Opinion issued October 29, 2015

In The

Court of Appeals 

For The 

First District of Texas 

————————————

NO. 01-14-00677-CV

———————————

PETER TSAI AND BARBARA TSAI, Appellants

V.

LIBERTY MUTUAL INSURANCE COMPANY, Appellee

On Appeal from the 269th District Court

Harris County, Texas

Trial Court Case No. 2013-61457-A

MEMORADUM OPINION

This appeal arises from an insurance-coverage dispute between Liberty 

Mutual Insurance Company and its insureds, Peter Tsai and Barbara Tsai, 

involving the applicability of a water-damage exclusion in an all-risk homeowner’s 

policy. Each side filed a motion for summary judgment. The trial court denied the 

Tsai’s motion, granted Liberty Mutual’s motion, and rendered final judgment in 
2

Liberty Mutual’s favor. In five issues on appeal, the Tsais contend that the trial 

court erred in denying them summary judgment and in granting summary judgment 

to Liberty Mutual.

We affirm.

Background

The facts underlying this case are undisputed. In 2006, the Tsais purchased 

their home in a residential gated community. The house is a three-level, woodframe structure, constructed with a concrete slab-on-grade foundation. The 

exterior of the dwelling is a combination of conventional stucco cladding and stone 

veneer. The perimeter of the home has a combination of pavers, planters, and

grass. 

In March of 2012, the Tsais noticed what they later described as “ridges” on 

the wood floors in the living room of their home. By August 2012, the damage 

had spread across the living room, and the wood flooring was separating. 

The Tsais made a claim with Liberty Mutual under their homeowners’ 

policy regarding the damage to their wood floors. Liberty Mutual began an 

investigation to determine the source and the cause of the damage. Liberty Mutual 

first eliminated a plumbing leak as the cause of the damage. Liberty Mutual 

retained HSA Engineers & Scientists (“HSA”) to evaluate the Tsais’s home and to 
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uncover “the cause and extent of water ingress,” which had resulted in the flooring 

damage. 

Following its evaluation of the Tsais’s home, HSA prepared a report of its 

findings, signed by two professional engineers. Both Liberty Mutual and the Tsais 

agree with the findings in the HSA report. 

HSA observed that the wood flooring in the Tsais’ living room “displayed 

an uneven appearance where the edges on the top of the board were higher than the 

top of the center of the boards, which is commonly referred to as a ‘cupped’

condition.” The report states, 

There was evidence that the cupped appearance of the boards was 

reasonably attributed to moisture migrating under the wood floor from 

the planter at the north edge/perimeter of the Tsai property . . ., which 

. . . did not feature detailing for drainage, was near the same elevation 

as the top of the first level wood floor, and was higher than the 

foundation slab of the Tsais’ residence.

The report provides a description of the home’s wood floors, including the 

following:

The wood floor had been elevated above the foundation slab 

surface utilizing a screed system, and measurements indicated that the 

distance between the top of the wood floor boards and the foundation 

slab surface measured on the order of 2–1/2 inches. These 

measurements are consistent with a one-inch thick wood floor board 

installed over a 1–1/2 [inch] thick screen member. . . . There was no 

ready access below the first level wood floor.

The report continues, “Mr. Tsai stated that the first one to two feet of land 

north of the edge/perimeter of the Tsai foundation are part of the land parcel 
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owned by the Tsai family. However, Mr. Tsai stated that adjacent landowners 

commonly are allowed to use/modify this strip of land.” The Tsais informed HSA 

that in 2007 their neighbors to the north “installed a swimming pool, concrete patio 

areas, and gravel planters in areas of the north neighbors’ yard, and a planter with 

shrubs were installed in the strip of land along the north edge/perimeter of the Tsai 

residence.” 

The report also provides, 

Mr. Tsai stated that the previous north neighbor (original owner in 

2006 per HCAD) did not reportedly water the shrubs and the planter 

significantly. However, the more recent north neighbor (purchased 

the dwelling in February 2010 per HCAD) reportedly watered 

significantly . . . . The planter that lined the north edge/perimeter of 

the Tsai foundation featured a watering system, but it was not clear 

when this watering system was installed.

The report further describes the planter located on the north side of the 

house:

The north edge/perimeter of the Tsai residence foundation had been 

lined with a planter that featured shrubs set in a mulch base. The 

planter was edged with metal that extended above the level of the 

mulch to separate the planter from the adjacent concrete patio. 

Relative elevations of the concrete patio revealed a general slope 

down from the northwest to the southeast, and there were consistently 

lower elevations at the south edge of the patio (near the Tsai 

residence) compared to the north edge of the patio (near the north 

neighbor dwelling). Elevations of the planter revealed that the top of 

the mulch was between 0.76 feet and 0.85 feet, which is similar or 

higher than the top of the finished wood floor at the interior of the 

Tsai residence adjacent to this area (about 0.79 feet to 0.81 feet along 

the north edge of the living room). The top of the continuous metal 
5

edging also measured between around 0.78 feet for the west half of 

the planter and tapered down to about 0.66 feet. . . . . 

The report explained HSA’s findings more specifically, as follows:

HSA’s investigation reasonably correlated the detailing along the 

north edge/perimeter of the dwelling as a source of moisture migration 

below the wood floor of the Tsai residence. Relative elevations and 

visual observations revealed that the planter, which lined the north

edge/perimeter of the foundation . . ., was built up to a level near the 

same height as the top of the finished wood floor at the interior of the 

Tsai residence . . . . The top of the continuous metal edging that lined

the north edge of this planter also was at a similar elevation as the top 

of the wood floor at the interior. Thus, the top of the foundation, 

which is nominally 2-1/2 inches below this level, was below the top of 

the planter that lined the north edge/perimeter of the foundation. 

There were no alternative means of drainage observed in this planter

(surface drains, French drains, etc.), thus, water that drains into the 

planter can travel the path of least resistance for drainage. The path of 

least resistance, here, is for water to seep between the top of the 

foundation and the sill plate and migrate to the lower interior area

below the wood floor of the Tsai residence. . . .

HSA understands that this condition has progressed recently to the 

owners’ surprise. HSA understands that the north neighbor purchased 

the dwelling in February 2010. Soon after that time[,] the greater 

Houston, Texas area experienced an extended and extensive drought. 

Thus, the supplemented moisture applied to the shrubs during 

watering at this time was not sufficient to build to a sufficient level (as 

a result of the lack of drainage in the planter) to overwhelm the 

detailing and migrate below the first level wood floor. HSA also

understands that the previous owner did not water significantly and 

that the pool/patio construction was not completed until 2007. Thus, 

the return of rainfall to the Houston, Texas area in late 2011 and early 

2012, the drainage of the north patio/planter, watering of shrubs in the 

north planter, and the detailing of this area resulted in a combination 

of factors sufficient to result in moisture migration/accumulation 

below the first level wood floor of the Tsai residence. 
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In sum, HSA concluded that the cupped appearance in the wood floors was caused 

by water migration from the planter to underneath the flooring. 

Based on the HSA’s investigation, Liberty mutual denied the Tsais’ 

homeowners’ policy claim. Liberty Mutual’s denial letter stated, “Based on the 

results of the [HSA] engineer’s report, we are unable to assist you with your 

homeowner’s claim. Unfortunately, the policy does not cover damages resulting 

from surface water entering the home at ground level.” Liberty Mutual referred 

the Tsais to language in the insurance policy that excluded coverage for “water 

damage,” including damage from “surface waters.” 

The Tsais disagreed with Liberty Mutual’s denial of coverage based on the 

water-damage exclusion. The Tsais sued Liberty Mutual and the neighbor, who 

had installed the planter. The Tsais asserted that Liberty Mutual had breached the 

insurance contract and had engaged in deceptive trade practices. 

Liberty Mutual answered the suit and filed a traditional motion for summary 

judgment. In the motion, Liberty Mutual argued that it had not breached the 

insurance contract as a matter of law because the Tsais’ claim was not covered by 

the policy. Liberty Mutual asserted that the claim fell within the policy’s water 

damage exclusion. Liberty Mutual also claimed it was entitled to summary 

judgment regarding the Tsais’ extra-contractual claims. In support of its motion, 

Liberty Mutual offered the homeowner’s policy and the HSA report. 
7

The Tsais responded to Liberty Mutual’s motion for summary judgment and 

also filed their own motion for partial summary judgment. The Tsais asserted that 

their claim did not fall within the policy’s water-damage exclusion, as a matter of 

law. Alternatively, the Tsais asserted that their reasonable interpretation of the 

exclusionary language must be adopted because the exclusionary language is 

ambiguous. The trial court signed two orders: one order denying the Tsais’ motion 

for partial summary judgment and one order granting Liberty Mutual’s motion for 

summary judgment. The trial court then severed the Tsais’ claims against their 

neighbor, rendering a final judgment against the Tsais’ claims in favor of Liberty 

Mutual. 

This appeal followed. The Tsais identify five intertwined issues. With 

respect to their breach of contract claim, they aver that the trial court erred in 

rendering summary judgment for Liberty Mutual and in denying their motion for 

summary judgment. The Tsais assert that their homeowner’s claim for the

damaged wood flooring did not fall within the policy’s water-damage exclusion, as 

Liberty Mutual maintains. 

Summary Judgment

A. Standard of Review

The well-settled principles governing the review of summary judgments 

apply in insurance coverage cases. Hanson v. Republic Ins. Co., 5 S.W.3d 324, 
8

327 (Tex. App.—Houston [1st Dist.] 1999, pet. denied). We review a grant of 

summary judgment de novo. SeaBright Ins. Co. v. Lopez, 465 S.W.3d 637, 641 

(Tex. 2015) (citing State v. Ninety Thousand Two Hundred Thirty–Five Dollars & 

No Cents in U.S. Currency ($90,235), 390 S.W.3d 289, 292 (Tex. 2013)). A party 

moving for traditional summary judgment has the burden to prove that there is no 

genuine issue of material fact and that it is entitled to judgment as a matter of law. 

TEX. R. CIV. P. 166a(c); SeaBright Ins. Co., 465 S.W.3d at 641 (citing Mann 

Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 

2009)). 

We review summary judgment evidence “in the light most favorable to the 

party against whom the summary judgment was rendered, crediting evidence 

favorable to that party if reasonable jurors could, and disregarding contrary 

evidence unless reasonable jurors could not.” SeaBright Ins. Co., 465 S.W.3d at 

641 (citing Mann Frankfort Stein & Lipp Advisors, Inc., 289 S.W.3d at 848). 

When, as here, both sides move for summary judgment and the trial court grants 

one motion and denies the other, we review the summary judgment evidence 

presented by both sides, determine all questions presented, and render the 

judgment the trial court should have rendered. Id. at 641–42 (citing Comm’rs 

Court of Titus Cty. v. Agan, 940 S.W.2d 77, 81 (Tex. 1997)). Each party filing a 

motion for summary judgment must carry its burden; neither party may prevail 
9

because the other failed to discharge its own burden. Pratt v. Amrex, Inc., 354 

S.W.3d 502, 505 (Tex. App.—San Antonio 2011, pet. denied).

B. Analysis

In the all-risk homeowner’s policy issued to the Tsais, the relevant 

provisions are as follows:

SECTION I – PERILS INSURED AGAINST

A. Coverage A –Dwelling And Coverage B –Other Structures

1. We insure against risk of direct physical loss to property 

described in Coverages A and B.1

2. We do not insure, however, for loss:

a. Excluded under Section I –Exclusions;

. . . .

SECTION I –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. 

. . . .

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;

. . . .

 1 Here, the Tsais’s home was covered property as a dwelling under Coverage A. 
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c. Water or water-borne material below the surface of the 

ground, including water which exerts pressure on or seeps or 

leaks through a building . . . .

caused by or resulting from human or animal forces or any act of 

nature. 

The Tsais are quick to point out that this is an all-risk policy. All-risk

insurance covers any peril not specifically excluded in the policy. ECF N. Ridge 

Assocs., L.P. v. ORIX Capital Mkts., L.L.C., 336 S.W.3d 400, 403 (Tex. App.—

Dallas 2011, pet. denied). Liberty Mutual asserts, however, that the peril in this 

case was expressly excluded in the policy. Throughout the summary-judgment 

proceedings and on appeal, Liberty Mutual has maintained that the Tsais’ loss was 

caused by either “surface water” or by water “below the surface of the ground,” as 

those terms are used in water-damage exclusion. 

The Tsais claim that Liberty Mutual’s denial of coverage constitutes breach 

of contract; that is, a breach of the insurance policy.2

 As they did in the trial court, 

the Tsais assert that their loss was not caused by surface water or water below the 

surface of the ground; rather, it was caused by “generic water.” In other words, the 

 2 To prevail on a breach of contract claim, a plaintiff must show (1) the existence of 

a valid contract; (2) performance or tendered performance by the plaintiff; (3) 

breach of the contract by the defendant; and (4) damages sustained as a result of 

the breach. B & W Supply, Inc. v. Beckman, 305 S.W.3d 10, 16 (Tex. App.—

Houston [1st Dist.] 2009, pet. denied) (citing Valero Mktg. & Supply Co. v. 

Kalama Int’l, 51 S.W.3d 345, 351 (Tex. App.—Houston [1st Dist.] 2001, no 

pet.)). Here, the element at the center of the dispute is whether Liberty Mutual 

breached the insurance contract by improperly denying coverage.
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Tsais contend that the damage was not caused by a type of water identified within 

the water-damage exclusion. For this reason, they assert that the damage to their 

floors is a covered, non-excluded loss under the policy. The Tsais claim that, at a 

minimum, the exclusionary language is latently ambiguous when viewed in the 

context of the undisputed findings presented in the HSA report. 

To determine who is correct in this case, we interpret the Tsais’ 

homeowners’ policy according to the rules of contract construction. See Am. Mfrs. 

Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003); Balandran v. Safeco 

Ins. Co. of Am., 972 S.W.2d 738, 740–41 (Tex. 1998). Our primary goal, 

therefore, is to give effect to the written expression of the parties’ intent. State 

Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995). To this end, we 

construe the terms of the contract as a whole and consider all of its terms, not in 

isolation, but within the context of the contract. Id.; Forbau v. Aetna Life Ins. Co., 

876 S.W.2d 132, 133–34 (Tex. 1994). In construing an insurance contract, its 

terms are given their “ordinary and generally accepted meaning.” Sec. Mut. Cas. 

Co. v. Johnson, 584 S.W.2d 703, 704 (Tex. 1979).

If a policy provision has only one reasonable interpretation, it is 

unambiguous and we must construe it as a matter of law. Fiess v. State Farm 

Lloyds, 202 S.W.3d 744, 746 (Tex. 2006). If an exclusion has more than one 

reasonable interpretation, we must construe it in favor of the insured as long as that 
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construction is not unreasonable. Id. A policy provision is not ambiguous merely 

because different parties or different courts have interpreted it differently. Id.

An ambiguity in a contract generally will fall into one of two categories: 

“patent” or “latent.” “A patent ambiguity is evident on the face of the contract.” 

Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). 

“A latent ambiguity arises when a contract which is unambiguous on its face is 

applied to the subject matter with which it deals and an ambiguity appears by 

reason of some collateral matter.” Id.

Because it is dispositive, we begin by discussing the language within the 

water-damage exclusion that states losses caused by “surface water” are not 

covered under the policy. The Tsais do not argue that the term “surface water” is 

patently ambiguous. Instead, the Tsais indicate that exclusionary language

becomes latently ambiguous when viewed in the context of HSA’s undisputed 

determination that the loss was caused when water migrated from the neighbor’s 

planter to underneath their hardwood floors. We do not agree with the Tsais that 

“surface water” is latently ambiguous. As discussed below, there is only one 

reasonable conclusion in this case: surface water caused the Tsais’ loss. 

In the insurance context, surface water has been “defined as water or natural 

precipitation diffused over the surface of the ground until it either evaporates, is 

absorbed by the land, or reaches channels where water naturally flows.” State 
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Farm Lloyds v. Marchetti, 962 S.W.2d 58, 61 (Tex. App.—Houston [1st Dist.] 

1997, pet. denied) (citing Transamerica Ins. Co. v. Raffkind, 521 S.W.2d 935, 939 

(Tex. Civ. App.—Amarillo 1975, no writ); Emp’rs’ Fire Ins. Co. v. Howsley, 432 

S.W.2d 578, 580 (Tex. Civ. App.—Amarillo 1968, no writ)); see also Valley Forge 

Insurance Co. v. Hicks Thomas & Lilienstern, L.L.P.,174 S.W.3d 254, 258 (Tex.

App.—Houston [1st Dist.] 2004, pet. denied) (“Surface water is generally defined 

as that which is derived from falling rain . . . and is diffused over the surface of the 

ground. . . .”); Sun Underwriters Ins. Co. of N.Y. v. Bunkley, 233 S.W.2d 153, 155 

(Tex. Civ. App.—Fort Worth 1950, writ ref’d) (explaining surface water generally 

defined as derived from falling rain or melting snow and diffused over surface of 

ground, following no defined course or channel, not gathered into natural body of 

water, and lost by evaporation, percolation, or natural drainage).

The water that migrated under the Tsais’ flooring derived from rain and 

sprinkler water that had fallen onto the surface of the planter. After falling on the 

planter’s surface, the water did not follow a defined path or channel. Instead, it 

passed freely, moving through the upper two to three inches of mulch, a 

manufactured product commonly placed over the soil of flower beds. As 

referenced in the HSA report, it was not until the planter was “overwhelmed” with 

water that it migrated under the floors, which were at or slightly below the 

elevation of the mulch. That is, the water that entered the home was either water 
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that had pooled and collected within the surface layer of the mulch before being 

released, or it was newly introduced water that served as the tipping point to 

release water from the saturated mulch. The water that reached the Tsais’ home 

was not absorbed “by land.” Given these characteristics, the water that migrated 

under the Tsais’ flooring was surface water, as defined by the cases cited supra. 

The Tsais cite three reasons why the water was not surface water: (1) the 

water was not “natural precipitation”; (2) the water was not diffused over the 

surface of the ground; and (3) alternatively, presuming it was surface water, it lost 

its character as surface when “it was absorbed by the mulch in the flower bed and 

drained into the Tsais’ house.” 

We begin by addressing the Tsais’ assertion that the water was not “surface 

water” because it was not natural precipitation. Although acknowledging that 

rainwater contributed to the water damage, the Tsais aver that the primary source 

of the water that damaged their floors came from the sprinkler system and not from 

natural precipitation. The Tsais’ argument, however, is not supported by the HSA 

report or by the policy language. 

The HSA report indicates that the sprinkler water from the planter did not 

migrate from the planter to underneath the flooring until the drought ended and 

rainfall returned. This shows that natural-occurring rainwater was a causative 

factor of the loss in this case. Importantly, the exclusion involved in this case 
15

contains the following lead-in clause: “We will not pay for loss or damage caused 

directly or indirectly by any of the following. Such loss or damage is excluded 

regardless of any other cause or event that contributed concurrently or in any 

sequence to the loss.” This provision serves to preclude coverage under the policy 

when a claimed loss is caused by a combination of covered and excluded perils. 

Thus, the fact that sprinkler water “contributed concurrently or in any sequence to 

the loss” along with the rainwater does not remove the Tsais’ claimed loss from the 

exclusion. Cf. Valley Forge, 174 S.W.3d at 259 (noting that surface-water 

exclusion applied, even though surface water had flowed into underground manmade tunnels, because exclusion contained lead-in clause). 

In addition, as Liberty Mutual points out, the exclusionary language does not 

require surface water to be “natural precipitation.” To contrary, the exclusion 

applies when the water damage is “caused by or resulting from human or animal 

forces or any act of nature.” In other words, the exclusion is not limited to 

naturally-occurring precipitation, as the Tsais claim.

The Tsais also assert that the water was not surface water because it was not 

“diffused and flowing over the surface of the ground when it infiltrated” their

home. In this regard, Crocker v. American National General Insurance Co. is 

instructive. 211 S.W.3d 928, 936 (Tex. App.—Dallas 2007, no pet.). There, the 

court determined whether the meaning of “surface water,” as used in an exclusion 
16

in a homeowner’s policy, reasonably included rain water that had collected on the 

surface of a raised patio before flowing into the insured’s home. Id. The court 

concluded that “an average reasonable person would not limit surface water to rain 

falling only on dirt and not on any paved surfaces or other structures.” Id. 

In Valley Forge, we determined that water which flowed from the surface 

through pedestrian tunnels and other manmade structures before flooding the 

insured’s premises did not lose its character as surface water. See Valley Forge, 

174 S.W.3d at 258. We explained, “Surface water is generally defined as that 

which is derived from falling rain . . . and is diffused over the surface of the 

ground. . . . Such waters are not divested of their character as surface waters by 

reason of their flowing from the land on which they first make their appearance 

onto lower land in obedience to the law of gravity.” Id. (citing Bunkley, 233 

S.W.2d at 155). We held that the insured’s claim was excluded under a surfacewater exclusion, similar to the one in this case. Id. at 258–59.

Applying the reasoning employed in Crocker and Valley Forge, the water 

that flowed through the mulch—like water flowing over or through a manmade 

structure—did not lose its character as surface water. The bare fact that the water 

migrated from the planter to the Tsais’ home did not change its essential character 

as surface water. 
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The Tsais alternatively assert that, even if the water was surface water, it lost 

its character as such when it was “absorbed by the mulch in the flower bed and 

drained into the Tsais’ house.” As noted, the exclusion has a lead-in clause stating

that water damage from surface water is excluded if the loss was caused directly or 

indirectly by surface water. Thus, whether the loss was caused directly by surface 

water once the mulch had reached its saturation point or whether it was caused by 

water released by the mulch once other surface water drained into the planter, the 

loss would be either directly or indirectly caused by surface water. 

We conclude that the Tsais’ loss was caused by surface water. Accordingly, 

the loss was excluded under the terms of the policy. We hold that the trial court 

properly granted Liberty Mutual’s motion for summary judgment and properly 

denied that of the Tsais. 

We overrule the Tsais’ issues relevant to determining whether the water was 

surface water and whether the trial court properly ruled on the motions for 

summary judgment.3

 3 Because the surface-water issues are dispositive, we do not reach the Tsais’ third 

issue, which discusses the exclusionary language precluding coverage for a loss 

caused by water below the ground. 
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Conclusion

We affirm the judgment of the trial court.4

Laura Carter Higley

Justice

Panel consists of Justices Jennings, Higley, and Brown.

 4 The Tsais did not specifically address on appeal the trial court’s grant of summary 

against them on their extra-contractual claims. However, when insurance 

coverage is resolved in the insurer’s favor, extra-contractual claims, including 

DTPA claims, do not survive. State Farm Lloyds v. Page, 315 S.W.3d 525, 532 

(Tex. 2010).