Court Opinion

ID: 9959111
Source: CourtListenerOpinion
Date Created: 2024-04-10 18:00:54.084699+00
Date Added: 2024-06-11T08:18:28.217770
License: Public Domain

Case: 23-50144        Document: 77-1      Page: 1     Date Filed: 04/10/2024

         United States Court of Appeals
              for the Fifth Circuit
                              ____________                         United States Court of Appeals
                                                                            Fifth Circuit

                                No. 23-50144
                                                                          FILED
                                                                      April 10, 2024
                              ____________
                                                                     Lyle W. Cayce
Kahlig Enterprises, Incorporated,                                         Clerk

                                                          Plaintiff—Appellant,

                                    versus

Affiliated FM Insurance Company,

                                          Defendant—Appellee.
                ______________________________

                Appeal from the United States District Court
                     for the Western District of Texas
                         USDC No. 5:20-CV-1091
                ______________________________

Before Wiener, Haynes, and Higginson, Circuit Judges.
Stephen A. Higginson, Circuit Judge:
       Kahlig Enterprises appeals the grant of summary judgment to its
insurer, Affiliated FM Insurance Company (AFM), on claims for breach of
contract and violations of the Texas Insurance Code following a storm that
damaged several of Kahlig’s car dealerships and a car wash.
       “[I]n this diversity-jurisdiction case, Texas law applies to [these]
question[s] of substantive law.” Antero Res., Corp. v. C&R Downhole Drilling
Inc., 85 F.4th 741, 746 (5th Cir. 2023). Our review is de novo, and we apply
the same standard as the district court. Nickell v. Beau View of Biloxi, L.L.C.,
636 F.3d 752, 754 (5th Cir. 2011). Summary judgment is proper “if the
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movant shows that 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).
       The district court found that Kahlig did not create a fact question on
whether AFM breached the policy by paying the actual cash value of claimed
losses rather than their replacement cost value which, under the policy, was
owed only for repairs Kahlig made within two years of the loss. Without a
judgment against AFM, the district court concluded that neither
prejudgment interest nor attorney’s fees were available under the Texas
Prompt Payment of Claims Act (TPPCA). Finally, the district court rejected
Kahlig’s claim that it was owed more in TPPCA penalties under an earlier
accrual date.
       For the following reasons, we AFFIRM.
                                       I.
       AFM issued Kahlig an insurance policy effective September 1, 2018
to September 1, 2019 with all-risk coverage for direct physical loss or property
damage at various commercial properties. The dispute centers on a policy
provision stating that the value of the loss will be either the “cost to repair”
or “to rebuild” but, if “not repaired replaced or rebuilt on the same or
another site within two years from the date of loss,” the value of the loss will
be “the actual cash value.”
       On April 13, 2019, some properties were damaged by a storm. Kahlig
notified AFM on April 15. By April 17 letter, AFM acknowledged the claim
and requested a statement of the loss amount with supporting
documentation. AFM acknowledged coverage by June 7 letter but advised
that the scope of work and loss amount were under investigation. Kahlig
responded, and AFM advised Kahlig that it needed to submit invoices
showing actual repair work performed. On October 3, Kahlig provided a
signed, sworn proof of loss but it did not share the repair information as

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requested by AFM. On October 18, AFM stated that it would respond to the
proof of loss within fifteen days of receiving the repair information.
       AFM completed its own assessment and provided Kahlig with a
statement of loss on December 18. AFM issued a $756,547.54 payment for
the actual cash value in its statement of loss minus the $100,000 deductible.
       Kahlig, however, demanded appraisal on January 10, 2020, which
AFM refused as premature because the policy required compliance with
certain provisions before appraisal could be demanded. AFM stated that,
“[o]nce the information requested has been provided, and the necessary
conditions are met, AFM will agree to appraisal.”
       Kahlig eventually sued AFM in state court, and AFM removed on the
basis of diversity jurisdiction. Kahlig’s amended complaint alleged common
law breach of contract and breach of the duty of good faith and fair dealing,
violations of Texas’s Deceptive Trade Practices Act, and violations of
Texas’s Insurance Code, specifically for delaying investigation and payment
and acting in bad faith. It sought the replacement cost value of its claimed
losses, penalties and attorney’s fees under the TPPCA, and prejudgment
interest.
       The parties eventually entered into appraisal, and an award was
rendered on September 16. As an appraisal award, it did not assess whether
the actual cash value or replacement cost value was the appropriate measure
of loss—it merely provided a number for each of those figures. The award
set out the following values: (1) replacement cost value of $1,307,934.24; (2)
actual cash value of $1,169,541.39; and (3) ordinance/code upgrade coverage
of $75,674.24. It noted that these were the total dollar amounts of the claim,
subject to the policy’s terms and provisions, and that any advanced payments
and deductibles should be deducted from those totals.
       AFM tendered $376,240.62, which was payment for the appraisal
award’s actual cash value (minus the amount previously paid and the

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deductible) and TPPCA penalties based on an accrual date of October 3,
2019, the date of Kahlig’s sworn proof of loss. Kahlig eventually accepted
payment but maintained that it was owed more. AFM moved for summary
judgment on all claims; the district court granted its motion.               Kahlig
appealed, briefing only its claims for breach of contract, TPPCA attorney’s
fees, prejudgment interest, and additional TPPCA penalties.
                                         II.
       The parties agree that, under the policy, recovery is limited to actual
cash value—rather than replacement cost value—if repairs were not made
within two years of the loss date. Here, that means any covered repairs must
have occurred by April 13, 2021, two years after the agreed upon loss date of
April 13, 2019. As an initial matter, we reject Kahlig’s contention that any
failure to timely repair is excused because AFM was the source of delay. That
is belied by the record, see supra Part I, and we do not consider whether such
an argument would be available to Kahlig on different facts.
                                         A.
       The district court correctly determined that the burden of proof in
establishing that repairs were made within two years of the loss lies with
Kahlig because the disputed provision is a contractual measure of valuing loss
rather than a limitation of liability on which AFM, as insurer, would bear the
burden of proof at trial. “[A] contractual limitation of liability . . . is, a cap on
what the insurer will have to pay out, independent of the value of the loss.”
Ayoub v. Chubb Lloyds Ins. Co. of Tex., 641 F. App’x 303, 307 (5th Cir. 2016).
       Text and structure support AFM’s argument that the provision
addresses how to measure loss. The replacement cost provision is located in
Section L of the policy entitled “Valuation,” which establishes how losses to
the covered property will be valued. Subsection 1 sets out the agreed upon
default measure for valuing loss and provides that this default applies “unless

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stated otherwise below or elsewhere in this Policy.” The default measure is
the lesser among these three measures: the cost to repair, to rebuild/replace
on the same site with similar materials, or repair or rebuild/replace on the
same or another site not exceeding size and capacity at loss date. That default
measure is then followed by alternative measures, which replace the default
measure under certain circumstances. One of those alternative measures is
the replacement cost provision, which appears at subsection 12: If the
property is “not repaired, replaced or rebuilt on the same or another site
within two years from the date of loss,” the replacement cost provision
replaces the default measure with the “actual cash value.”
       This structure distinguishes the instant policy from that at issue in
Ayoub v. Chubb Lloyds Insurance, in which this court held that a provision with
similar language was a limitation of liability. Id. at 303. Ayoub looked to the
section of the policy “as a whole,” not the isolated language of that provision,
“heed[ing] the [Supreme Court of Texas’s] admonition not to ‘isolat[e] from
its surroundings or consider[] apart from other provisions a single phrase,
sentence, or section of a contract.’” Id. at 308 (quoting State Farm Life Ins.
Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995)). That context was very
different from this one. In Ayoub, every sentence in the section leading up to
the provision was a limitation of liability—denoted with language such as
“limit of liability”—as the insurer there conceded. Id. at 308-09. And it
would have been odd, at the very end of all of those limitations of the
insurer’s overall liability, to tuck in a single sentence setting forth a measure
of value for only a small subset of covered losses. Id. at 309. But here, the
disputed provision appears in the valuation section and, instead of following
a series of limitations of liability, it is one of several measures of value offered
as alternatives to the default measure of value.
                                        B.

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       Kahlig contends that, even if the burden lies with it, it did create a fact
question on whether timely repairs to skylights and leaks were made at one
of the car dealerships, and it therefore should be permitted to go to trial on
recovery for the replacement cost value.
       Kahlig did not create a fact question on the skylight repairs. The
district court properly concluded that, while Kahlig made the skylight repairs
timely, it was already compensated for the repairs by AFM’s December 23,
2019 payment for $756,547.54. That is because the payment was based on
AFM’s own statement of loss, which included an actual cash value for the
skylight repairs that was equivalent to their replacement cost value.
       Nor did Kahlig create a fact question on the leak repairs. At summary
judgment, Kahlig pointed to letters from AFM and testimony from AFM’s
adjuster. Kahlig offered only the vague assertion that the letters established
“that repairs were made and that [AFM] received invoices for at least some
of the repairs.” It did not explain how the letters established that repairs had
begun nor what those repairs were. These deficiencies in Kahlig’s opposition
to summary judgment are dispositive because, once the burden shifts to the
non-movant, it cannot “‘rest upon mere allegations’ in the pleadings, but
must ‘identify specific evidence in the record and . . . articulate the precise
manner in which that evidence supports his or her claim.’” Bank of Am. Nat’l
Ass’n v. Stauffer, 728 F. App’x 412, 412 (5th Cir. 2018) (quoting Ragas v.
Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998)). Kahlig cannot now
claim “that the district court should have pieced together the relevant
assertions,” and this court will not “impose that burden upon the district
court or take it up” itself. Id. at 413 (citing United States v. Scroggins, 599
F.3d 433, 446-48 (5th Cir. 2010)).
                                     III.
       We now turn to Kahlig’s claim for TPPCA penalties. “To prevail
under a claim for TPPCA damages under section 542.060, the insured must

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establish: (1) the insurer’s liability under the insurance policy, and (2) that
the insurer has failed to comply with one or more sections of the TPPCA in
processing or paying the claim.” Barbara Tech. Corp. v. State Farm Lloyds,
589 S.W.3d 806, 813 (Tex. 2019). The Act provides for penalties if the
insurer does not pay the insured within 60 days of “receiving all items,
statements, and forms reasonably requested and required under Section
542.055.” Tex. Ins. Code § 542.058(a). And Section 542.060(c)
provides that “[i]nterest awarded under this subsection as damages accrues
beginning on the date the claim was required to be paid” and specifies that
“the insurer is liable to pay the holder of the policy . . . simple interest on the
amount of the claim as damages each year at the rate determined on the date
of judgment by adding five percent to the interest rate determined under
Section 304.003, Finance Code, together with reasonable and necessary
attorney’s fees.”
       The parties dispute only the correct accrual date. The district court
determined that the accrual date was October 3, 2019, when Kahlig provided
its signed, sworn proof of loss to AFM. The parties agree that, were this the
correct accrual date, AFM’s earlier payment of $62,706.77 in TPPCA
penalties to Kahlig, would be sufficient. The accrual date inquiry “depend[s]
on the facts and circumstances involved in a given case,” including the policy
at issue. Weiser-Brown Operating Co. v. St. Paul Surplus Lines Ins., 801 F.3d
512, 522 (5th Cir. 2015).
       Kahlig argues that the accrual date was June 7, 2019, when AFM
acknowledged coverage for the claimed loss.            But Kahlig had not yet
submitted information to support a payment, which is why AFM’s
acknowledgement requested that Kahlig submit the dollar amount Kahlig
claimed and supporting documentation for that amount. It alternatively
argues that the accrual date was August 20, 2019, when AFM received
estimates from Kahlig’s adjuster. But this accrual date contravenes the

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policy: The policy requires, for example, Kahlig to send AFM a sworn proof
of loss and a detailed inventory of all property losses claimed. The October
3, 2019 accrual date follows from this proof of loss requirement, and summary
judgment was proper on this claim.
                                    IV.
       Finally, Kahlig cannot maintain a claim for prejudgment interest
against AFM as, here, there is no judgment against AFM. See TMM Invs.,
Ltd. v. Ohio Cas. Ins. Co., 730 F.3d 466, 471 (5th Cir. 2013).
       Nor can Kahlig recover attorney’s fees under the TPPCA. Chapter
542A of the Texas Insurance Code applies to claims from certain weather
events including hail and wind. Tex. Ins. Code § 542A.001(2)(C).
Those claims governed by Chapter 542A are subject to its limitation on
attorney’s fees, set out at Section 542A.007(a)(3). As the Supreme Court of
Texas explained, under this provision:
      The allowable amount of attorney’s fees is “calculated by
      . . . [first] dividing the amount to be awarded in the judgment
      to the claimant for the claimant’s claim under the insurance
      policy for damage to or loss of covered property” by another
      amount. TEX. INS. CODE § 542A.007(a)(3)(A). The fraction
      generated by this initial step (which can be greater or less than
      1) is then multiplied “by the total amount of reasonable and
      necessary attorney’s fees supported at trial . . . .” Id.
      § 542A.007(a)(3)(B).
Rodriguez v. Safeco Ins. Co. of Ind., 684 S.W.3d 789, 793 (Tex. 2024) (quoting
TEX. INS. CODE § 542A.007(a)(3)).
       The Supreme Court of Texas recently explained that where “the
insurer has already paid all amounts owed under the insurance policy plus
any possible statutory interest, there is not and never will be an amount to be
awarded in the judgment to the claimant for the claimant’s claim under the
insurance policy,” and the statutory formula results in attorney’s fees of

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zero. Id. (internal quotation marks omitted). That is the case here, and
summary judgment was therefore also proper on Kahlig’s claim for
attorney’s fees.
                                 ***
       For the foregoing reasons, the judgment of the district court is
AFFIRMED.

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