Opinion ID: 38988
Heading Depth: 2
Heading Rank: 1

Heading: The Summary Judgment for Royal

Text: A grant of summary judgment is reviewed de novo under the 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 same standard applied by the district court. Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 877 (5th Cir. 2002).
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 self- insurance provision where applicable, and the 9 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 10 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 11 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 12 “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 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 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 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 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 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 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. 16 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 17 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.