IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 14-51301

CLAUDIA AYOUB; GERALD C. AYOUB, 

 Plaintiffs - Appellants

v.

CHUBB LLOYDS INSURANCE COMPANY OF TEXAS, 

 Defendant - Appellee

Appeal from the United States District Court

for the Western District of Texas

USDC No. 3:13-CV-58

Before DENNIS and COSTA, Circuit Judges, and ENGELHARDT,* District 

Judge.

GREGG COSTA, Circuit Judge:**

The principal question presented in this dispute over a homeowner’s 

insurance policy is whether a section of the policy setting forth a 

“reconstruction cost less depreciation” standard for dwelling loss is a coverage 

provision, on which the insured has the burden of proof, or a limitation of 

liability provision, on which the insurer has the burden. We also have to decide 

 

* Chief Judge of the Eastern District of Louisiana, sitting by designation.

** 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.

United States Court of Appeals

Fifth Circuit

FILED

January 28, 2016

Lyle W. Cayce

Clerk

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how insureds can prove market value under Texas law for personal items 

which may have no such thing. For the reasons discussed below, we find that 

summary judgment in favor of the insurer was not warranted on either issue.

I.

Claudia and Gerald Ayoub own a home in El Paso. Prior to the loss in 

this case, it was worth in the neighborhood of $2 million. The home was 

insured under a “Texas Standard Homeowners Policy” issued by Chubb Lloyds 

Insurance Company of Texas. Coverage A of the Policy insured the dwelling 

for up to $2,511,000. Coverage B insured personal property in the home for up 

to $1,506,600. At additional cost, the Ayoubs purchased replacement cost 

endorsements for both their dwelling and personal property.

The Ayoubs’ home was damaged when pipes burst during a severe cold 

front. The Ayoubs notified Chubb, which began investigating the claim and 

made payments totaling close to $1 million for repairs to the dwelling and

losses to personal property. A disagreement arose between Chubb and the 

Ayoubs regarding the full extent of the Ayoubs’ covered loss. The Ayoubs sued 

Chubb in Texas state court to force additional payment under the Policy. In 

addition to their contract claims, the Ayoubs asserted statutory claims for

unfair claim settlement practices and deceptive trade practices.

Chubb removed the case to federal court. After discovery, Chubb moved 

to exclude the testimony of two of the Ayoubs’ witnesses: David Fix, an expert 

on dwelling replacement cost, and Mr. Ayoub. The district court struck as 

unreliable Fix’s depreciation opinion, which was based on a figure Fix received 

secondhand (from the Ayoubs’ insurance adjuster) and could not justify. The 

court refused to strike Mr. Ayoub’s lay opinion “as to the value of his own 

property” because the objections raised by Chubb went to “its weight and 

credibility” rather than its admissibility.

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Chubb then moved for summary judgment. The district court granted 

summary judgment on the dwelling claim because it found that the Policy

obligated the Ayoubs to establish depreciation, but their only depreciation 

evidence had been struck as unreliable. The district court reached a similar 

conclusion as to the personal property claim. It found that the Ayoubs bore the 

burden of establishing “actual cash value” of the personal property, including 

depreciation, and the only evidence—Mr. Ayoub’s lay opinion testimony—

concerned replacement cost. Finally, the district court granted summary 

judgment on the statutory claims because they were “based on the alleged 

breach of the insurance contract.” The Ayoubs timely appealed the summary 

judgment order.1

II.

Summary judgment is appropriate when “there is no genuine dispute as 

to any material fact and the movant is entitled to judgment as a matter of law.” 

FED. R. CIV. P. 56(a). We review the district court’s grant of summary 

judgment de novo, construing all facts and inferences in the light most 

favorable to the nonmoving party. See EEOC v. Chevron Phillips Chem. Co., 

570 F.3d 606, 615 (5th Cir. 2009). Because the proper interpretation of an 

insurance policy presents a legal question, not a factual one, the district court’s 

interpretations of the Policy are also reviewed de novo. See Martco Ltd. P’ship 

v. Wellons, Inc., 588 F.3d 864, 878 (5th Cir. 2009).

 

1 The Ayoubs also appealed the district court’s orders excluding Fix’s depreciation 

testimony. We find that they have forfeited that issue. The Ayoubs included the relevant 

orders in their notice of appeal below, and they list the admissibility of Fix’s opinion in their 

statement of issues on appeal. But they have not explained how the court’s ruling allegedly 

conflicted with the Federal Rules of Evidence, Texas law, or our precedent. Hinting at error 

is not enough to garner appellate review. See United States v. Scroggins, 599 F.3d 433, 446–

47 (5th Cir. 2010) (finding issue not “adequately presented” on appeal when the issue was 

“mentioned in the questions presented and the summary of the argument, but the body of 

the brief [did] not discuss it in any depth”).

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A. Dwelling claim

The first issue is whether the Ayoubs or Chubb bore the burden of 

proving depreciation to the dwelling. The policy’s “Verified Replacement Cost 

Endorsement” states:

The district court interpreted the last sentence of Item 4(b) as a “precondition 

to coverage” which the Ayoubs had to prove.

Under Texas law, an insured suing for breach of an insurance agreement 

bears the initial burden of proving that his loss results from a covered risk. 

See Guaranty Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998); 

Employers Cas. Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988) disapproved of 

for other reasons by State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 

1996). But if the insurance policy contains exclusions to coverage, it is the 

insurer’s burden to prove the exclusion applies. See Guaranty Nat’l, 143 F.3d 

at 193.

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Similar rules govern an insured’s damages. The insured has the burden 

of proving the extent of his loss. See Block v. Employers Cas. Co., 723 S.W.2d 

173, 178 (Tex. App.—San Antonio 1986), aff’d, 744 S.W.2d 940 (Tex. 1988); see 

also 12 Lee R. Russ & Thomas F. Segalla, COUCH ON INSURANCE § 175:92 (3d 

ed. 2005) (“In accord with general principles governing the law of damages, 

there can be no recovery for items where their existence and value are not 

proved. Consequently, the insured bears the burden of proof under a property 

insurance policy . . . .” (emphasis added)). And if the insurance policy defines 

how loss will be measured, the insured is “relegated” to that measure. Cf. Crisp 

v. Security Nat’l Ins. Co., 369 S.W.2d 326, 327–28 (Tex. 1963) (finding that 

certain policy language “does not establish a contractual measure of damages 

to which the insured must be relegated”); see also U.S. Fire Ins. Co. v. Stricklin, 

556 S.W.2d 575, 581–82 (Tex. App.—Dallas 1977, writ ref’d n.r.e.) (finding that 

jury instruction explaining “actual cash value” was “misleading” because it did 

not obligate the jury to “follow the contractual measure of damages”). But a 

contractual limitation of liability—that is, a cap on what the insurer will have 

to pay out, independent of the value of the loss—falls upon the insurer to plead 

and prove. See Manhattan Fire & Marine Ins. Co. v. Melton, 329 S.W.2d 338, 

339–45 (Tex. App.—Texarkana 1959, writ ref’d n.r.e.); see also Imperial Ins. 

Co. v. Nat’l Homes Acceptance Corp., 626 S.W.2d 327, 328–30 (Tex. App.—Tyler 

1981, writ ref’d n.r.e.) (holding that trial court properly allowed insureds to 

recover repair costs despite policy language which limited insurer’s liability to 

“actual cash value of the property at the time of loss” in light of insurer’s failure 

to “raise the issue of the propriety of the measure of damages until it moved 

for an instructed verdict”).

Underlying these rules is recognition that the value of a loss can be 

expressed a number of different ways. As relevant here, two possible 

measurements are market value and repair or replacement cost. 12 COUCH ON 

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INSURANCE § 175:24. Which particular measurement most faithfully 

compensates the insured for his actual loss—no more and no less—can be a 

“controversial question.” See id. § 175:5; see also Crisp, 369 S.W.2d at 328 

(“Indemnity is the basis and foundation of insurance coverage not to exceed the 

amount of the policy, the objective being that the insured should neither reap 

economic gain nor incur a loss if adequately insured.”). A contractual measure 

of damages is one way of settling the controversy in advance. A limitation of 

liability can serve the same function, by indicating that the insurer will pay 

only the smallest of a number of different possible measurements. See, e.g., 

Imperial Ins., 626 S.W.2d at 329 (stating that liability “shall not exceed” (1) 

actual cash value with deduction for depreciation, (2) repair or replacement 

costs with material of like kind and quality, or (3) policy limit).

This is not to say that the absence of a contractual measure of damages 

gives the insured absolute freedom to decide how to measure his loss. Texas

law provides some default rules. In the case of a “partial loss under an 

insurance contract insuring a dwelling”—the loss at issue in this case—the 

“ordinary measure of damages . . . is the difference between the value of the 

property immediately before and immediately after the loss, but within the 

amount of the policy.” Imperial Ins. Co., 626 S.W.2d at 329–30; see also Custom 

Controls Co. v. Ranger Ins., 652 S.W.2d 449, 452 (Tex. App.—Houston [1st 

Dist.] 1983, no writ) (“[T]he common law measure of damages . . . is the market 

value immediately before and immediately after the loss.”).

Whether the last sentence of Item 4(b) of the Verified Replacement Cost 

Endorsement sets forth a contractual measure of damages that overrides the 

default common law standard or a limitation of liability is not an easy question. 

No Texas court has addressed a policy provision that is substantially similar 

in its overall structure and language to this one. Chubb’s reading of the 

sentence as a measure of damage rather than a cap on coverage makes some 

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sense when the sentence is viewed in isolation: “If you have a covered partial 

loss to your dwelling or an other structure, and do not begin to repair, replace 

or rebuild the lost or damaged property within 180 days from the date of loss, 

we will only pay the reconstruction cost less depreciation.” The sentence is 

couched in terms of what Chubb will pay, rather than what Chubb’s payment 

cannot exceed (although this seems a distinction without a difference when the 

sentence contains only one measurement of loss). Also compelling, the Ayoubs 

purchased the endorsement for an additional premium, and it is explicitly 

titled “replacement cost.” This suggests that the endorsement offers a more 

valuable measure of damages, purchased by the Ayoubs for the express 

purpose of having recourse to it. See 12 COUCH ON INSURANCE § 176:56 

(“[W]hile a standard policy compensating an insured for the actual cash value 

of damaged or destroyed property makes the insured responsible for bearing 

the cash difference necessary to replace old property with new property, 

replacement cost insurance allows recovery for the actual value of property at 

the time of loss, without deduction for deterioration, obsolescence, and similar 

depreciation of the property’s value.”).

We are persuaded, however, that Chubb’s interpretation is not 

reasonable in light of the Verified Replacement Cost Endorsement as a whole. 

See RSUI Indemnity Co v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015) (“If 

only one party’s construction [of the policy language] is reasonable, the policy 

is unambiguous and we will adopt that party’s construction.”). In reaching this 

conclusion, we heed the Texas Supreme Court’s admonition not to “isolat[e]

from its surroundings or consider[] apart from other provisions a single phrase, 

sentence, or section of a contract.” State Farm Life Ins. Co. v. Beaston, 907 

S.W.2d 430, 433 (Tex. 1995).

The first sentence of the endorsement’s dwelling provision (Item 4(b)) 

begins with limitation language: “Our limit of liability for covered losses . . . .” 

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Such language is similar to policy language that has been construed by Texas 

courts as limitations of liability. Cf. Crisp, 369 S.W.2d at 328 (stating that 

“liability hereunder shall not exceed . . .” (emphasis added)); Imperial Ins. Co., 

626 S.W.2d at 329 (same); Manhattan Fire, 329 S.W.2d at 340 (same). And 

Item 4(b) follows another section of the endorsement—Item 4(a), governing

losses to personal property—that is undoubtedly a limitation provision under 

Texas case law.2 Compare Section I – Conditions, Item 4(a) (“Our limit of 

liability and payment for covered losses to personal property . . . will not exceed 

the smallest of the following: (1) the actual cash value at the time of the loss 

determined with proper deduction for depreciation; (2) the cost to repair or 

replace the damaged property with material of like kind and quality, with 

proper deduction for depreciation; or (3) the specified limit of liability of the 

policy.”) with, e.g., Imperial Ins. Co., 626 S.W.2d at 329 (“[L]iability hereunder 

shall not exceed the actual cash value of the property at the time of loss, 

ascertained with proper deduction for depreciation; nor shall it exceed the 

amount it would cost to repair or replace the property with material of like 

kind and quality within a reasonable time after the loss, without allowance for 

any increased cost of repair or reconstruction . . .; nor shall it exceed the 

interest of the insured, or the specific amounts shown under ‘Amount of 

Insurance.’”). Indeed, Chubb acknowledged at oral argument that Item 4(a) 

and all but the last sentence in Item 4(b) are limits of liability. In light of this, 

we are inclined to construe the final sentence of Item 4 consistently with its

other parts.

 

2 Item 4(a) of the Verified Replacement Cost Endorsement is superseded by the 

Replacement of Personal Property endorsement, discussed in the next section. But it remains 

instructive for determining the purpose of the Verified Replacement Cost Endorsement as a 

whole.

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Even if this were not our inclination, Chubb’s interpretation of the final 

sentence of Item 4(b) gives the Verified Replacement Cost Endorsement a

perplexing structure. It would be unusual for policy language to first limit the 

insurance company’s overall liability and then set a contractual measure of 

damages controlling only a subset of potential covered losses (partial losses for 

which repairs were not timely commenced).3 Odder still would be reading the 

final sentence in Item 4(b) as placing a burden on the insurer in its first clause, 

and a burden on the insured in the next clause (at least absent any express 

language setting forth the contrasting burdens). But that is what Chubb’s 

reading of the endorsement would require us to do. The “reconstruction cost 

less depreciation” language is only implicated if the policyholder does not 

“begin to repair, replace or rebuild the lost or damaged property within 180 

days . . . .” Although it is undisputed for purposes of this appeal that the 

Ayoubs did not commence repairs within 180 days, that fact will be disputed 

in a number of cases. It makes no sense to put the onus on the insured to prove 

that they did not begin repairs on the dwelling within 180 days in order to have 

access to a lesser recovery—a burden they would never seek.

Chubb’s interpretation of the last sentence of Item 4 as a contractual 

measure of damages thus creates more questions than it answers. We conclude 

that the better reading of the policy is that all components of Item 4 are limits 

 

3 Consider the analogy to coverage grants and exclusions described above on page 4. 

One would expect a policy to begin by defining what it insures, and then carve-out any 

exclusions. See generally 14 TEX. JUR. 3d Contracts § 249 (2015) (“An exception . . . takes out 

of a contract that which, but for the exception, would otherwise be included in it. . . . 

Ordinarily, exceptions . . . are construed as limitations on the language in the agreement that

precedes them.” (emphasis added)). And the Policy here does exactly that; it starts with the 

coverage grants and then establishes exclusions in a separate subsection titled “Exclusions.” 

This sequence—from affirmative coverage to negative carve-outs—makes more sense than 

the structure of the Verified Replacement Cost Endorsement proposed by Chubb.

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of liability on which Chubb bore the burden of proof.4 See Italian Cowboy 

Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011) 

(explaining that the task of courts is to “examine and consider the entire

writing in an effort to harmonize and give effect to all [of its] provisions . . .” 

(quoting J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003)).

B. Personal property claim

The Ayoubs also purchased an endorsement entitled “Replacement of 

Personal Property.” The endorsement states that the Ayoubs “may” seek 

reimbursement “on a replacement cost basis” for items actually “repair[ed], 

restore[d], or replace[d]” within a year of the loss. Otherwise, Chubb will pay 

the “actual cash value” of the damaged property. The full text of the 

endorsement is below:

 

4 At oral argument before this court, the Ayoubs indicated that they would need to

prove the common law measure of damages at trial: the difference in market value of their 

home immediately before and immediately after the loss-causing event. We express no 

opinion whether the Ayoubs have the evidence they need to prove that measure of damages.

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As with the Verified Replacement Cost Endorsement, the parties 

disagree whether the Replacement of Personal Property endorsement is a 

limitation of liability that Chubb needed to invoke and establish, or a measure 

of damages that the Ayoubs had to prove. The Replacement of Personal 

Property endorsement is unlike any policy language addressed in Texas case 

law that we have seen. And it is inconsistently phrased in terms of Chubb’s 

“limit of liability,” what Chubb will or will not pay, and what the Ayoubs may 

claim. Its scattershot and somewhat redundant organization makes it much 

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harder to categorize than the Verified Replacement Cost Endorsement. 

Because we find that summary judgment should not have been granted on this 

claim for another reason, as described below, we will assume that the 

Replacement of Personal Property endorsement defines a mandatory measure 

of damages for personal property not fixed or replaced within a year: “actual 

cash value,” with a deduction for depreciation.5

It is undisputed that the Ayoubs did not fix or replace most of the 

damaged personal property within the one-year deadline. The district court 

granted summary judgment on this claim because the Ayoubs’ only evidence of 

underpayment was an inventory prepared by Mr. Ayoub reflecting replacement 

cost of the affected items (clothing, housewares, and furnishings). The court 

found the inventory to be no evidence of “actual cash value of the items lost.”

The problem with the district court’s conclusion is that “actual cash 

value” means “market value,” Mew v. J & C Galleries, Inc., 564 S.W.2d 377, 

377 (Tex. 1978), and Texas law acknowledges that personal effects have “no 

market value in the ordinary meaning of that term.” Crisp, 369 S.W.2d at 328. 

Texas law thus provides considerable leeway for establishing their value. A 

variety of representative values are probative—including “market[,] 

reproduction or replacement values.” Id. at 329 (alteration and emphasis 

added). “The trier of facts may consider original cost and cost of replacement, 

the opinions upon value given by qualified witnesses, the gainful uses to which 

 

5 The endorsement does not explicitly state that “actual cash value” includes a 

deduction for depreciation. But it is the clear intent of the endorsement, which elsewhere 

defines “replacement cost” (the alternative to “actual cash value”) as not including “a 

deduction for depreciation.” See 12 COUCH ON INSURANCE § 178:5 (“Absent an express policy 

provision, the intent of the parties as to whether depreciation was intended to be included 

can be derived from consideration of the policy as a whole, as for instance, where the policy, 

for a higher premium . . ., expressly excludes depreciation from a calculation of replacement 

cost, but is silent as to its deduction from actual cash value, implying that depreciation should 

be considered as to the latter valuation[.]”).

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the property has been put as well as any other facts reasonably tending to shed 

light upon the subject.” Id. (emphasis added). The overarching inquiry is “the 

actual worth or value of the articles to the owner for use in the condition in 

which they were at the time of the [loss] excluding any fanciful or sentimental 

considerations.” Id. at 328; see also Allstate Ins. Co. v. Chance, 590 S.W.2d 

703, 704 (Tex. 1979) (“[T]he rule is that where household goods have no 

recognized market value, the trier of fact may consider, in determining the 

actual value to the owner at time of loss, the original cost, cost of replacement, 

opinions of qualified witnesses, including the owner, the use to which the 

property was put, as well as any other reasonably relevant facts.”).

Given the broad range of evidence that is probative on actual cash value 

for personal property like that at issue, Mr. Ayoub’s assessment of replacement 

costs was some evidence of actual cash value. Summary judgment should not 

have been granted on this basis.

C. Statutory claims

Finally, the district court granted summary judgment on the Ayoubs’ 

statutory claims because they were “based on the alleged breach of the 

insurance contract” that the court had rejected. As explained above, we believe 

that summary judgment should not have been granted on the Ayoubs’ 

contractual claims. Our ruling undercuts the district court’s stated rationale 

for granting summary judgment on the Ayoubs’ statutory claims. 

We acknowledge the uphill battle that the Ayoubs face on these claims

even if they ultimately prove that Chubb breached the contract. Under Texas 

law, “[e]vidence establishing only a bona fide coverage dispute does not 

demonstrate bad faith.” State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 

42, 44 (Tex. 1998). It may well be that, if this case proceeds to trial, the Ayoubs’

evidence shows nothing more than a legitimate dispute over whether Chubb 

owed more than the nearly $1 million it has already paid. If so, the district 

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court may be justified in summarily disposing of the Ayoubs’ bad faith claims. 

See Weiser-Brown Op. Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512, 

525–27 (5th Cir. 2015) (affirming district court’s decision to enter judgment as 

a matter of law on insured’s bad faith claims during a jury trial which resulted 

in verdict for insured on the coverage dispute). But the arguments presented 

to us in this appeal have not explained in any detail why Chubb refused further 

payment on the claims, much less why its rationale was or was not reasonable. 

As such, we believe the prudent course of action is to remand and allow the 

district court to address this issue if it arises in the normal course.

III.

We REVERSE the district court’s grant of summary judgment in favor 

of Chubb on the Ayoubs’ dwelling, personal property, and statutory claims and

REMAND for further proceedings.

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