*

District Judge of the Southern District of Texas, sitting by designation. 

REVISED - June 27, 2000

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 99-50988

DENNIS GEHL; CONNIE GEHL, WIFE

Plaintiffs-Appellants,

versus

STATE FARM FIRE AND CASUALTY COMPANY

Defendant-Appellee,

Appeal from the United States District Court

for the Western District of District of Texas, San Antonio Division

June 27, 2000

Before WIENER and STEWART, Circuit Judges, and ROSENTHAL,*

CARL E. STEWART, Circuit Judge:

This case involves a dispute regarding the scope of coverage of a homeowner insurance

policy. For the reasons assigned, we reverse the district court’s grant of summary judgment to the

insurance provider.
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Factual and Procedural History

The appellants, Dennis and Connie Gehl (the “Gehls”), sustained damage to rental property

they owned in San Antonio, Texas. Apparently, the foundation had shifted due to plumbing leakage.

The Gehls had executed a Texas Dwelling Policy Form 3 (“TDP-3") with State Farm Fire and

Casualty Company (“State Farm”). The TDP-3 is divided into two coverage sections, “Coverage

A” and “Coverage B”. Coverage A provided coverage for those losses, not excluded by the General

Exclusions, that occur to the dwelling itself. “Coverage B” provided coverage for personal property

located on the insured’s property. The Gehls elected not to purchase “Coverage B” protection.

In May 1996, the Gehlsreported the damage to their propertyto State Farm. After inspecting

the property, State Farm in September 1996 sent the Gehls a letter denying their claim.

Consequently, the Gehls filed suit against State Farm in Texas district court for breach of contract,

negligence, and breach of duty of good faith and fair dealing. The Gehls also sued for violations

under the Texas Insurance Code and the Texas Deceptive Trade Practice Act. State Farm removed

the case to federal court based on diversity jurisdiction. State Farm moved for summary judgment

claiming that the Gehls’ claim was excluded from coverage under the policy’s general exclusion

provision. The Gehls did not file a response to the summary judgment motion. The district court

granted State Farm’s motion for summary judgment. The Gehls appeal the district court’s ruling.

DISCUSSION

We review a district court’s construction of an insurance contract de novo. See Farm Credit

Bank of Texas v. Guidry, 110 F.3d 1147, 1149 (5th Cir. 1997). As stated above, there are two

categories of coverage under the TDP-3, “Coverage A” and “Coverage B.” “Coverage A” pertains

to losses and damages sustained to the dwelling. “Coverage B” pertains to losses and damage
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sustained to personal property located on the dwelling. The policy also contains a section captioned

“PERILS INSURED AGAINST.” In pertinent part, this section reads:

Coverage A (Dwelling). We insure against all risks of physical loss to the property

described inCoverage A(Dwelling) unlessthe lossis excluded in GeneralExclusions.

Coverage B (Personal Property). We insure for direct physical loss to the property

described in Coverage B (Personal Property) caused by a peril listed below unlessthe

loss is excluded in General Exclusions.

Under the “Coverage B” subsection for “PERILS INSURED AGAINST,” the policy lists 10 specific

perils that are covered. Pertinent to the instant case, the ninth peril listed states;

Accidental Discharge, Leakage or Overflow of Water or Steam from within a

plumbing, heating or air conditioning system or household appliance.

A loss resulting from this peril includes the cost of tearing out and replacing any part

of the building necessary to repair or replace the system or appliance. But this does

not include loss to the system or appliance from which the water or steam escaped.

Exclusions 1.a through 1.i under General Exclusions do not apply to loss caused by

this peril.

(emphasis added).

The General Exclusions section identifies several categories of losses and damages that are

not covered by the policy. The pertinent general exclusion, 1.i, provides that: “We do not cover loss

under Coverage A (Dwelling) caused by setting, cracking, bulging, shrinkage or expansion of

foundations. . . .”

The Gehls argue that the last clause listed under the ninth peril of the “PERILS INSURED

AGAINST” section (the “exclusions repealer clause”), repeals General Exclusion 1.i. Thus the

Gehls’ foundation damage due to the plumbing leakage is covered under the Policy. State Farm on

the other hand arguesthat the Gehlsshould not receive the benefit of the “exclusionsrepealer clause”
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because the Gehls did not purchase “Coverage B” protection. The district court adopted State

Farm’s approach and ruled that the Gehls’ claim was not covered.

The scope of coverage under TDP-3 and similar policies have been the source of heated

litigation in previous cases before this court and in the state of Texas. In Sharp v. State Farm Fire

& Cas. Ins. Co., (5th Cir. 1997), the court reviewed virtually an identical homeowner’s insurance

policy and held that the exclusion repealer provision listed under “Coverage B” did not apply to the

general exclusions applicable to “Coverage A.” Because the policy “divide[d] dwelling losses and

personal property lossesinto separate coverages,” Sharp reasoned that it would be “nonsensical, and

a rejection of the obvious structure of the policy, to reach into text that applies solely to Coverage

B (Personal Property) to determine the extent of coverage provided under Coverage A (Dwelling).”

Id 115 F.3d at 1262. The Sharp opinion wasissued whenBalandran v. Safeco Ins. Co., 129 F.3d 747

(5th Cir. 1997) was pending before this court. Balandran raised the same coverage issue. 

Furthermore, after the Sharp opinion wasissued, the TexasInsuranceCommissionerissued a bulletin

attacking Sharp and warning that insurers would be exposed to penaltiesif they denied coverage for

losses and damages to the dwelling due to plumbing leaks. As a result of the conflicting views

expressed by Sharp and the Texas Insurance Commissioner, this court certified the coverage issue

raised in Balandran to the Texas Supreme Court. The Texas Supreme Court found that the policy

was ambiguous and construed the policy to provide coverage for losses to the dwelling due to

plumbing leakage. See Balandran v. Safeco Ins. Co of America, 972 S.W.2d 738, 741 (Tex. 1998).

The state high co urt declared the policy to be ambiguous because the policy could reasonably be

interpreted to exclude coverage or to provide coverage for foundation damage due to plumbing

leakage. See id. As such, t he court construed the ambiguity in favor of the insured. See id.
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Furthermore, the court reviewed the background surrounding the promulgation ofthe insurance form

and determined that although the exclusion repealersection islisted under “CoverageB,” the repealer

nonetheless applies to “Coverage A.” See id. at 742. Although the court recognized that Sharp’s

interpretation was reasonable, the court nonetheless rejected Sharp’s contention that the placement

of the exclusions repealer clause limited the scope of the repealer to “Coverage B.”

State Farm argues that the instant case is distinguishable from Balandran because the Gehls

did not purchase “Coverage B” protection. However, while this case was pending, a panel of this

court addressed an identical coverage issue in Sczepanik v. State Farm Fire and Casualty Co., 2000

WL 504129 (5th Cir. (Tex. 2000). Similar to the instant case, the Sczepaniks sustained foundation

damage to their rental property due to plumbing leakage, and did not purchase “Coverage B”

protection. The court rejected State Farm’s argument that Balandran was not controlling because

the Sczepaniks did not purchase “Coverage B” protection. Furthermore, the court asserted that

whether the Sczepaniks purchased “Coverage B” protection was immaterial because the Texas

Supreme Court in Balandran declared that the exclusion repealer clause did not apply exclusively to

“Coverage B,” but applied also to losses to the dwelling under “Coverage A.” See Sczepanik, 2000

WL 504120 at 5.

Because the policy and the factsin Sczepanik are identical in allmaterial aspectsto the instant

case, we are bound by the result reached by the Sczepanik panel. As such, we hold that the district

court erred when it granted summary judgment to State Farm.

CONCLUSION

We REVERSE the district court’s grant ofsummary judgment to State Farm and REMAND

for further proceedings. All motions that are carried with the case are rendered moot.
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REVERSED AND REMAND.