co.
v. Primo, 512 S.W.3d 890, 892 (Tex. 2017). “The
goal of contract interpretation is to ascertain the
parties' true intent as expressed by the plain language
they used.” Id. at 893. “[E]very
contract should be interpreted as a whole and in accordance
with the plain meaning of its terms, ” and “no
provision is rendered meaningless.” Id. at
892-93. Terms are assigned “their ordinary and
generally accepted meaning unless the contract directs
otherwise.” Id. at 893. “Endorsements to
a policy generally supersede and control over conflicting
printed terms within the main policy; however, the provisions
found in the main policy and endorsement should be construed
together unless doing so would negate or render superfluous
the additional coverage afforded in the endorsement.”
Mid-Continent Cas. Co. v. Bay Rock Operating Co.,
614 F.3d 105, 115 (5th Cir. 2010) (internal quotations
the language lends itself to a clear and definite legal
meaning, the contract is not ambiguous and will be construed
as a matter of law.” Id. Ambiguities arise
“only when the contract is actually susceptible to two
or more reasonable interpretations.” Id.
(Internal quotations omitted). “The fact that the
parties disagree about the policy's meaning does not
create an ambiguity.” Id.
burden of establishing coverage under the terms of the policy
lies with the insured and shifts to the insurer to plead and
prove the policy excludes coverage. See JAW The Pointe,
L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 603 (Tex.
2015); see also Tex. Ins. Code § 554.002
(“Language of exclusion in the contract or an exception
to coverage claimed by the insurer . . . constitutes an
avoidance or an affirmative defense.”).
parties agree that the Policy would cover the claimed loss
but for the PSE's requirement that Lone Star maintain an
automatic sprinkler system. Dkt. 45 at 7; 51 at 6-9.
Specifically, the PSE alters the Policy to require Lone Star
to “maintain the protective devices or services listed
in the Schedule, ” and excludes “loss or damages
caused by or resulting from fire if, prior to the fire, [Lone
Star] . . . [f]ailed to maintain any protective safeguard
listed in the Schedule.” Dkt. 45-1 at 112. The PSE
schedule identified the Building as a covered property and an
automatic sprinkler system as a required protective safeguard
for the Building. Id. at 111-12. Notwithstanding the
unambiguous language of the PSE, Defendants assert the Policy
still covers the claimed damage under a separate
provision-the water exclusion provision. Dkt. 51 at 21-24.
the language and structure of the Policy subvert
Defendants' argument. The Policy's first section is
titled “Section I - PROPERTY.” Dkt. 45-1 at 33.
Section I is further divided into several subsections,
including “A. Coverage” and “B.
Exclusions.” Dkt. 45-1 at 33, 46. As the titles
suggest, subsection A details the types of damage the Policy
will pay for, whereas subsection B lists specific instances
where damage that might otherwise be covered under subsection
A is not included within the Policy's protections. In
other words, the Policy obligates AmGuard to cover any
claimed damage listed in subsection A unless a specific
provision in subsection B excludes such damage from coverage.
water exclusion provision is located within subsection B and
reads as follows:
1. We will not pay for loss or damage caused directly or
indirectly by . . .
(1) Flood . . .
But if any of the above, in Paragraphs (1) through (5),
results in fire, explosion or sprinkler leakage, we will pay
for the loss or damage caused by that fire, explosion or
Id. at 46, 48. According to Defendants, the final
sentence in the water exclusion provision provides coverage
for any fire resulting from flooding in a covered property.
But this is counter to the provision's unambiguous
language. The water exclusion provision specifically excludes
damage caused by flooding, and then carves out “damage
caused by . . . fire, explosion or sprinkler leakage”
from that exclusion. In doing so, the Policy does not provide
an independent basis for coverage, but instead retains
coverage for such damage within the coverage in subsection A.
However, that coverage is still subject to other exclusions,
including the PSE which amends subsection B to specifically
exclude “loss or damage caused by or resulting from
fire if, prior to the fire, ” Lone Star did not
maintain an automatic sprinkler system in the Building.
Id. at 111-12.
cite State Farm Lloyds v. Marchetti, 962 S.W.2d 58
(Tex. App.-Houston [1st Dist.] 1997, pet. denied), in support
for their argument that the PSE's general exclusionary
language does not apply to the alleged specific grant of
coverage in the water exclusion provision. Dkt. 51 at 22-23.
In Marchetti, an insured sought coverage of damage
to their home from the backup of water and raw sewage through
a drain opening in their utility room caused by local
flooding. 962 S.W.2d at 59. The insurance policy at issue was
structured similarly to the Policy in ...