Opinion
NO. 3-01-CV-1285-BD
September 30, 2002
MEMORANDUM OPINION AND ORDER
Defendant State Farm Lloyds has filed a motion for summary judgment as to all claims and causes of action asserted by plaintiffs in this case. For the reasons stated herein, the motion is denied.
I.
Plaintiffs Lance and Randa Keeling were insured under a standard Texas Homeowner's Policy issued by defendant. The policy insures against physical loss to residential dwellings and personal property caused by a variety of occurrences. (Def. App. at 94, Sec. I — Coy. A B). Certain losses are excluded from coverage, including:
[L]oss under Coverage A (Dwelling) caused by settling, cracking, bulging, shrinkage, or expansion of foundations, walls, floors, ceilings, roof structures, walks, drives, curbs, fences, retaining walls or swimming pools.
(Id. at 95, Section I — Excl. ¶ 1(h)). Under Texas law, this exclusion "does not apply to loss caused by the accidental discharge, leakage, or overflow of water or steam from within a plumbing, heating, or air conditioning system or household appliance." Balandran v. Safeco Insurance Co. of America, 972 S.W.2d 738, 742 (Tex. 1998).
Although the policy contains a number of other exclusions cited by defendant in its summary judgment motion, the only exclusion argued by defendant in its brief pertains to losses caused by "settling, cracking, bulging, shrinkage, or expansion of foundations . . ." (Def. Br. at 9). Thus, the court may grant summary judgment only on this ground. See John Deere Co. v. American National Bank, 809 F.2d 1190, 1192 (5th Cir. 1987) (district court may not grant summary judgment on grounds not argued by moving party).
At some point during the policy period, plaintiffs discovered damage to the foundation of their home. On January 26, 1999, plaintiffs notified defendant that Baker Brothers Plumbing had verified a leak somewhere in the sewer line. (Def. App. at 22). Subsequent testing revealed two plumbing leaks under a utility room in plaintiff's home. (Id. at 24, 55, 59). After receiving notice of this claim, defendant retained Edward M. Simpson, a registered professional engineer, to determine the cause of any foundation movement. (Id. at 3). Simpson conducted a structural evaluation of the home which included an "inspection and survey of the premises, field and laboratory soil testing, interview with owner, and review of independent plumbing tests and repairs." (Id. at 31). Based on his investigation, Simpson concluded that:
1. The Keeling house has a history of mild recurring foundation distortion caused by unstable site conditions (expansive clay soil supporting a floating slab foundation). The dominant causes of the distortion have been long-term consolidation settlement and seasonal soil moisture variation.
2. Plumbing leakage caused transient slab distortion and cosmetic damage in the vicinity of the leak. The plumbing leak effects were marginal; that is, they were superimposed upon unrelated slab distortion of greater magnitude. The area affected by the plumbing leaks include less than twenty percent of the total foundation area.
3. Foundation underpinning and jacking are not appropriate or necessary for correction of the leak-related slab distortion, which is self-correcting . . .
(Id. at 38). On May 27, 1999, defendant notified plaintiffs of the results of this investigation. According to defendant, only the kitchen, family room, and dining/living areas were affected by the plumbing leaks. The foundation damage and cracking in other parts of the house were not caused by the leaks and therefore excluded from coverage. (Id. at 10). Defendant paid plaintiffs $4,734.70 to repair some of the structural damage to their home and costs associated with accessing the damaged plumbing. (Id. at 14-2 1). Plaintiffs seek an additional $35,250 for foundation repairs and related expenses.
Unable to resolve this dispute, plaintiffs filed suit in state court for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Deceptive Trade Practices Act and Texas Insurance Code. Defendant timely removed the case to federal court and filed a motion for summary judgment. The legal issues have been briefed by the parties and this matter is ripe for determination.
Federal jurisdiction is proper because the parties are citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs. See 28 U.S.C. § 1332 (a)(1). After the case was removed, plaintiffs dropped their claims for breach of the duty of good faith and fair dealing, unfair claims settlement practices under Article 21.21-2 of the Texas Insurance Code, and violations of the Texas Deceptive Trade Practices Act. Thus, the only claims before the court are for breach of contract and delay damages under Article 21.55 of the Texas Insurance Code. (Plf. Third Am. Compl. at 2-3, ¶¶ 9-10, 11-12).
II.
Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
When a party with the burden of proof seeks summary judgment on a claim or affirmative defense, he must establish "beyond peradventure all of the essential elements of the claim or defense." Bank One, Texas, N.A. v. Prudential Insurance Co. of America, 878 F. Supp. 943, 962 (N.D. Tex. 1995). Conversely, a summary judgment movant who does not have the burden at trial need only point to the absence of evidence to support a claim or defense. Duffy v. Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir. 1995). Once the movant satisfies his initial burden, the non-movant must go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). The parties may satisfy their respective burdens by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 113 S.Ct. 82 (1992). All evidence must be viewed in the light most favorable to the party opposing the motion. Rosado v. Deters, 5 F.3d 119, 122 (5th Cir. 1993). However, conclusory statements and testimony based on conjecture or subjective belief are not competent summary judgment evidence. Topalian, 945 F.2d at 1131.
III.
Defendant seeks summary judgment on three grounds: (1) the policy excludes coverage for the foundation damage to plaintiffs' home; (2) defendant has paid all amounts to which plaintiffs are entitled under the doctrine of concurrent causation; and (3) plaintiffs are not entitled to delay damages under Article 21.55 of the Texas Insurance Code. The court will address each argument in turn.
A.
The homeowner's policy issued to plaintiffs excludes coverage for damage resulting from "settling, cracking, bulging, shrinkage, or expansion of foundations, walls, floors, ceilings, roof structures" caused by factors other than accidental plumbing leaks. (Def. App. at 94-95, Sec. I, Coy. A Excl. ¶ 1(h)). Under Texas law, defendant has the initial burden of establishing this policy exclusion. Telepak v. United Services Automobile Ass'n, 887 S.W.2d 506, 507-08 (Tex.App. — San Antonio 1994, writ denied). The burden then shifts to plaintiffs to show that an exception to the exclusion restores coverage. Id. Defendant argues that plaintiffs cannot meet their burden of proving that the foundation damage to their home was caused by a plumbing leak because they have failed to designate an expert on the issue of causation.
In their initial disclosures and answers to written discovery, plaintiffs designated Scott Parker as an expert on the issues of "causation of damages and cost of repair." (Plf. Resp., Exhs. C D, Int. #2). A copy of Parker's report was provided to defendant in response to a request for production of documents. (Id., Exh. D, Int. #2). Parker was also deposed by counsel for defendant. He testified that the foundation movement at plaintiffs' home was "caused by introduction of moisture into the foundation" and "could only have been caused by a plumbing leak." (Id., Exh. A, p. 78, 91-92). This evidence, viewed in the light most favorable to plaintiffs, is sufficient to create a fact issue as to whether the foundation damage to their home was caused by a plumbing leak and therefore outside the scope of the policy exclusion.
Defendant argues that Parker was not properly designated as an expert in accordance with the scheduling order dated August 6, 2001. This order required plaintiffs to "file a written designation of the name and address of each expert witness who will testify at trial and [I otherwise comply with rule 26(a)(2), FED. R. Civ. P. . . on or before April 5, 2002." SCH. ORDER, 8/6/01 at 3, ¶ 4 (emphasis omitted). Assuming arguendo that this deadline applies to the designation of experts for summary judgment purposes, the exclusion of an expert witness for failure to comply with a scheduling order is not automatic. Instead, the court must consider: (1) the party's explanation, if any, for the untimely designation of the expert; (2) prejudice to the opposing party; (3) the possibility of curing such prejudice by granting a continuance; and (4) the importance of the witness's testimony. See Verzwyvelt v. St. Paul Fire Marine Insurance Co., 204 F.R.D. 309, 311 (W.D. La. 2001), citing Barrett v. Atlantic Richfield Co., 95 F.3d 375, 380 (5th Cir. 1996). Without deciding whether these factors weigh in favor of allowing Parker to testify at trial, the court will not exclude his testimony at this stage of the proceeding.
B.
Parker's testimony also precludes summary judgment in favor of defendant under the doctrine of concurrent causation. This principle of insurance law provides that "when covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril(s)." Wallis v. United Services Automobile Ass'n, 2 S.W.3d 300, 302 (Tex.App. — San Antonio 1999, pet. denied), citing Traveler's Indemnity Co. v. McKillip, 469 S.W.2d 160, 163 (Tex. 1971). Although defendant's expert, Edward M. Simpson, has stated that the area affected by the plumbing leaks accounts for less than 20% of the total foundation area, Scott Parker testified that the interior and exterior distress to plaintiffs' home "could only have been caused by a plumbing leak." (Compare Def. App. at 38 with Plf. Resp., Exh. A at 92). This testimony, viewed in the light most favorable to plaintiffs, provides a reasonable basis for a jury to conclude that 100% of the foundation damage to their home was caused by a "covered peril." See State Farm Fire and Casualty Co. v. Rodriguez, 2002 WL 1624680 at *4 (Tex.App.-San Antonio, Jul. 24, 2002).C.
Finally, defendant argues that it fully complied with all applicable time limitations for paying this claim and cannot be held liable for delay damages under Article 21.55 of the Texas Insurance Code. This statute provides, in relevant part:
If an insurer delays payment of a claim following its receipt of all items, statements, and forms reasonably requested and required, as provided under Section 2 of this article, for a period specified in other applicable statutes or, in the absence of any other specified period, for more than 60 days, the insurer shall pay damages and other items as provided in Section 6 of this article.
TEX. INS. CODE ANN. art. 21.55, § 3(f) (Vernon Supp. 2002). These "delay damages" consist of "18 percent per annum of the amount of such claim . . ., together with reasonable attorney's fees." Id., art. 21.55, § 6. The wrongful rejection of a claim, even if made in good faith, may be considered a delay in payment for purposes of the 60-day rule and statutory damages under Article 21.55. See Higginbotham v. State Farm MutualAutomobile Insurance Co., 103 F.3d 456, 461(5th Cir. 1997) ("[I]f an insurer fails to pay a claim, it runs the risk of incurring this 18 percent statutory fee and reasonable attorney's fees."); Cater v. United Services Automobile Ass "n, 27 S.W.3d 81, 84 (Tex.App. — San Antonio 2000, pet. denied).
Plaintiffs notified defendant of their loss on or about January 26, 1999. (Def. App. at 22). Defendant offered to pay only $4,734.20 and rejected the remainder of the claim. (Id. at 10-12). This necessarily means that it failed to pay the claim within 60 days. Higginbotham, 103 F.3d at 461. If plaintiffs are able to convince ajury that their claim was wrongfully denied, defendant will be liable for "delay damages" and reasonable attorney's fees. Id.
CONCLUSION
Genuine issues of material fact preclude summary judgment in favor of defendant. Accordingly, its motion is denied.
SO ORDERED.