United States Court of Appeals

Fifth Circuit

FILED

July 25, 2005

Charles R. Fulbruge III

Clerk

REVISED AUGUST 15, 2005

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 04-20819

 

WENTWOOD WOODSIDE I LP,

Plaintiff-Appellant,

versus

GMAC COMMERCIAL MORTGAGE CORPORATION; 

ROYAL INDEMNITY COMPANY,

Defendants-Appellees.

 

Appeal from the United States District Court 

for the Southern District of Texas

 

Before GARWOOD, SMITH, and CLEMENT, Circuit Judges.

GARWOOD, Circuit Judge:

Wentwood Woodside I, L.P., a Texas limited partnership,

(Wentwood) brought this suit against Royal Indemnity Company

(Royal), which carried the excess property damage insurance on

the apartments Wentwood owned, and against GMAC Commercial

Mortgage Corporation (GMAC), which serviced the mortgage on

Wentwood’s apartments, to recover under Texas law for flood
2

damage to the apartments sustained during Tropical Storm Allison

in June of 2001. The district court granted summary judgment to

both Royal and GMAC on all causes of action. We affirm.

I.

CONTEXT FACTS AND PROCEEDINGS BELOW

Wentwood is a single-asset limited partnership organized

under the laws of Texas. It was formed for the purposes of

profitably owning the Woodside Village Apartments (Woodside

Village) in Houston, Texas. On December 30, 1996, Wentwood, as

sole grantor, executed a deed of trust with Column Financial,

Incorporated, the deed of trust beneficiary, in order to finance

Wentwood’s purchase of the Woodside Village.

The indebtedness secured by the deed of trust was acquired

(and possibly initially funded) by a New York common law trust

structured as a real estate mortgage investment conduit (REMIC). 

Neither this REMIC nor Column Financial is a federally regulated

lending institution. The trustee for the REMIC is LaSalle Bank

of Chicago. LaSalle merely holds the REMIC’s assets in trust, is

not the lender, and is not at risk in the event of default by any

of the REMIC’s debtors, including Wentwood. The deed of trust

covers no property other than Woodside Village and secures no

indebtedness other than Wentwood’s $5,950,000 indebtedness

incurred in its purchase of Woodside Village. The deed of trust

expressly requires Wentwood to maintain adequate insurance on
3

Woodside Village. The only address for Wentwood stated in the

deed of trust is 3811 Turtle Creek Boulevard, Suite 450, Dallas,

Texas 75219. GMAC services the indebtedness secured by the deed

of trust.

Wentwood is, in some not precisely identified manner,

affiliated and under common control with a number of other

separate partnerships owning other apartment buildings (over 50

in all) across the country, including seven other single-asset

partnerships each of which owns a different apartment building in

Houston. Among these seven other single-asset partnerships (each

owning other Houston apartment buildings) were Wentwood Hartford

D Partners (Wentwood Hartford) and Wentwood St. James, L.P.

(Wentwood St. James). Woodside Village and the other seven

Houston properties were at all relevant times managed by Pinnacle

Realty Management Company (Pinnacle) in Tacoma, Washington.

On April 20, 2000, the Federal Emergency Management Agency

(FEMA) redrafted its flood insurance rate map for the Houston

area. Under this change, the Woodside Village became included

within Flood Zone A, a special flood hazard area (SFHA). On

September 14, 2000, FEMA published its revisions, including the

one affecting the Woodside Village, in the Federal Register. 65

F.R. 55526-03.

On September 19, 2000, GMAC sent a letter to Wentwood

Hartford, informing it that its property was in an area that had
1 The mortgage documents of the seven other Houston

properties are not in the record. An affidavit of Wentwood’s

attorney states, “on information and belief,” that each of the

eight separate loans on the eight separate Houston properties is

included in the same REMIC and that all loans in the REMIC are

serviced by GMAC. 

4

been designated an SFHA. GMAC explained, though without citing

any contractual language, that Wentwood Hartford was required by

its mortgage (which GMAC serviced) to provide GMAC with evidence

of adequate flood insurance.1 If such evidence was not

forthcoming, the letter stated, GMAC would procure such insurance

at Wentwood Hartford’s expense. GMAC sent an essentially

identical separate letter on the same day to Wentwood St. James, 

likewise informing it that its property in Houston was in an area

designated an SFHA. GMAC did not send such a letter to Wentwood

even though the Woodside Village was also in an SFHA as a result

of FEMA’s April 2000 changes to its rate maps.

GMAC addressed this correspondence specifically to Wentwood

Hartford and Wentwood St. James but the letters were sent in care

of Pinnacle to the latter’s Tacoma address. Once the letters

were received by Pinnacle, they were forwarded to Janet Barnes,

who was at the time the risk manager for Boreal Properties,

L.L.C. (Boreal), a company affiliated with Pinnacle that worked

on the eight Houston properties as an independent contractor. 

Barnes states in her affidavit that she was responsible for

maintaining insurance for the Houston properties. There is no

evidence that Barnes took any immediate action following receipt
5

of GMAC’s letters.

At some point in late 2000, a firm named Graoch Associates

(Graoch), acting on behalf of the affiliated group of

partnerships which included Wentwood, retained Lockton Companies,

Incorporated (Lockton) to purchase a single excess property

insurance policy covering all of the properties, including the

Woodside Village, owned by all the various partnerships

(including Wentwood) with which Wentwood was affiliated and under

common control. Lockton entered into negotiations with Richard

McAdam, a property underwriter for Royal Specialty Underwriting,

Incorporated, to purchase excess insurance from Royal. Royal’s

standard form excess property insurance policy generally covered

flood damage but excluded from that coverage any property located

in an SFHA. An exception to this exclusion could be purchased

for an additional premium.

During the underwriting process, McAdam specifically asked

Lockton whether any of the properties was located in an SFHA. As

reflected in the policy itself, Lockton only identified three

properties as being in an SFHA, one each in Ohio, North Carolina,

and Texas. The sole Texas property so identified was the Houston

property owned by Wentwood St. James, which was the subject of

one of GMAC’s letters. Lockton did not, however, identify either

the property owned by Wentwood Hartford, which was the subject of

GMAC’s other letter, or, more importantly, the Woodside Village
2

 The deed of trust requires that whenever the property is

in an area designated by FEMA as SFHA (including either Zone A or

Zone V) the grantor at its expense must maintain flood insurance

equal to 100% of the replacement cost of the improvements or the

maximum flood insurance available, whichever is less.

6

owned by Wentwood.

From the policy’s inception forward, the Royal policy’s

Excess Physical Damage Schedule read in its entirety as follows:

“Perils Covered: All Risk including Flood and

Earthquake except excluding California

Earthquake and excluding Flood in Zone A or V

except at: 1) 2400 West Shore Blvd. Columbus,

OH, 2) 215 Rippling Stream Rd., Durham, NC,

3) 9109 Fondron [sic] Road, Houston, TX.”

Consequently, when Graoch purchased its one-year excess policy

from Royal, which became effective on November 27, 2000, the

Woodside Village did not have excess coverage for floods and the

premium paid by Graoch did not incorporate the risk of insuring

the Woodside Village against flood damage. The parties do not

dispute that Wentwood breached its express duty under the deed of

trust to maintain full replacement cost flood insurance.2

In the spring of 2001, Graoch decided to switch primary

carriers. It purchased a one year policy from Lexington

Insurance Company (Lexington), effective April 28, 2001, with a

$1,000,000 limit. The Lexington primary policy included full

flood coverage and did not exclude properties in an SFHA. Thus,

the Woodside Village continued to have primary flood insurance,

but still did not have any excess flood coverage.
7

On June 9, 2001, Tropical Storm Allison came ashore in the

Houston area. The Woodside Village was severely flooded and

sustained more than four million dollars in damage. Wentwood

filed a claim with Lexington four days later and Lexington

promptly paid its policy’s full $1,000,000 limit. Wentwood next

filed a claim with Royal under its November 27, 2000 excess

policy purchased by Graoch. Royal refused to pay, however,

because it determined that the Woodside Village was in an SFHA

and Graoch had not purchased the additional coverage necessary

for such a property.

In July 2002, Wentwood filed a three-count complaint in a

Texas court alleging breach of contract by Royal, violation by

Royal of the Texas Insurance Code, and breach by GMAC of an

assumed duty to notify Wentwood in the event that the Woodside

Village fell within an SFHA. The case was timely removed on

August 13, 2002 to the district court below. In November 2002,

Wentwood filed an amended complaint which pleaded two additional

causes of action against GMAC for negligence per se under Texas

law in failing to abide by its asserted federal statutory duty

under 42 U.S.C. § 4012a to ensure that properties in SFHAs were

adequately covered, and violation of section 4012a. The district

court granted summary judgment to Royal on September 12, 2003,
3 Judge Hughes generally referred the case to Magistrate

Judge Crone in September 2002. The parties thereafter agreed to

trial before and disposition by Judge Crone, who presided over

the first phase of this case and entered summary judgment in

favor of Royal. Judge Crone was then confirmed to a district

judgeship in another district and on October 7, 2003, the case

was returned to Judge Hughes, who entered summary judgment in

favor of GMAC. Thereafter Judge Hughes on September 6, 2004

entered final judgment under Rule 58 that Wentwood take nothing

from Royal and GMAC. We generally refer to Judges Crone and

Hughes collectively as the district court.

8

and then to GMAC on August 31, 2004.3 The district court had

also, in February 2004, denied Wentwood’s motion, filed in

November 2003 after the court rendered its September 2003 adverse

summary judgment order, to file a further amended complaint

against Royal.

It is from these dispositions that Wentwood appeals.

II.

ROYAL

Wentwood appeals the grant of summary judgment in favor of

Royal on the ground that Wentwood’s initial failure to insure the

Woodside Village was a mistake that is excused by the Errors and

Omissions clause of the underlying primary policy. Wentwood also

appeals the decision of the district court not to permit it to

file an amended complaint against Royal after the adverse summary

judgment had been entered.

A. The Summary Judgment for Royal

i. Standard of Review

A grant of summary judgment is reviewed de novo under the
9

same standard applied by the district court. Terrebonne Parish

Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 877 (5th Cir. 2002).

ii. Discussion

Wentwood concedes, as it must, that the Royal policy Graoch

purchased did not identify the Woodside Village as a property to

be excepted from Royal’s blanket exclusion from flood coverage of

any property in an SFHA. This is not a mere misdescription in

the policy of the coverage upon which Graoch and Royal agreed and

for which Graoch paid. Rather, Graoch never asked for SFHA

coverage for the Woodside Village and never paid for such

coverage.

Wentwood contends, however, that this failure to insure the

Woodside Village was an oversight that is nullified by the Errors

and Omissions clause of Lexington’s primary policy. This clause

provides:

“Any unintentional error or omission made by

the Insured shall not void or impair the

insurance hereunder provided the Insured

reports such error or omission as soon as

reasonably possible after discovery.”

Wentwood argues that the Errors and Omissions clause was

incorporated into the Royal policy by its Maintenance of Primary

Insurance clause, which provides:

“In respect of the perils hereby insured

against, this Policy is subject to the same

warranties, terms and conditions (except as

regards the premium, the amount and limits of

liability other than the deductible or selfinsurance provision where applicable, and the
10

renewal agreement, if any; and EXCEPT AS

OTHERWISE PROVIDED HEREIN) as are contained

in or as may be added to the policy/ies of

the primary insurer(s) prior to the happening

of a loss for which claim is made hereunder,

and should any alteration be made in the

premium for the policy/ies of the primary

insurer(s), then the premium hereon shall be

adjusted accordingly.”

(italics added, capitals in original).

Wentwood asserts repeatedly throughout its brief that its

failure to insure the Woodside Village was the result of its

unintentional error when purchasing the excess policy from Royal. 

The summary judgment evidence, however, shows only that the Royal

policy was purchased by Graoch. Presumably, therefore, the only

relevant errors or omissions are those committed by Graoch.

There is, however, no evidence whatsoever that Graoch’s

agent, Lockton, did not know that the Woodside Village was in an

SFHA or, if the agent did not know that, that the agent would

have purchased the additional insurance if he or she had known

that the property was in an SFHA. There is evidence that Barnes

did not know the Woodside Village was in an SFHA when Graoch

bought the policy, but there is no basis in the record for

treating Barnes’ knowledge, or lack thereof, as equivalent to

Graoch’s or Lockton’s knowledge. All we know of Barnes from her

affidavit is that her firm, Boreal, was retained by Pinnacle to

“provide[] risk management services as an independent contractor

to the [eight Houston-area properties].” Yet neither Boreal, nor
11

Pinnacle, nor Wentwood itself purchased the Royal policy. 

Nevertheless, even if we assume that there was an “unintentional

error or omission made by the Insured” in respect to not

procuring flood coverage for its Woodside Village under the Royal

policy, the Maintenance of Primary Insurance clause in Royal’s

excess policy only incorporates the terms of the underlying

Lexington primary policy “[i]n respect of perils hereby insured

against.” As noted earlier, however, the Excess Physical Damages

Schedule, which listed “Perils Covered,” did not include as a

covered peril the flooding of any property within an SFHA other

than three enumerated exceptions, none of which was the Woodside

Village. Therefore, by the plain terms of the above-quoted

language, the Errors and Omissions clause was not incorporated

into the Royal policy with respect to flood damage in an SFHA

unless, unlike in the instant case, the special exception was

purchased. Sulzer Carbomedics v. Or. Cardio-Devices, Inc., 257

F.3d 449, 457 (5th Cir. 2001) (stating that an unambiguous

contract “must be enforced as written, looking at the objective

intent as manifested by the language used, rather than

interpreting it by attempting to divine the subjective intent of

the parties.”) (citing Sun Oil Co. v. Madeley, 626 S.W.2d 726,

731 (Tex. 1981)).

This analysis underscores the central defect in Wentwood’s

contract claim against Royal. The undisputed facts of this case
12

establish that Graoch simply never purchased excess flood

insurance for the Woodside Village. Indeed, in response to a

direct inquiry about properties in an SFHA, Lockton did not

identify the Woodside Village and the premium Graoch paid did not

include the risk of insuring the Woodside Village against flood

damage. Regardless of whether we ascribe this error to Wentwood

or Graoch, such an error is properly characterized as a

unilateral mistake in purchasing insurance. Under Texas law, the

unilaterally mistaken party alone bears responsibility for the

consequences of its error. See, e.g., Holley v. Grigg, 65 S.W.3d

289, 295 (Tex. App. – Eastland, 2001, no writ); Oldaker v.

Travelers Ins. Co., 497 S.W.2d 402, 404 (Tex. App. – El Paso,

1973, no writ); GeoSouthern Energy Corp. v. Chesapeake Operating,

Inc., 274 F.3d 1017, 1021 (5th Cir. 2001) (citations omitted)

(stating that equitable reformation of a contract is available

only when a mutual mistake in drafting prevents the written

instrument from reflecting the meeting of the minds). 

Nevertheless, even if we were to assume that the Errors and

Omissions clause was incorporated into the Royal policy with

respect to the Woodside Village, it still would not apply. The

Errors and Omissions clause states that an unintentional error

will not “void or impair the insurance hereunder[.]” The Errors

and Omissions clause, in other words, applies only to insured

risks. Yet, for the reasons discussed above, there was no
4

 Other cases relied on by Wentwood are likewise

distinguishable. In Conagra, Inc. v. Arkwright Mut. Ins. Co., 64

F. Supp. 2d 754 (N.D. Ill. 1999), Conagra sought to recover for

property that was destroyed in a fire but not properly listed in

the policy. The district court ruled that the Errors and

Omissions clause in that case, which specifically addressed

errors or omissions in the listings of covered properties, id. at

760, and is substantively different from the language of the

Errors and Omissions clause in the instant case, would correct a

13

“insurance hereunder” with respect to flood damage because Graoch

never purchased such insurance for the Woodside Village.

The cases Wentwood cites for the proposition that the Errors

and Omissions clause applies are distinguishable on their facts. 

For example, in Rosa v. The Ins. Co. of Penn., 296 F. Supp. 167

(S.D. Cal. 1969), an insurer tried to avoid paying for the loss

of cargo that went down with a fishing vessel on the ground that

the cargo had not been reported via radio as required under the

policy. The vessel was not able to report its cargo, however,

because it was crippled by the storm that would eventually claim

it. The district court ruled that the failure to report was

excused by the Errors and Omissions clause of the policy because

there was no evidence that the vessel’s crew did not intend to

report. The obvious distinction between Rosa and the instant

case is that there was no dispute in Rosa that cargo insurance

had been purchased and a premium paid. As such, an unintentional

violation of a policy technicality was not construed to impair

coverage. In the instant case, on the other hand, there was no

insurance coverage and no premium was ever paid.4
misdescription of otherwise insured property. What the Errors

and Omissions clause would not do, the district court stated, is

rescue Conagra if it had indeed deliberately omitted a property

from the insurance schedule. Id. at 761-62. Thus, to the extent

that Conagra applies at all to the instant case, it is to suggest

that, as here, a deliberate, though mistaken, choice not to cover

certain property will not be remedied by an Errors and Omissions

clause.

St. Paul Fire & Marine Ins. Co. v. Gen. Mut. Ins. Co., 213

So. 2d 856 (Ala. 1968), is distinguishable insofar as it

concerned a failure to renew an existing policy and was decided

under an Errors and Omissions clause that expressly contemplated

an unintentional failure to renew. In the instant case, on the

other hand, Wentwood did not inadvertently fail to renew existing

coverage. Graoch failed altogether to insure the Woodside

Village against flood damage when it purchased the excess policy

from Royal. 

14

In light of the conclusion that Wentwood never insured the

Woodside Village against flood damage, Wentwood’s lawsuit is in

effect an attempt to retroactively purchase excess insurance for

a loss that has already been realized. In Simon v. National

Union Fire Insurance Co., 782 N.E.2d 1125 (Mass. App. Ct. 2003),

the court held, respecting a fire insurance policy’s “‘errors and

omissions’ clause”, that “such a standard clause does not permit

an insured to obtain insurance coverage for an uncovered loss

that has already occurred.” Id. at 1128. Such an approach is

plainly consistent with and supported by the general principle of

Texas law that risk is an essential element of an insurance

contract, meaning that insurers insure against future losses

whose probability of occurrence is less than one hundred percent. 

45 Tex. Jur. 3d, Insurance Contracts and Coverage §§ 18-19

(citing Texas cases). Where, as here, on the other hand, the
5 The failure of Wentwood’s breach of contract claim is

fatal to its extra-contractual claims against Royal. Wentwood

does not contend otherwise.

15

insured knows that the loss has already been sustained, the

element of risk is absent. Given that all parties were always

aware that Woodside Village was not exempted from the Royal

policy’s Flood Peril exclusion, and given the “insurance provided

hereunder” language of the primary policy’s Errors and Omissions

clause and the “in respect of the perils hereby insured against”

and “except as otherwise provided herein” language of the Royal

excess policy, this case is a particularly appropriate one for

application of the rule stated in Simon. 

The district court correctly denied Wentwood recovery on the

Royal policy.5

B. Denial of leave to file Second Amended Complaint

against Royal

Wentwood contends that the district court erred in failing

to allow a second amended complaint which would have added a

claim against Royal over a month after summary judgment had been

granted to Royal. Wentwood’s proposed second amended complaint

alleges for the first time a claim of negligence against Royal,

asserting that Lockton was Royal’s agent, that Lockton was

negligent in failing to have Woodside Village listed as an

exception to the Flood Peril exclusion in the Royal policy and

that Royal is responsible for Lockton’s negligence under the
16

doctrine of respondeat superior. The proposed amended complaint

does not seek to add Lockton as a defendant. Wentwood admitted

that it was its understanding, well before its first amended

complaint was filed in November 2002, that Lockton was Royal’s

agent, and it does not assert that it thereafter discovered new

facts relevant to the new respondeat superior claim. However,

Wentwood maintains that it could not have asserted this claim in

its first amended complaint because such claim did not become

“ripe” until the magistrate judge concluded as a matter of law

that no insurance coverage existed.

i. Standard of Review

Denial of leave to amend a complaint under FED. R. CIV. P.

15(a) is reviewed for an abuse of discretion. Smith v. EMC

Corp., 393 F.3d 590, 595 (5th Cir. 2004).

ii. Discussion

This case was removed on August 13, 2002, and assigned to

the magistrate judge on September 19, 2002. On October 24, 2002,

the magistrate judge issued a scheduling order setting May 19,

2003 as the deadline for amending pleadings. Wentwood filed its

first amended complaint on November 26, 2002. The premise behind

this complaint was that Royal’s excess policy, through the

primary policy’s incorporated Errors and Omissions clause,

covered the Woodside Village. Wentwood did not plead in the

alternative, as it is entitled to do under FED. R. CIV. P.
17

8(e)(2), that Royal was vicariously liable to it for the

negligence of its alleged agent, Lockton, in failing to secure

coverage at all. Wentwood, in other words, could have, but

deliberately chose not to, assert in its November 2002 first

amended complaint an alternative vicarious liability claim

against Royal.

On December 18, 2002, Wentwood filed its motion for summary

judgment against Royal. Royal responded with a cross-motion for

summary judgment on January 7, 2003. On September 12, 2003, the

magistrate judge granted summary judgment for Royal and denied

the same to Wentwood. On October 7, 2003, the reference to the

magistrate judge was vacated and the case returned to the

presiding district judge. On November 12, 2003, two months after

summary judgment had been granted to Royal, Wentwood filed a

motion for reconsideration of the magistrate judge’s summary

judgment order. On that same day, Wentwood also sought leave to

file a second amended complaint alleging the cause of action

against Royal for vicarious liability. The district court denied

both motions in a short order explaining that there was no basis 

permitting a new complaint because Wentwood was simply offering a

new theory of recovery against Royal.

Wentwood’s appeal on this score is plainly not well taken. 

Wentwood could have, but did not, plead its cause of action
6

 Indeed, its proposed second amended complaint did just

that. 

18

against Royal in the alternative,6 and it was therefore hardly an

abuse of discretion for the district court to deny Wentwood a

post-summary judgment opportunity to present its claims against

Royal. Freeman v. Continental Gin Co., 381 F.2d 459, 470 (5th

Cir. 1967) (“We hold that a district court does not abuse its

discretion in refusing to allow amendment of pleadings to change

the theory of a case if the amendment is offered after summary

judgment has been granted against the party, and no valid reason

is shown for failure to present the new theory at an earlier

time.”); Rosenzweig v. Azurix Corp., 332 F.3d 854, 865 (5th Cir.

2003) (“‘A busy district court need not allow itself to be

imposed upon by the presentation of theories seriatim.’”)

(quoting Freeman); Briddle v. Scott, 63 F.3d 364, 380 (5th Cir.

1995) (same). There was no abuse of discretion in the denial of

Wentwood’s belated motion to file its second amended complaint.

III.

GMAC

On appeal, Wentwood pursues only two theories of recovery

against GMAC. First, Wentwood contends that GMAC assumed a

common law duty to notify it when a revision to FEMA’s flood maps

placed the Woodside Village in an SFHA. Second, Wentwood argues
19

that GMAC’s failure to discharge an alleged statutory duty under

the National Flood Insurance Act, 42 U.S.C. § 4001 et seq., gave

rise to a cause of action under Texas law for negligence per se.

A. Standard of Review

See supra § II(A)(i).

B. Discussion

i. Assumed Duty to Notify

Wentwood does not dispute that it breached its own

contractual duty under the deed of trust to secure the coverage

for the Woodside Village required by the terms of the deed of

trust. It argues that its own failure is not relevant to GMAC’s

concurrent failure to discharge the duty it allegedly assumed to

notify Wentwood of changes to FEMA’s flood maps.

In particular, Wentwood contends that GMAC is liable to it

under section 323 of the Restatement (Second) of Torts, which

provides:

One who undertakes, gratuitously or for

consideration, to render services to another

which he should recognize as necessary for

the protection of the other’s person or

things, is subject to liability to the other

for physical harm resulting from his failure

to exercise reasonable care to perform his

undertaking, if:

(a) his failure to exercise such care

increases the risk of such harm, or 

(b) the harm is suffered because of the

other’s reliance upon the undertaking.

See, e.g., Colonial Sav. Ass’n v. Taylor, 544 S.W.2d 116, 120
20

(Tex. 1976) (affirming Texas’ adoption of section 323);

Torrington Co. v. Stutzman, 46 S.W.3d 829, 838 (Tex. 2000)

(same). Wentwood contends that GMAC assumed a duty to it when,

in September 2000, it sent separate letters to Wentwood Hartford

and to Wentwood St. James notifying those two partnerships that

their properties were affected as a result of the April 2000

changes to the Houston-area FEMA maps.

This contention is not, however, consistent with the plain

language of section 323. That section clearly states that where

one “undertakes . . . to render services to another which he

should recognize as necessary for the protection of the other’s

. . . things” he may be “subject to liability to the other”

(emphasis added). Plainly, the only potential liability

addressed is liability to the party the defendant undertook to

render services to. Yet it is undisputed in this case that GMAC

did not render or undertake any notification services to

Wentwood. Torrington, 46 S.W.3d at 837 (“Texas law generally

imposes no duty to take action to prevent harm to others absent

special relationships or circumstances.”); Fort Bend County

Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 396 (Tex. 1991);

Restatement (Second) of Torts § 314. GMAC only notified the

affiliated but nevertheless legally separate and distinct

independent partnerships, Wentwood Hartford and Wentwood St.

James. Indeed, the letters GMAC sent were addressed specifically
7 Wentwood implies in its brief that GMAC’s letters were

sent to Pinnacle, not Wentwood Hartford and Wentwood St. James. 

Wentwood considers this significant because, in sending letters

to Pinnacle about two properties in Houston owned by affiliated

partnerships, GMAC was obligated to notify Pinnacle about all of

the Houston properties owned by any affiliated partnership that

were affected by the FEMA map changes. GMAC sent two letters

addressed specifically to Wentwood Hartford and Wentwood St.

James, respectively. These letters were sent in care of Pinnacle

at Pinnacle’s address in Tacoma, but this does not negate that

the letters were addressed to two specific recipients. The deed

of trust does not mention Pinnacle or any address in Tacoma. 

21

to these two partnerships.7 The only grantor and the only debtor

in the deed of trust is Wentwood Woodside I, L.P. The only

property covered by the deed of trust is Woodside Village. The

only indebtedness secured thereby is the $5,950,000 debt for the

Woodside Village acquisition. The deed of trust does not mention

any other indebtedness, nor any property other than Woodside

Village, nor does it mention Wentwood Hartford or Wentwood St.

James or give any indication that Wentwood Woodside I, L.P., is a

party of any affiliated group of entities; neither Wentwood

Hartford nor Wentwood St. James has any interest in Woodside

Village (so far as this record shows) or any liability on the

indebtedness secured by the deed of trust thereon; nor (so far as

this record shows) does Wentwood Westside have any interest in

any of the properties owned by Wentwood Hartford or by Wentwood

St. James or any liability on any indebtedness secured by any

such property. GMAC’s notification to Wentwood Hartford

concerning its property and to Wentwood St. James concerning its

property does not constitute GMAC’s having undertaken the
8

 We also note that there is no basis for concluding that

GMAC should have realized that notification of Wentwood Westside

was “necessary for the protection of” Wentwood Westside’s

property, namely Woodside Village. Under the deed of trust, it

was plainly the obligation of Wentwood Westside to be so

informed. The information had been publically knowable since

April 2000, and published in the Federal Register since September

2000, the latter date being over two months before the Royal

policy was issued and over six months before the flooding, and

was never uniquely available to GMAC. Moreover, there is no

indication that GMAC had ever informed Wentwood Woodside that

Woodside Village (or any other property of Wentwood Woodside) was

(or was not) within an SFHA or that GMAC would keep track of that

for Wentwood Woodside. Finally, although in September 2000 GMAC

did inform Wentwood Hartford that its property, and Wentwood St

James that its property, was in an SFHA, only one of those two

separate properties was listed as an exception to the Flood Peril

exclusion in the November 2000 Royal policy. 

9 Section 324A reads:

“One who undertakes, gratuitously or for

consideration, to render services to another

which he should recognize as necessary for

the protection of a third person or his

things, is subject to liability to the third

person for physical harm resulting from his

22

rendition of any services to Wentwood Woodside. Cf. Turlington

at 839 (“a person’s duty [under § 323] to exercise reasonable

care in performing a voluntarily assumed undertaking is limited

to that undertaking”) (inside quotation marks and citation

omitted).8 Thus, the law Wentwood cites is unavailing on its

face.

Wentwood tries to salvage its section 323 claim against GMAC

by recasting it as a section 324A claim, arguing that Wentwood is

somehow a third-party injured by GMAC’s correspondence sent to

Wentwood Hartford and Wentwood St. James.9 Wentwood cites
failure to exercise reasonable care to

protect his undertaking, if

(a) his failure to exercise reasonable care

increases the risk of such harm, or

(b) he has undertaken to perform a duty owed

by the other to the third person, or

(c) the harm is suffered because of reliance

of the other or the third person upon the

undertaking.”

Restatement (Second) of Torts § 324A.

23

Brownsville Navigation District v. Izaguirre, 800 S.W.2d 244

(Tex. App. – Corpus Christi, 1990) rev’d in other respects, 829

S.W.2d 159 (Tex. 1992), for the proposition that GMAC is liable

under section 324A. Brownsville, however, is completely

inapposite. In that case, the defendant, a railroad and its

truck line, treated by the court collectively as one entity,

furnished a trailer to a trucking company to pick up some large

steel coils at a warehouse and return them to the railroad for

further shipment. The defendant furnished the warehouse with 

instructions on how the coils were to be loaded and tied down in

the trailer; the instructions, however, were affirmatively unsafe

and contrary to applicable federal regulations. In loading the

coils, warehouse employees followed the faulty instructions the

defendant negligently gave the warehouse for that purpose, and as

a result, the plaintiff, one of the warehouse employees loading
10

 Wentwood’s other case, Rudolph v. ABC Pest Control, Inc.,

763 S.W.2d 930 (Tex. App. – San Antonio 1989, writ denied), is

similarly distinguishable.

24

the coils, was injured. The Browsville court held that this was

a valid basis on which to hold the defendant liable.

Browsville has no relevance to the instant case. Here there

is no evidence that GMAC was negligent with respect to either

Wentwood Hartford or Wentwood St. James, nor did it undertake to

perform any services to them which it did not perform.10 Again,

as previously explained, GMAC’s notification to Wentwood

Hartford, and its notification to Wentwood St. James, do not

constitute GMAC’s having undertaken the rendition of the service

of notification to Wentwood Westside concerning Woodside Village. 

See also note 8 supra and accompanying text.

There is no summary judgment evidence sufficient to support

a judgment that GMAC breached a common law duty to Wentwood. 

ii. Negligence per se

Wentwood contends that GMAC was negligent per se under Texas

law when GMAC failed to notify Wentwood that the Woodside Village

fell within a revised FEMA SFHA map because this failure was

allegedly a violation of a federal statutory duty imposed on

GMAC. Wentwood locates this duty in a provision of the National

Flood Insurance Program, 42 U.S.C. § 4011 et seq. Wentwood

directs our attention in particular to the following language:

“§ 4012a. Flood insurance purchase and
25

compliance requirements and escrow accounts

***

(b) Requirement for mortgage loans.

(1) Regulated lending institutions

Each Federal entity for lending

regulation (after consultation and

coordination with the Financial Institutions

Examination Council established under the

Federal Financial Institutions Examination

Council Act of 1974) [12 U.S.C. § 3301 et

seq.] shall by regulation direct regulated

lending institutions not to make, increase,

extend, or renew any loan secured by improved

real estate or a mobile home located or to be

located in an area that has been identified

by the Director as an area having special

flood hazards and in which flood insurance

has been made available under the National

Flood Insurance Act of 1968 [42 U.S.C. § 4001

et seq.], unless the building or mobile home

and any personal property securing such loan

is covered for the term of the loan by flood

insurance in an amount at least equal to the

outstanding principal balance of the loan or

the maximum limit of coverage made available

under the Act with respect to the particular

type of property, whichever is less.

***

(e) Placement of flood insurance by lender.

(1) Notification to borrower of lack of

coverage

If, at the time of origination or at any

time during the term of a loan secured by

improved real estate or by a mobile home

located in an area that has been identified

by the Director (at the time of the

origination of the loan or at any time during

the term of the loan) as an area having

special flood hazards and in which flood

insurance is available under the National

Flood Insurance Act of 1968 [42 U.S.C. § 4001

et seq.], the lender or servicer for the loan

determines that the building or mobile home

and any personal property securing the loan

is not covered by flood insurance or is
26

covered by such insurance in an amount less

than the amount required for the property

pursuant to paragraph (1), (2), or (3) of

subsection (b) of this section, the lender or

servicer shall notify the borrower under the

loan that the borrower should obtain, at the

borrower's expense, an amount of flood

insurance for the building or mobile home and

such personal property that is not less than

the amount under subsection (b)(1) of this

section, for the term of the loan.

 (2) Purchase of coverage on behalf of

borrower

If the borrower fails to purchase such

flood insurance within 45 days after

notification under paragraph (1), the lender

or servicer for the loan shall purchase the

insurance on behalf of the borrower and may

charge the borrower for the cost of premiums

and fees incurred by the lender or servicer

for the loan in purchasing the insurance.

***

(4) Applicability

This subsection shall apply to all loans

outstanding on or after September 23, 1994.”

That statute does not apply to this case. The plain

language of section 4012a establishes that it applies only to

“regulated lending institutions” that are regulated in the sense

that they are subject to the oversight of a “Federal entity for

lending regulation[.]” Barnhart v. Sigmon Coal Co., 122 S. Ct.

941, 950 (2002) (“As in all statutory construction cases, we

begin with the language of the statute.”). Wentwood does not

dispute that GMAC is not the lender in this case. Wentwood also

does not dispute that neither Column Financial nor the REMIC is a

federally regulated lender. Wentwood tries to bring this case

within the ambit of section 4012a solely by observing that
11

 Furthermore, even if we assume that the statute applies,

it is by no means clear that section 4012a imposes an affirmative

duty on servicers to audit the mortgages they service to ensure

that they are adequately insured. The statute provides in

relevant part that “If,...at any time during the term of a

loan[,]...the servicer for the loan determines that the [SFHA

property] is not covered by flood insurance...the servicer shall

notify the borrower [of this deficiency.]” 42 U.S.C. §

4012a(e)(1) (emphasis added). Significantly, the statute does

not require a servicer to know that a serviced property has been

designated as being within an SFHA. Rather, the statute creates

a duty of notification only if the servicer learns that the

serviced property falls within an SFHA. By using the conditional

“if,” the statute implicitly contemplates that there will be

circumstances in which a servicer does not determine that an

under-insured SFHA property is in fact under-insured. Therefore,

contrary to Wentwood’s position, the statute cannot be read to

impose an unconditional duty on servicers to determine whether

their serviced properties are adequately insured against flood

damage. 

27

LaSalle Bank, which presumably is a federally regulated lending

institution, holds the mortgages in the REMIC as trustee. 

LaSalle’s status as trustee is irrelevant, however, because being

a trustee does not constitute LaSalle as having any equity

interest or investment in the loans and does not make LaSalle

responsible for the loans in the event of default. Section 4012a

is concerned with the risk to the public treasury created by

federally backed or regulated loans for real property that are

not protected by adequate flood insurance. Till v. Unifirst Fed.

Sav. & Loan Ass’n, 653 F.2d 152, 159 (5th Cir. 1981) (“Congress

was interested [in enacting section 4012a] in protecting the

lending institutions whose deposits the federal regulatory

agencies insured.”).11
28

In any case, even if we assume that GMAC is subject to the

statute and that it had an affirmative duty of notification,

Wentwood still cannot prevail under Texas law. “The threshold

questions in every negligence per se case are whether the

plaintiff belongs to the class that the statute was intended to

protect and whether the plaintiff’s injury is of a type that the

statute was designed to prevent.” Perry v. S.N., 973 S.W.2d 301,

305 (Tex. 1998). Neither the Texas Supreme Court, nor indeed any

of the courts of Texas, has ever considered whether a plaintiff

like Wentwood belongs to the class that section 4012a protects. 

We must, therefore, make an Erie “guess” about how the Texas

Supreme Court would answer this question. See, e.g., Primrose

Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 564-65 (5th

Cir. 2003).

In making such a “guess,” we begin where we believe the

Texas Supreme Court would begin; namely, with the decisions of

the federal courts in general and this court in particular. 

Every single federal court to consider whether a federal private

right of action arises under section 4012a has concluded that the

federal treasury, not individual mortgagors like Wentwood, is the

class the statute intends to protect. See, e.g., Till, 653 F.2d

at 159-61; Hofbauer v. Northwestern Nat’l Bank, 700 F.2d 1197,

1201 (8th Cir. 1983); Arvai v. First Fed. Sav. & Loan Ass’n, 698

F.2d 683, 684 (4th Cir. 1983); Mid-America Nat’l Bank of Chicago
29

v. First Sav. & Loan Ass’n of South Holland, 737 F.2d 638, 642

(7th Cir.) cert. denied 105 S. Ct. 911 (1984). In our view, the

Texas Supreme Court would construe 42 U.S.C. § 4012a in a manner

consistent with the unanimous conclusion of the federal

judiciary. Therefore, having “guessed” that the Texas Supreme

Court would not treat mortgagors as the protected class, we hold

that section 4012a does not give rise to a private right of

action under Texas law for negligence per se. 

No error has been shown in the district court’s grant of

summary judgment in favor of GMAC. 

Conclusion

For the foregoing reasons, the judgment of the district

court is

AFFIRMED.