United States Court of Appeals

Fifth Circuit

FILED

August 10, 2005

Charles R. Fulbruge III

Clerk

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 04-10447

_____________________

RIDGLEA ESTATE CONDOMINIUM ASSOCIATION,

Plaintiff - Counter Defendant -Appellant,

versus

LEXINGTON INSURANCE COMPANY,

Defendant - Counter Claimant -Appellee.

__________________________________________________________________

Appeal from the United States District Court

for the Northern District of Texas

_________________________________________________________________

ON PETITION FOR REHEARING

Before KING, Chief Judge, JOLLY and DENNIS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

IT IS ORDERED that the Petition for Panel Rehearing is

GRANTED. The opinion of the court issued on July 1, 2005, is

withdrawn, and the following opinion substituted in its place, with

the only change appearing in Part II D.

In November 2001, Ridglea Estate Condominium Association

(“Ridglea”) submitted a claim to its insurer, Lexington Insurance

Company (“Lexington”), for hail damage –- apparently occurring in

1995 –- to the roofs of its property in Fort Worth, Texas.

Lexington denied the claim and brought suit against Ridglea,

seeking a declaratory judgment that it was not liable for the
2

damage. The district court realigned the parties, making Ridglea

the plaintiff and Lexington the defendant. Both parties then moved

for summary judgment. The district court granted Lexington’s

motion, holding that Ridglea’s claim was barred because Ridglea

failed to provide prompt notice of the damage and rejecting the

argument that a showing of prejudice was required. Ridglea

appeals, arguing, inter alia, that the district court erred in not

requiring Lexington to show that its defense was prejudiced by

Ridglea’s late notice. We agree, and therefore VACATE and REMAND.

I

In July 2001, a roofing inspector informed Ridglea that the

roofs of its property in Fort Worth, Texas had suffered significant

hail damage. In November 2001, Ridglea submitted a claim to its

then-insurer, Chubb Custom Insurance. Based on its inspection,

Chubb advised Ridglea that the damage must have been caused by a

May 5, 1995 hail storm, and that Ridglea would need to submit the

claim to the insurer who insured the property on that date.

Ridglea then submitted a claim to Lexington, the insurer of

the property as of May 1995. After inspecting the roofs, Lexington

concluded that the damage likely did not exceed Ridglea’s

deductible. Lexington also asserted that it found no evidence that

the damage was incurred during the policy period, which ran from

February 1995 to February 1996. As a result, in a letter of

December 19, 2001, Lexington denied Ridglea’s claim.
3

After roughly a year of negotiations involving Ridglea,

Lexington, Chubb, and another insurer, General Star, Ridglea made

a final demand against Lexington for $449,198.63 plus attorney’s

fees of $10,000. Lexington again denied the claim and brought suit

seeking a declaratory judgment that it was not liable for the hail

damage to Ridglea’s property. The district court dismissed the

declaratory judgment action and realigned the parties, making

Ridglea the plaintiff and Lexington the defendant in a direct suit

for damages on the insurance policy. 

Both parties moved for summary judgment. The district court

granted Lexington’s motion, holding that Ridglea’s claim was barred

because it had failed to comply with the policy’s notice

requirement. Ridglea’s policy states, in pertinent part, that no

policy holder may bring an action against Lexington without first

giving “prompt notice of the loss or damage” to covered property.

The policy further requires that prospective litigants provide, “as

soon as possible[,] a description of how, when and where the loss

or damage occurred”. The district court concluded that the

interval between May 1995, when the damage allegedly occurred, and

November 2001, when Ridglea notified Lexington of its claim, was so

great that “no rational finder of fact could conclude ... that

Ridglea reported the hail loss and damage to buildings within a

reasonable time after it was suffered”. Ridglea now appeals the

grant of summary judgment.

II
4

We review the grant of summary judgment de novo, applying the

same standard as the district court. American Guarantee and

Liability Ins. Co. v. The 1906 Co., 129 F.3d 802, 805 (5th Cir.

1997). Summary judgment is appropriate where there are no genuine

issues as to any material fact and the movant is entitled to a

judgment as a matter of law. FED. R. CIV. P. 56(c); see also

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). 

Ridglea contends that the district court committed four

discrete, reversible errors –- all relating to the notice

requirement of the policy –- in granting Lexington’s motion for

summary judgment. Specifically, Ridglea asserts that the court

erred: (1) in finding that Lexington had not waived its late notice

defense; (2) in failing to find the notice requirement

unenforceable as a matter of public policy; (3) in failing to find

the notice requirement ambiguous, and thus construe it in the

manner most favorable to the insured; and (4) in not requiring

Lexington to show prejudice in order to raise late notice as a

defense. 

A

We first address Ridglea’s contention that Lexington has

waived any defense it might have under the policy’s prompt notice

provision because it originally denied the claim (in its December

19, 2001 letter) on the sole basis that the damage did not occur

during the coverage period.
5

Ridglea relies on Farmers Insurance Exchange v. Nelson to

argue that, when an insurer denies a claim for reasons unrelated to

notice of damage, the insurer waives any requirement that the

insured provide notice before filing suit. 479 S.W.2d 717, 721-22

(Tex. Civ. App. 1972). Ridglea notes that Lexington’s claims

adjuster originally gave only one reason –- a lack of evidence that

the hail damage occurred during the coverage period –- for denying

Ridglea’s claim. Thus, by failing to identify late notice of

damage as an independent reason for its denial of the claim,

Lexington waived its late notice defense. 

Lexington replies that Texas courts have recognized an

exception to the general rule of Farmers Insurance Exchange and

points to United States Fidelity & Guaranty Co. v. Bimco Iron &

Metal Co. There, the Texas Supreme Court held that an insurer’s

“total denial of liability on any grounds, after the time for

filing [a] proof of loss had expired would not constitute a waiver

of the defense of late filing of the proof of loss”. 464 S.W.2d

353, 357 (Tex. 1971). In Stonewall Insurance Co. v. Modern

Exploration, Inc., the Texas Court of Appeals applied the Supreme

Court’s holding in Bimco to the precise issue before this court,

holding that “waiver of [a] notice requirement occurs when the

insurer denies liability within the time limited for giving notice”

and “[c]onversely, a total denial of liability on any grounds after

the time limited for giving notice would not constitute a waiver of

the defense of unreasonably late notice”. 757 S.W.2d 432, 436
1 As discussed infra, where, as here, an insurance policy does

not precisely define the period within which notice must be

provided, Texas courts will construe the policy as requiring notice

“within a reasonable time”. See, e.g., Stonewall Insurance, 757

S.W.2d at 435. 

6

(Tex. App. 1988) (emphases in original) (citing Bimco, 464 S.W.2d

at 357). 

Our task, then, is to determine whether the exception to the

waiver rule set forth in Bimco and Stonewall Insurance applies in

the case before us. In order to do so, we must determine whether

Lexington’s December 19, 2001 denial of liability was made within

the policy’s time limit for giving notice, or after it had expired.

Because Lexington’s denial of liability was made shortly after

Ridglea’s November 2001 notice of damage, the district court’s

conclusions as to the timeliness of notice provide a useful

benchmark for the waiver inquiry. 

The district court held that “no rational finder of fact could

conclude from the summary judgment evidence that Ridglea reported

the hail loss and damage to its building within a reasonable

time”.1 In support of its conclusion, the court observed that

Ridglea’s own expert, Patrick Brady, testified that there was

“extensive damage to [Ridglea’s] buildings”, that said damage “was

such that it would require replacement of the roofs”, and even that

the “damage would have been evident on May 5, 1995". Moreover,

Brady testified that the buildings’ shutters and windows had been

chipped and broken as a result of hail strikes, though he could not
7

say with certainty that the May 1995 storm was the cause. Finally,

the record indicates that automobiles in the area of Ridglea’s

property suffered severe hail damage as a result of the May 1995

storm. 

In response to this evidence, Ridglea offers only Brady’s

assertion that the damage would have been difficult for Ridglea to

discover, as the roofs involved are on two story buildings, and

thus, “not visible from the ground”. This argument is not on

point. Given the magnitude of the 1995 storm, as well as the hail

damage to other portions of Ridglea’s property –- i.e., the

shutters and windows –- Ridglea should have been aware of the

likelihood that its roofs had suffered hail damage, and thus,

should have had the roofs inspected by an expert at some reasonable

time soon after the hailstorm occurred. The fact that Ridglea’s

management neglected to do so does not serve to toll the policy’s

prompt notice provision in Ridglea’s favor. 

Thus, we hold that the prompt notice period ran from on or

about the date on which Ridglea’s hail damage was incurred: May 5,

1995. We need not determine precisely where, under Texas law, the

boundaries of “prompt notice” or “reasonableness” lay. Instead, we

simply affirm the district court’s holding that to delay an

inspection for six years is unreasonable as a matter of law. 

In sum, because Ridglea gave its notice of damage after the

period for prompt notice had expired, Lexington’s subsequent

general denial of liability likewise came “after the time limited
2 Ridglea further contends that, even if Farmers Insurance

Exchange does not compel a finding that Lexington has waived its

late notice defense, Article 21.55, § 3(c) of the Texas Insurance

Code does so. This argument is without merit. Section 3(c) merely

requires an insurer to state the reasons for its rejection of a

claim. In 1995, four years after Article 21.55 was enacted, the

Texas Supreme Court held that, where a plaintiff seeks to bar an

insurer from raising a defense to liability, the insurer’s

“reliance on a different, perhaps erroneous, reason for denying

coverage [in its initial denial] is not dispositive. What is

dispositive is whether, based upon the facts existing at the time

of the denial, a reasonable insurer would have denied the claim”.

Republic Insurance Co. v. Stoker, 903 S.W.2d 338, 340 (Tex. 1995)

(citing Aranda v. Insurance Co. of North America, 748 S.W.2d 210,

213 (Tex. 1988)). Ridglea does not allege that Lexington’s initial

reason for denial was unreasonable or made in bad faith. As such,

it has not stated a case for waiver of Lexington’s late notice

defense. 

8

for giving notice” and thus did not constitute a waiver of the

defense of late notice. See Stonewall Insurance, 757 S.W.2d at

436.2

B

Ridglea next contends that the policy’s prompt notice

provision is unenforceable as a matter of public policy, and thus

void. Ridglea’s argument stems from an aggressive interpretation

of § 16.071 of the Texas Civil Practice and Remedies Code, which

provides in pertinent part: 

A contract stipulation that requires a

claimant to give notice of a claim for damages

as a condition precedent to the right to sue

on the contract is not valid unless the

stipulation is reasonable. A stipulation that

requires notification within less than 90 days

is void.

Ridglea then cites Western Indemnity Co. v. Free and Accepted

Masons of Texas, for the proposition that a notice period violates
3 Western Indemnity Co. dealt with the proper interpretation

of Article 5546, a nearly identical predecessor to § 16.071 that

likewise barred notice periods of less than 90 days. 

9

§ 16.0713 if it is capable of being interpreted as spanning less

than 90 days. 268 S.W. 728, 728-29 (Tex. Comm. App. 1925). Next,

Ridglea cites Round Rock Independent School District v. First

National Insurance Co. of America, in which this court held that

provisions calling for “immediate notice” are capable of being read

as requiring notice in less than 90 days and thus unenforceable.

324 F.2d 280, 284 (5th Cir. 1963). Finally, Ridglea reasons that

“prompt is a synonym for immediate”, thus rendering Lexington’s

requirement of “prompt notice” unenforceable under § 16.071.

The argument, although novel, is irrelevant to the case before

us. Section 16.071 provides that stipulations requiring notice of

“claims for damages” within 90 days are unenforceable. The

provision in Ridglea’s policy requires notice of an “event of loss

or damage” to insured property. The distinction is significant.

In Commercial Standard Insurance Co. v. Harper, the Texas Supreme

Court held that VERNON’S ANN. CIV. STAT. art. 5546, a nearly identical

predecessor to § 16.071, did not render unenforceable a stipulation

requiring notice of an “event of loss or damage”. 103 S.W.2d 143,

145 (Tex. 1937). The court reasoned that “[n]otice that an

automobile has been stolen is not ‘notice of a claim for damages’

as that term is used in [Article 5546]. It is only notice of the

happening of an event upon which liability may or may not result”.
10

The Texas Supreme Court has reaffirmed its holding in Harper

on several occasions. See, e.g., Community Bank & Trust v. Fleck,

107 S.W.3d 541, 542 (Tex. 2002); American Airlines Employees

Federal Credit Union v. Martin, 29 S.W.3d 86 (Tex. 2000). As such,

it is quite clear that Ridglea’s contention that the notice

provision is unenforceable under Texas law is without merit.

C

Ridglea argues that the policy’s prompt notice provision is

ambiguous, and thus, should be interpreted to favor the insured.

See St. Paul Mercury Insurance Co. v. Tri-State Cattle Feeders,

Inc., 628 S.W.2d 844, 846 (Tex. App. 1982) (stating, in dicta, that

“[a]n ambiguous clause in an insurance policy is to be strictly

construed in favor of the insured”). To that end, Ridglea contends

that “interpreting the notice provision as requiring notice once

the insured discovers a loss ... would certainly be reasonable”.

(Emphasis added.) Thus, Ridglea appears to contend that, because

the term “prompt” is ambiguous, the prompt notice period cannot

begin to run until the insured actually discovers the damage, no

matter how objectively unreasonable its failure to discover the

damage may have been.

Ridglea’s proposed interpretation of the prompt notice

provision is not supported by Texas precedent. As the district

court observed in its order, Texas courts have held that where “the

policy does not define the term ‘prompt,’ we construe the term as
11

meaning that notice must be given within a reasonable time after

the occurrence”. See Stonewall Insurance Co., 757 S.W.2d at 435

(emphasis added) (citing National Security Corp. v. Diggs, 272

S.W.2d 604, 697 (Tex. Civ. App. 1954)). As discussed supra, no

rational finder of fact could conclude that Ridglea’s notice, which

came six years after the alleged date of the hail damage, was given

within a reasonable time. As such, the ambiguity that Ridglea

identifies does nothing to help it overcome Lexington’s defense of

late notice. 

D

Having established that Lexington's late notice defense is a

viable one –- i.e., that it has not been waived, is not

unenforceable, and is not void for vagueness –- we turn to the

central issue in this case: Ridglea's contention that Texas law

requires Lexington to show that it was prejudiced by Ridglea's

breach of the policy's "prompt notice" provision.

As a preliminary matter, it is quite clear that Texas law

requires a showing of prejudice in order to raise breach of a

notice requirement as a defense against claims on certain types of

insurance policies. The Texas Department of Insurance has issued

orders requiring mandatory endorsements in general liability and

automobile insurance policies stating that "unless the company is

prejudiced by the insured's failure to comply with the requirement,

any provision of this policy requiring the insured to give notice

of ... occurrence or loss ... shall not bar liability under this
12

policy". See Hanson Production Co. v. American Insurance Co., 108

F.3d 627, 629 (5th Cir. 1997) (quoting Texas State Board of

Insurance, Order No. 23080).

Lexington argued, and the district court agreed, that the

prejudice requirement applies only to those types of policies --

i.e., automobile and general liability -- designated in the

Insurance Board orders. Ridglea, however, contends that Texas law

also requires a showing of prejudice in order raise late notice as

a defense to liability under certain policies not designated in the

orders, including the property insurance policy at issue here.

When deciding questions of state law, this court is bound by Erie

to rule as it believes the state's supreme court would. See, e.g.,

Browning Seed Inc. v. Bayles, 812 F.2d 999, 1002 (5th Cir. 1987)

(citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). Given the

decision of the Texas Supreme Court in Hernandez v. Gulf Group

Lloyds, we believe that Ridglea's position is the correct one. See

875 S.W.2d 691 (Tex. 1994).

In Hernandez, the Texas Supreme Court held that an insured's

violation of a settlement-without-consent provision was not a bar

to recovery under an uninsured motorist policy, unless the insurer

could show that it was prejudiced by the violation. Id. The court

made no reference to the orders by the Board of Insurance; instead,

the court based its holding on general principles of contract

interpretation. The court observed that "[i]nsurance policies are

contracts" and thus subject to the "fundamental principle of
4 We emphasize that our holding is a narrow one. We do not

read Hernandez as necessarily creating a prejudice requirement for

all insurance policies issued in Texas. We have previously held,

for example, that an insurer may deny coverage under a “claims

made” liability policy without a showing of prejudice. See Matador

Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653,

659 (5th Cir. 1999). Whether other types of policies likewise fall

outside the scope of Hernandez is a question we need not reach.

13

contract law ... that when one party to a contract commits a

material breach ... the other party is discharged ... from any

obligation to perform." Id. at 692. In order to determine whether

a breach is material, the court observed, it must consider, inter

alia, "the extent to which the non-breaching party will be deprived

of the benefit that it could have reasonably anticipated from full

performance". Id. at 693.

The court then considered the varying extents to which

violation of a settlement-without-consent provision might deprive

an insurer of the benefit of its bargain. The court ultimately

reinstated the trial court's verdict for the plaintiff, holding

that "an insurer who is not prejudiced by an insured's settlement

may not deny coverage under an uninsured/under-insured motorist

policy that contains a settlement-without-consent provision". Id.

Given the method of the Texas Supreme Court's reasoning, and

the general principle underlying that reasoning, we conclude that

the prejudice requirement applies to the property insurance policy

at issue here.4 As such, we hold that the district court erred in

holding that Lexington was not required to show prejudice in order
5 Although we have agreed with the district court that failure

to give notice for six years is "unreasonable" as a matter of law,

the parties have not cited, and we have not found, any Texas case

holding that a six-year delay gives rise to a presumption of

prejudice, rebuttable or irrebuttable.

14

to raise breach of the policy's prompt notice provision as a

defense.

Because the district court erred as a matter of law in failing

to require a showing of prejudice, we need not address whether

questions of material fact exist with regard to the prejudicial

effect of late notice. Where a trial court grants summary

judgment, but fails to consider an element of a cause of action or

defense, it has erred, not because it has decided factual issues

properly reserved for trial, but because it has failed to determine

that no genuine issue of material fact exists with respect to the

omitted element. See Trevino v. Celanese Corp., 701 F.2d 397, 407

(5th Cir. 1983). As such, it will be the task of the district

court on remand to determine whether Ridglea has raised questions

of material fact as to whether Lexington was prejudiced by its

breach of the policy's prompt notice provision.5

III

For the reasons set forth above, we VACATE the district

court’s grant of summary judgment for Lexington and REMAND for (1)

a determination of whether Ridglea has raised questions of material

fact as to whether Lexington’s defense was prejudiced by Ridglea’s
15

breach of the prompt notice provision; and (2) if such questions

exist, trial on the merits. 

 VACATED and REMANDED with instructions.