IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 09-50653

ARM PROPERTIES MANAGEMENT GROUP,

Plaintiff – Appellee

v.

RSUI INDEMNITY COMPANY,

Defendant – Appellant

Appeal from the United States District Court

for the Western District of Texas

(1:07-CV-718)

Before JOLLY, DEMOSS, and DENNIS, Circuit Judges.

PER CURIAM:

*

This appeal involves a dispute between an insured, ARM Properties

Management Group (ARM), and one of its insurance carriers, RSUI Indemnity

Company (RSUI). At issue is the second-layer excess insurance policy issued by

RSUI (the RSUI Policy) under which ARM claims $5,500,587.03. The parties

raise the following issues: (1) whether the RSUI Policy incorporates the anticoncurrent causation clause (the ACC Clause) and the water exclusion (the

Water Exclusion) from the primary insurance policy; (2) whether RSUI’s liability

United States Court of Appeals

Fifth Circuit

F I L E D

November 5, 2010

Lyle W. Cayce

Clerk

 Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not *

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

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has attached under the RSUI Policy; (3) whether the RSUI Policy incorporates

the flood deductible from the primary insurance policy; (4) whether the RSUI

Policy’s scheduled limit of liability provision requires that coverage sub-limits

be determined on an aggregate basis; and (5) whether RSUI waived the RSUI

Policy’s anti-assignment clause and/or the insurable interest requirement.

Because we hold that the ACC Clause and Water Exclusion were incorporated

by the RSUI Policy, a threshold issue resolved in RSUI’s favor, we do not reach

the remaining issues. We therefore reverse and remand.

Facts and Background

ARM is in the business of purchasing property insurance for hundreds of

apartment complexes. By grouping separate properties together under a single

policy, ARM is able to obtain better insurance rates for the property owners.

When Hurricane Katrina struck the Mississippi Gulf Coast in August 2005, nine

of ARM’s covered properties sustained damage. Each of the properties had three

“layers” of insurance coverage. Westchester Surplus Lines Insurance Company

issued the primary insurance policy (the Primary Policy) with a $20 million

coverage limit, including a $7.5 million flood damage sub-limit. Essex Insurance

Company issued a first-layer excess insurance policy (the First-Layer Policy)

with a $10 million coverage limit for damage amounts that exceed the Primary

Policy limit. RSUI issued the RSUI Policy, a second-layer excess insurance

policy with a $470 million coverage limit for damage amounts that exceed the

combined primary and first-layer excess coverage limit of $30 million.

The Primary Policy and First-Layer Policy paid the combined liability

limit of $30 million. RSUI has not paid any of ARM’s claims. ARM contends

that $5,500,587.03 in combined wind and water damage should be paid under

the RSUI Policy. RSUI responds that no payment is due because such windwater damage is excluded under the Primary Policy. The parties filed a Joint

Stipulation of Facts in Lieu of Trial (the Joint Stipulation) with the district

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court, and on July 16, 2009, the district court issued an order finding in favor of

ARM. The district court found that (i) the Primary Policy’s ACC Clause and

Water Exclusion were not incorporated by the RSUI Policy; (ii) RSUI’s liability

had attached under the RSUI Policy; (iii) the Primary Policy’s flood deductible

was not incorporated by the RSUI Policy; (iv) the RSUI Policy’s scheduled limit

of liability applies on an aggregate basis; (v) the RSUI Policy’s anti-assignment

provision voided certain property owners’ assignments of their claims to ARM;

and (vi) ARM lacked an insurable interest but RSUI waived that requirement.

The district court awarded ARM its full claim of $5,500,587.03, plus interest and

attorneys’ fees. This appeal followed.

Discussion

The district court decided this case on cross motions for judgment based

on the Joint Stipulation, which is essentially a summary judgment proceeding.

See Bank of La. v. Aetna U.S. Healthcare, Inc., 571 F. Supp. 2d 728, 729 n.1

(E.D. La. 2008), aff’d, 326 F. App’x 321 (5th Cir. 2009); see also More v. Intelcom

Support Servs., Inc., 960 F.2d 466, 469 (5th Cir. 1992). Our review is de novo,

applying the same standards as would the district court. Babcock v. Hartmarx

Corp., 182 F.3d 336, 338 (5th Cir. 1999).

In the Joint Stipulation, the parties agreed that if the RSUI Policy

incorporates the Primary Policy’s ACC Clause and Water Exclusion, “the total

of the losses in question in this case will not reach RSUI’s coverage layer, i.e.,

the covered losses will total less than $30 million, and thus ARM cannot recover

under the RSUI policy.” We address this threshold issue first and find that the

ACC Clause and Water Exclusion were incorporated by the RSUI Policy.

The parties agree that Texas law governs the interpretation of the

insurance policies. Under Texas law, the construction of an insurance policy is

a question of law. See State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433

(Tex. 1995). We apply the same rules to the interpretation of insurance policies

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as to any other contract, and “read all parts of each policy together and exercise

caution not to isolate particular sections or provisions from the contract as a

whole.” Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex.

2003). “We construe the policy to give effect to each term in the contract and to

avoid rendering any term a nullity.” Lynch Props., Inc. v. Potomac Ins. Co. of

Ill., 140 F.3d 622, 626 (5th Cir. 1998). Where the policy’s language “can be given

a definite or certain legal meaning, it is not ambiguous and we construe it as a

matter of law.” Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.

2003).

Two provisions in the RSUI Policy directly reference the Primary Policy

and expressly incorporate the Primary Policy’s coverage parameters. The first

is the “Insuring Clause,” which provides:

Subject to the limitations, terms and conditions contained in this

Policy or added hereto, [RSUI] agrees to indemnify [ARM] in respect

of direct physical loss or damage to the property . . . which are also

covered by and defined in the [Primary Policy].

The second is the “Maintenance of Primary Insurance” Clause (collectively with

the Insuring Clause, the Incorporating Clauses), which provides:

In respect of the perils hereby insured against, this Policy is subject

to the same warranties, terms and conditions . . . as are contained

in or as may be added to the [Primary Policy] prior to the happening

of a loss for which claim is made hereunder.

Together, the Incorporating Clauses provide that the RSUI Policy covers only

damage also covered by the Primary Policy and excludes any damage excluded

by the Primary Policy. The question, therefore, is whether combined wind-water

damage is covered by the Primary Policy’s ACC Clause or is excluded by the

Primary Policy’s Water Exclusion.

The Primary Policy’s ACC Clause provides:

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

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any other cause or event that contributes concurrently or in any

sequence to the loss.

The Primary Policy’s Water Exclusion excludes from coverage certain water

damage as follows:

Water . . . Flood, surface water, waves, tides, tidal waves, overflow

of any body of water, or their spray, all whether driven by wind or

not.

The district court held that “the ACC clause, as it operates with the Water

Exclusion in the [Primary] Policy, does not relate to any peril insured in the

RSUI policy and thus is not a provision adopted by that policy.” We disagree. 

Our case Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007)

(applying Mississippi law), considered virtually identical insurance policy

clauses as those presented in this case. In Leonard, we found that the ACC

Clause denied coverage “whenever an excluded peril and a covered peril combine

to damage” the insured property. Id. at 425. The language specifically

“addresses situations in which damage arises from the synergistic action of a

covered peril, e.g., wind, and an excluded peril, e.g., water.” Id. We held in

Leonard that

The clause unambiguously excludes coverage for water damage

‘even if another peril’—e.g., wind—‘contributed concurrently or in

any sequence to cause the loss.’ The plain language of the policy

leaves the district court no interpretive leeway to conclude that

recovery can be obtained for wind damage that ‘occurred

concurrently or in sequence with the excluded water damage.’ . . .

The clause is not ambiguous.

Id. at 430 (internal citation omitted).

The same situation is present in this case. Like Leonard, “[t]he only

species of damage covered under the [RSUI Policy] is damage caused exclusively

by wind. But [because] wind and water synergistically caused the same damage,

such damage is excluded.” Id. (emphasis in original); see Bilbe v. Belsom, 530

F.3d 314, 317 n.3 (5th Cir. 2008). The plain language of the ACC Clause and

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Water Exclusion, read together, exclude from coverage any damage caused by

a combination of wind and water. Thus, the combined wind-water damage at

issue here is a peril expressly excluded from coverage by the Primary Policy and

the ACC Clause and Water Exclusion are therefore expressly incorporated by the

RSUI Policy pursuant to the Incorporating Clauses.

Conclusion

We hold that, pursuant to the Joint Stipulation, ARM cannot prove

sufficient wind-only damage to reach RSUI’s insurance layer. Because we

resolve this threshold issue in favor of RSUI, we do not reach the remaining

issues raised on appeal. The district court order is REVERSED and the case is

REMANDED for further proceedings consistent with this opinion.

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DENNIS, Circuit Judge, dissenting.

The issue is whether the RSUI Excess Coverage Policy (the “Excess

Policy”) incorporates the Primary Policy’s anti-concurrent causation (ACC)

clause and Water Exclusion so as to exclude coverage of perils by the Excess

Policy to the same extent as they are excluded from coverage by the Primary

Policy. In my view, the Excess Policy is ambiguous in this respect and could be

reasonably interpreted either way. See Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124

S.W.3d 154, 157 (Tex. 2003) (insurance policy provisions are ambiguous where

they are “susceptible to two or more reasonable interpretations”). Because Texas

law requires courts to construe ambiguous policy provisions in favor of coverage

for the insured, see State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433

(Tex. 1995) (ambiguous terms must be construed “against the insurer in a

manner that favors coverage”), the majority’s interpretation in favor of the

insurance company and against coverage is incorrect.

The Primary Policy’s definition of “Covered Causes of Loss” and its

“Exclusions,” which include the ACC clause and the Water Exclusion provisions

are as follows:

A. Covered Causes Of Loss

. . . Covered Causes of Loss means Risks Of Direct Physical

Loss unless the loss is:

1. Excluded in Section B., Exclusions; or

2. Limited in Section C., Limitations;

that follow

. . . .

B. Exclusions

1. 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

contributes concurrently or in any sequence to the loss.

. . . .

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g. Water

(1) Flood, surface water, waves, tides, tidal waves,

overflow of any body of water, or their spray, all

whether driven by wind or not . . . .

I agree with the majority that “[t]he plain language of the [Primary

Policy’s] ACC Clause and Water Exclusion, read together, exclude from coverage

[under the Primary Policy] any damage caused by a combination of wind and

water.” Majority Op. at 5-6. Our decision in Leonard v. Nationwide Mut. Ins.

Co., 499 F.3d 419 (5th Cir. 2007), so held. However, I disagree with the

majority’s subsequent conclusion that the only reasonable interpretation of the

Excess Policy is that it incorporates the Primary Policy’s coverage exclusions.

The relevant provisions of the Excess Policy are the Insuring Clause and

the Maintenance of Primary Insurance clause—what the majority calls “the

Incorporating Clauses”—as well as the “Perils Covered” clause:

3. Perils Covered: All Risk[s] Excluding Flood and

Earthquake[.]

. . . .

INSURING CLAUSE:

Subject to the limitations, terms and conditions contained in this

Policy or added hereto, [RSUI] agrees to indemnify [ARM] in respect

of direct physical loss or damage to the [covered] property . . . caused

by any such perils as are set forth in Item 3 of the schedule, and

which are also covered by and defined in the [Primary Policy].

. . . .

MAINTENANCE OF PRIMARY INSURANCE

In respect of the perils hereby insured against, this Policy is subject

to the same warranties, terms and conditions . . . as are contained

in or as may be added to the [Primary Policy] prior to the happening

of a loss for which claim is made hereunder . . . .

These three provisions of the Excess Policy are patently ambiguous. They

can be reasonably read to provide coverage only to the same extent as provided

for in the Primary Policy. They can also reasonably be read to provide coverage

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for all perils except flood and earthquake. Under this reasonable interpretation,

the Excess Policy does not incorporate the Primary Policy’s ACC clause and

Water Exclusion because they are exclusions from coverage, not covered perils,

and are related to flood, which is not a peril covered by the Excess Policy.

1

The majority, however, reads the ambiguous Excess Policy in only one

way: against coverage and in favor of the insurance company. In this diversity

case, Texas law requires that this ambiguity be resolved in favor of coverage and

the insured. For these reasons, I respectfully dissent.

 This latter interpretation is supported by our decision in Wentwood Woodside I, LP 1

v. GMAC Commercial Mortgage Corp., 419 F.3d 310 (5th Cir. 2005), where we confronted a

very similar multilayer insurance scheme, with a nearly identical Maintenance of Primary

Insurance provision in the top-layer insurance policy. Id. at 312-13, 315. Flood was not a

covered peril in the excess insurance policy, and we read the provision in the excess insurance

policy that incorporated the terms of the primary policy “[i]n respect of the perils hereby

insured against” to preclude incorporation of an Errors and Omissions clause with respect to

flood damage because flood was not a covered peril. Id. at 315-16. Here, exactly the same

reasoning leads to the reasonable interpretation of the Excess Policy that it does not

incorporate the Primary Policy’s ACC and Water Exclusion clauses because they are terms

relating to flood, a peril that is not covered by the Excess Policy.

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