Court Opinion

ID: 4063156
Source: CourtListenerOpinion
Date Created: 2016-09-29 20:45:09.596613+00
Date Added: 2024-06-11T09:33:47.741091
License: Public Domain

ACCEPTED
                                                                                    14-14-00755-CV
                                                                      FOURTEENTH COURT OF APPEALS
                                                                                  HOUSTON, TEXAS
                                                                               4/3/2015 10:49:47 PM
                                                                                CHRISTOPHER PRINE
                                                                                             CLERK

                                In The
                          Court of Appeals                           FILED IN
                                                              14th COURT OF APPEALS
                               For The                            HOUSTON, TEXAS
                                                              4/3/2015 10:49:47 PM
                   Fourteenth District of Texas               CHRISTOPHER A. PRINE
                   _____________________________                       Clerk

                          14-14-00755-CV
                 __________________________

                 KELLEY STREET ASSOCIATES, LLC
                                                  Appellant,
                                   V.

              UNITED FIRE AND CASUALTY COMPANY

                                                  Appellee.
_______________________________________________________

      On Appeal from the 295th District Court, Harris County, Texas
                        Cause No 2013-36796-A
                      Honorable Caroline E. Baker
_______________________________________________________

                       BRIEF FOR APPELLEE

                                    George W. Vie III
                                    gvie@millsshirley.com
                                    Mills Shirley L.L.P.
                                    2228 Mechanic Street, Suite 400
                                    Galveston, Texas 77550
                                    (713) 571-4232
                                    Fax (713) 893-6095

                                    Attorneys for Appellee

               APPELLEE REQUESTS ORAL ARGUMENT
    CORRECTED IDENTITY OF PARTIES AND COUNSEL

APPELLANT:

              Kelley Street Associates, LLC

APPELLANT’S ATTORNEY:

              H. Miles Cohn
              Michelle V. Frier
              Crain, Caton & James, P.C.
              1401 McKinney St., 17th Floor
              Houston, Texas 77010
              Telephone (713) 752-8668
              Facsimile (713) 685-1921
              mcohn@craincaton.com

APPELLEE:

              United Fire and Casualty Company

APPELLEE’S APPELLATE ATTORNEYS:

              George W. Vie III
              Susan L. Price
              Mills Shirley L.L.P.
              2228 Mechanic Street, Suite 400
              Galveston, Texas 77550
              Telephone (713) 571-4232
              Facsimile (713) 893-6095
              gvie@millsshirley.com
              sprice@millsshirley.com
APPELLEES’ TRIAL ATTORNEYS:

              Charles Dunkel
              Mills Shirley L.L.P.
              3 Riverway, Suite 100
              Houston, Texas 77056
              Telephone (713) 225-0547
              Facsimile (713) 225-0844

                         - ii -
                                          TABLE OF CONTENTS

Corrected Identity of Parties and Counsel ................................................................ i 

Table of Contents ................................................................................................... iii 

Table of Authorities ................................................................................................. v 

Reply Issue Presented .............................................................................................. 1 

Statement of Facts ................................................................................................... 1 

Summary of the Argument ....................................................................................... 5 

Argument and Authorities ....................................................................................... 7 

   1. The Standard and Scope of Review Applicable to the Competing Motions. .... 7 

   2. Kelley Street Associates Did Not Have Coverage Under the Policy’s Water
   Exclusion Endorsement. ...................................................................................... 8 

         A. Kelley Street Associates did not carry its burden as an insured and
         as a summary judgment movant. .................................................................... 8 

         B. The Water Exclusion Endorsement is interpreted like any other
         contract provision. ......................................................................................... 9 

         C. The Water Exclusion Endorsement is not ambiguous............................. 10 

   3. The Application of the Water Exclusion Endorsement is Required by the
   Policy’s Plain and Unambiguous Terms. ............................................................ 11 

         A. The words of the Water Exclusion Endorsement support summary
         judgment for United Fire. ............................................................................ 12 

   4. The Application of the Water Exclusion Endorsement is not Changed by
   Reference to Case Law. ...................................................................................... 18 

Conclusion and Prayer ........................................................................................... 23 

Certificate of Compliance ...................................................................................... 24 

                                                        - iii -
Certificate of Service.............................................................................................. 25 

Appendix
         Tab 1             Order denying summary judgment to Kelley Street Associates
         Tab 2             Order granting summary judgment to United Fire
         Tab 3             Order granting motion to sever Kelley Street Associates’ claims
                           against United Fire
         Tab 4             Insurance Policy Coverage and Declarations
         Tab 5             Insurance Policy – Causes of Loss – Special Form
         Tab 6             Insurance Policy - the Water Exclusion Endorsement
         Tab 7             Affidavit of Duane Kamins
         Tab 8             Affidavit of John Moore

                                                       - iv -
                                      TABLE OF AUTHORITIES

          Cases 

Am. Mfrs. Mut. Ins. Co. v. Schaefer,

  124 S.W.3d 154 (Tex. 2003) ......................................................................... 9, 10, 14

Balandran v. Safeco Ins. Co. of Am.,

  972 S.W.2d 738 (Tex. 1998) ...................................................................................17

Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co.,

  130 S.W.3d 181 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) ................... 8

Ferguson v. Bldg. Materials Corp. of Am.,

  295 S.W.3d 642 (Tex. 2009) ................................................................................... 7

Fiess v. State Farm,

  202 S.W.3d 744 (Tex. 2005) ................................................................................. 10

Fleming & Associates, L.L.P. v. Barton,

  425 S.W.3d 560 (Tex. App.—Houston [14th Dist.] 2014, pet. requested) ............. 7

For Kids Only Dev. Ctr., Inc. v. Philadelphia Indem. Ins. Co.,

  260 S.W.3d 652 (Tex. App.—Dallas 2008, pet. denied) ....................................... 18

Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London,

  327 S.W.3d 118 (Tex. 2010) .................................................................................... 8

Goebel v. Brandley,

  174 S.W.3d 359 (Tex. App.—Houston [14th Dist.] 2005, pet. denied)................... 7

Haines v. United Sec. Ins. Co.,

  602 P.2d 901 (Colo. App. 1979)............................................................................. 20

                                                     -v-
In re Deepwater Horizon,

  No. 13-0670, 2015 WL 674744 (Tex. Feb. 13, 2015) ............................................... 9

Jackson v. Am. Mut. Fire Ins. Co.,

  299 F. Supp. 151 (M.D.N.C. 1968) aff’d, 410 F.2d 395 (4th Cir. 1969)................. 21

Lundstrom v. United Servs. Auto. Ass’n-CIC,

  192 S.W.3d 78 (Tex. App.—Houston [14th. Dist.] 2006, pet. denied) ..................17

Old Dominion Ins. Co. v. Elysee, Inc.,

  601 So. 2d 1243 (Fla. Dist. Ct. App. 1992) ............................................................. 22

Pichel v. Dryden Mut. Ins. Co.,

  117 A.D.3d 1267, 986 N.Y.S.2d 268 (2014) ........................................................... 22

Progressive Cnty. Mut. Ins. Co. v. Kelley,

  284 S.W.3d 805 (Tex. 2009) (per curiam) ............................................................ 10

Sec. Mut. Cas. Co. v. Johnson,

  584 S.W.2d 703 (Tex. 1979) .................................................................................. 14

Shafaii Children’s Trust & Party & Reception Ctr., Inc. v. W. Am. Ins. Co.,

  417 S.W.3d 614 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) ................... 9

Silow v. State Farm Ins. Co.,

  No. CIV.A. 94-2956, 1994 WL 709362 (E.D. Pa. Dec. 20, 1994) ...........................17

State Farm Fire & Cas. Co. v. Vaughan,

  968 S.W.2d 931 (Tex. 1998) ................................................................................... 11

State Farm Life Ins. Co. v. Beaston,

  907 S.W.2d 430 (Tex. 1995) .................................................................................. 10

                                                     - vi -
State Farm Lloyds v. Page,

  315 S.W.3d 525 (Tex. 2010) ......................................................................... 9, 10, 11

Ulico Cas. Co. v. Allied Pilots Ass’n,

  262 S.W.3d 773 (Tex. 2008) ................................................................................... 8

Western Reserve Life Ins. Co. v. Meadows,

  261 S.W.2d 554 (Tex. 1953) ...................................................................................13

WesternGeco, L.L.C. v. Input/Output, Inc.,

  246 S.W.3d 776 (Tex. App.—Houston [14th Dist.] 2008, no pet.) ......................... 8

                                                     - vii -
      TO THE HONORABLE FOURTEENTH COURT OF APPEALS:

      Appellee United Fire and Casualty Company requests the Court affirm the

summary judgment in its favor and deny Kelley Street Associates’ competing

request to render summary judgment in its favor.

                          REPLY ISSUE PRESENTED

      The trial court correctly granted summary judgment to United Fire
      and denied the cross-motion for summary judgment of its insured
      because Kelley Street Associates’ loss was excluded under the Water
      Exclusion Endorsement (responsive to Appellant’s Issue No. 1).

                            STATEMENT OF FACTS

      This is an insurance-coverage dispute for property loss benefits, resolved by

the district court on competing motions for summary judgment. CR 17 (Kelley

Street Associates’ motion); CR 128 (United Fire’s motion).

      Appellant Kelley Street Associates, LLC sued United Fire and Casualty

Company and the City of Houston. CR 5. Kelley Street Associates complained the

City of Houston and its public works department had caused property damage to

the plumbing system of a commercial building owned by Kelley Street Associates.

CR 6. Kelley Street Associates also claimed that the property damage was a

covered loss under a commercial general liability insurance policy issued by United

Fire. CR 7-8. United Fire determined that the policy excluded the loss caused by

water that backs up or overflows from a sewer, drain, or sump. CR 7. The insurer
did make a payment under the policy’s specific endorsement for sewer backup

coverage, CR 7-8, but Kelley Street Associates claimed its damages exceeded the

limits of that endorsement. United Fire answered the suit and asserted, among

other defenses, that it had paid everything Kelley Street Associates was entitled to

under the policy. CR 10-11.

      Kelley Street Associates thereafter moved for partial summary judgment

against United Fire. CR 17-24. Specifically, Kelley Street Associates sought

summary judgment on the coverage question, reserving for later recovery its

damages, attorney’s fees, and its claim for extra-contractual damages under the

Insurance Code. CR 17. Its summary judgment proof included two affidavits and

deposition excerpts, along with the United Fire insurance policy. CR 18. In its

factual statement supporting the motion for summary judgment, Kelley Street

Associates acknowledged that City of Houston’s work on a meter and valves has

caused holding tanks in a septic system to fill, resulting in water backing up through

the Kelley Street Associates’ building and floor drains, with resulting damage. CR

18-19. As in its petition, Kelley Street Associates conceded that United Fire had

denied a claim for damages from the incident because of a policy exclusion for

losses caused by “water that backs up or overflows from a sewer, drain, sump,

sump pump, or related equipment.” CR 19. Kelley Street Associates argued that

                                       -2-
the City had caused damage to the plumbing system, which in turn had caused the

damage to the building from water running into the storm sewer system, and

therefore the loss was not from a “mere backup or overflow of water from a sewer,

drain or sump.” CR 19. Kelley Street Associates also acknowledged that United

Fire had paid a loss under the endorsement for “sewer backup” coverage that was

part of the policy placed into effect after the loss.1 CR 20. Kelley Street Associates

argued that the exclusion did not apply, but did not assert the exclusion was

ambiguous. CR 20.

         United Fire amended its answer to more specifically plead the exclusions of

the policy for loss or damage caused by water. CR 124-26.2 It then responded to the

motion for summary judgment of Kelley Street Associates, and filed its cross-

motion for summary judgment. CR 128-41. United Fire noted in its response and

cross-motion that the rules of construction advanced by Kelley Street Associates

1
  Following the loss, Kelley Street Associates and United Fire agreed to amend the policy
and add a special endorsement that provided sewer backup coverage, limited to the Per
Policy Property Damage Limit ($50,000), where the water loss or damage did not result
from the intentional or negligent act of the insured. CR 154, 196 (CP 70 34 12 01). The
special endorsement was made effective as of the original policy incept date. CR 147.
Kelley Street Associates and United Fire also agreed that the payment under the special
endorsement did not waive Kelley Street Associates’ right to seek additional coverage
under the original Water Exclusion Endorsement, or United Fire’s coverage defenses to
the applicability of that endorsement. CR 26 (affidavit); CR 98 (email).
2
    It was later amended a second time. CR 258-61.

                                          -3-
applied only when the policy provision at issue was ambiguous, while the United

Fire policy at issue was not ambiguous.CR 134. United Fire also argued that the

undisputed summary judgment record showed that water had filled from a

commercial property’s septic tank and then overflowed into the property’s floor

drains, causing damage, satisfying the plain meaning of the exclusion. CR 131.

United Fire also noted that the policy exclusion excluded loss “indirectly” caused

by water and regardless of other events or causes that contributed to the loss

concurrently or in any sequence. CR 134. Thus, Kelley Street Associates’ focus on

the City of Houston events that preceded the water backing up from a sewer or

drain did not alter the analysis. CR 134. Finally, United Fire argued that Kelley

Street Associates’ interpretation of the exclusion was not reasonable and not

supported by the case law on which it relied in its partial motion for summary

judgment. CR 136-40.

      Kelley Street Associates filed a reply in support of its motion and a response

to United Fire’s cross-motion. CR 244-54. United Fire responded. CR 262-74.

      The district court thereafter denied Kelley Street Associates’ motion for

partial summary judgment, CR 276, and granted United Fire’s cross-motion. CR

277. After granting severance from the claims against the City of Houston, CR 285-

                                       -4-
87, Kelley Street Associates moved for reconsideration and new trial. CR 288-90.

No such relief was granted, and this appeal followed. CR 294-95.

                         SUMMARY OF THE ARGUMENT

      The parties agree that any coverage under the policy in excess of the

payment by United Fire rests on the applicability of the Water Exclusion

Endorsement. A policy is unambiguous, as a matter of law, if the Court can give it a

definite legal meaning. Here, the policy and the Water Exclusion Endorsement are

not ambiguous, and therefore the Court will not favor Kelley Street Associates’

interpretations of the policy and the Water Exclusion Endorsement. To the

contrary, the unambiguous provisions were correctly construed by the district

court, which rejected summary judgment for Kelley Street Associates and rendered

judgment for United Fire. That result should be affirmed.

      Kelley Street Associates focuses on origin of its loss; that is, it claims that the

damages were caused not by “mere back-up or overflow of water from the City

main” but backup or overflow caused by the City of Houston damaging Kelley

Street Associates’ plumbing system. But the extra facts about why the water

entered the building do not change the coverage analysis. The United Fire policy

excluded losses or damage “caused directly or indirectly” by water, and “[s]uch

loss or damage is excluded regardless of any other cause or event that contributes

                                        -5-
concurrently or in any sequence to the loss.” The impact of the Water Exclusion

Endorsement is substantially expanded by the language extending it to losses

caused “indirectly” by water that backups or overflows from a sewer or drain.

      Further, the summary judgment record is uncontroverted that water

overflowed or backed up into Kelley Street Associates’ premises or was otherwise

discharged from a sewer, drain, sump, sump pump or related equipment. The

sequence of how these events occurred –from City work, to failed valve, to filled

septic system, to water that came up through the drains throughout the building –

is not controlling since loss or damage is excluded “regardless of any other cause or

event that contributes concurrently or in any sequence to the loss.”

      Finally, Kelley Street Associates argues interpretations of the Water

Exclusion Endorsement that rest on words or concepts absent from the policy

itself. Whether these interpretations arise from factual distinctions or

distinguishable case law, the Court would have to rewrite the policy or add to its

language to accept Kelley Street Associates’ position. In contrast, a plain reading of

the policy and the Water Exclusion Endorsement are all that is necessary to affirm

the judgment.

      The Court need not look to case law to determine what the Water Exclusion

Endorsement means, because the question will be answered when the Court looks

                                        -6-
first to the policy itself. The policy and the Water Exclusion Endorsement were

properly construed by the district court. That ruling should be affirmed.

                        ARGUMENT AND AUTHORITIES

1.    The Standard and Scope of Review Applicable to the Competing Motions.

      In its brief, Kelley Street Associates prays for rendition of judgment that its

loss is covered, and a remand for determination of damages. See Appellant’s brief

at 14. Instead, the Court should overrule the issues presented on appeal and affirm

the summary judgment granted to United Fire.

      This Court reviews the trial court’s decision to grant summary judgment to

United Fire de novo. Fleming & Associates, L.L.P. v. Barton, 425 S.W.3d 560, 567

(Tex. App.—Houston [14th Dist.] 2014, pet. requested) citing Ferguson v. Bldg.

Materials Corp. of Am., 295 S.W.3d 642, 644 (Tex. 2009). Typically, when

reviewing cross-motions for summary judgment the Court considers both motions

and renders the judgment that the trial court should have rendered. Each party

must carry its own summary judgment burden and neither can prevail due to the

other’s failure to meet that burden. Goebel v. Brandley, 174 S.W.3d 359, 362 (Tex.

App.—Houston [14th Dist.] 2005, pet. denied). Because both Kelley Street

Associates and United Fire were movants, the burden for each was the same: to

establish entitlement to a summary judgment by conclusively proving all of the

                                       -7-
elements of the claim or defense as a matter of law. WesternGeco, L.L.C. v.

Input/Output, Inc., 246 S.W.3d 776, 781 (Tex. App.—Houston [14th Dist.] 2008,

no pet.).

2.    Kelley Street Associates Did Not Have Coverage Under the Policy’s Water
      Exclusion Endorsement.

      A. Kelley Street Associates did not carry its burden as an insured
      and as a summary judgment movant.

      Initially, Kelley Street Associates has the burden to establish coverage under

a commercial general liability policy. Gilbert Texas Const., L.P. v. Underwriters at

Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010). Further, an insured is not

entitled to recover under an insurance policy unless it proves its damages are

covered by the policy.

      If the insured proves coverage, then United Fire must prove the loss is

within an exclusion of the policy. Gilbert, 327 S.W.3d at 124 citing Ulico Cas. Co. v.

Allied Pilots Ass’n, 262 S.W.3d 773, 782 (Tex. 2008). If the insurer proves that an

exclusion applies, the burden shifts back to the insured to show that an exception to

the exclusion brings the claim back within coverage. Gilbert, 327 S.W.3d at 124

citing Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181, 193

(Tex. App.—Houston [14th Dist.] 2003, pet. denied). Kelley Street Associates did

not carry that burden, while United Fire proved the loss was excluded by the Water

                                        -8-
Exclusion Endorsement. More specifically, Kelley Street Associates did not raise

any genuine issue of fact to prove that the loss was not attributable to the pleaded

excluded water hazard.

      B. The Water Exclusion Endorsement is interpreted like any other
      contract provision.

      Contracts of insurance are reviewed by this Court just like any other

contract. Shafaii Children’s Trust & Party & Reception Ctr., Inc. v. W. Am. Ins. Co.,

417 S.W.3d 614, 618-19 (Tex. App.—Houston [14th Dist.] 2013, pet. denied). The

Court begins its analysis with the policy language. Id., citing Gilbert, 327 S.W.3d
118, 126 (Tex. 2010). The courts’ primary objective is to ascertain and give effect

to the parties’ intent as expressed by the words they chose to effectuate their

agreement. In re Deepwater Horizon, No. 13-0670, 2015 WL 674744, at *9 (Tex.

Feb. 13, 2015). “To that end, we give the words in the policy their ordinary and

generally accepted meaning unless the policy indicates that the parties intended the

language to impart a technical or different meaning.” Id., citing Am. Mfrs. Mut. Ins.

Co. v. Schaefer, 124 S.W.3d 154, 158 (Tex. 2003). Courts will examine the policy as

a whole, seeking to harmonize all provisions and render none meaningless. Gilbert,
327 S.W.3d at 126. If an insurance contract uses unambiguous language, courts will

construe it as a matter of law and enforce it as written. In re Deepwater Horizon,

citing State Farm Lloyds v. Page, 315 S.W.3d 525, 527–28 (Tex. 2010). Whether a

                                        -9-
contract is ambiguous is a question of law for the court to decide by looking at the

policy as a whole in light of the circumstances present when the contract was

entered. In re Deepwater Horizon. Disagreement about a policy’s meaning does not

create an ambiguity if there is only one reasonable interpretation. Id. “Parties’

conflicting interpretations alone do not establish ambiguity.” Shafaii, 417 S.W.3d

at 619, citing State Farm Lloyds v. Page, 315 S.W.3d 525, 527 (Tex. 2010); see also

Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). And extrinsic

evidence is not admissible for the purpose of creating an ambiguity in an insurance

policy. Progressive Cnty. Mut. Ins. Co. v. Kelley, 284 S.W.3d 805, 807 (Tex. 2009)

(per curiam). Any ambiguity must be evident from the language of the policy itself.

Fiess v. State Farm, 202 S.W.3d 744, 747 (Tex. 2005).

      C. The Water Exclusion Endorsement is not ambiguous.

      In section I of its argument, and its Summary of the Argument, Kelley Street

Associates claims that it only needs to show that the construction of the policy it

offers is “reasonable.” Appellant’s brief at 7. That claim requires, however, that

there be some ambiguity in the insurance contract. See State Farm Life Ins. Co. v.

Beaston, 907 S.W.2d 430, 433 (Tex. 1995) (explaining that only if insurance policy

remains ambiguous after courts apply canons of interpretation should policy

language be construed against the insurer in a manner that favors coverage). Thus,

                                        - 10 -
the first question for this Court is whether the United Fire policy is ambiguous, not

whether Kelley Street Associates’ construction is reasonable. This first issue is a

question of law, State Farm Lloyds v. Page, 315 S.W.3d 525, 527 (Tex. 2010), and

thus suitable for summary judgment and this Court’s de novo review. The contra-

insurer rule of construction is not applicable to this case, see State Farm Fire & Cas.

Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex. 1998), and Kelley Street Associates is

not to be favored in the Court’s construction of the insurance policy. Compare with

appellant’s brief at 5.

3.     The Application of the Water Exclusion Endorsement is Required by the
       Policy’s Plain and Unambiguous Terms.

       Kelley Street Associates was the insured under a policy for building and

personal property coverage, form CP 00 10 06 07. The United Fire policy has a

cause of loss special form (CP 10 30 06 07) that sets out the covered causes of loss.

CR 60. Risks of direct physical loss are covered causes of loss unless they are

excluded in the special form, or limited. Id. Among the excluded losses are losses or

damage “caused directly or indirectly” by water. CR 60-61. “Such loss or damage

is excluded regardless of any other cause or event that contributes concurrently or

in any sequence to the loss.” CR 60. The exclusion for loss or damage caused

directly or indirectly by water included

          o Water that backs up or overflows from a sewer, drain, or sump;

                                        - 11 -
CR 61.

       The Water Exclusion Endorsement (CP 10 32 08 08) replaced the special

form provision and excluded loss or damage directly or indirectly caused by

          o Water that backs up or overflows or is otherwise discharged
            from a sewer, drain, sump, sump pump or related equipment;

CR 70, 244. Notably, the exclusion applies regardless of whether the “water” “is

caused by an act of nature or is otherwise caused.” Appellant’s brief at 7; CR 70,

247.

       The district court correctly granted summary judgment to United Fire

because Kelley Street Associates losses are excluded as “caused directly or

indirectly” by water that backed up, overflowed or was otherwise discharged from

a sewer, drain, sump, sump pump or related equipment. There was no summary

judgment evidence that a covered loss caused the alleged damages to Kelley Street

Associates’ building.

       A. The words of the Water Exclusion Endorsement support
       summary judgment for United Fire.

       This case does not require the Court to make distinctions between “surface

water,” “high water,” “tidal water,” “flood water” or other such terms. Rather,

the Water Exclusion Endorsement excluded coverage for all risk of loss or damage

caused directly or indirectly by “water,” whatever its nature or source – whether

                                       - 12 -
caused by an act of nature or otherwise. When a term is not defined in an insurance

policy, it must be given its plain, ordinary, and generally accepted meaning, unless

the policy indicates the term was used in a technical or different sense. Western

Reserve Life Ins. Co. v. Meadows, 261 S.W.2d 554, 557 (Tex. 1953). “Water” is an

unambiguous term with a plain, ordinary meaning. There is no dispute in this case

about the water substance that was involved here – it was “water.”

      The Water Exclusion Endorsement also broadly excludes water that backs

up or overflows or is otherwise discharged. To “back up” includes water that

accumulates, just as the water did here. As summary judgment evidence, Kelley

Street Associates offered the affidavit of its President, who stated that on the date

of Kelley Street Associates’ loss “water began to flow through a series of floor

drains in the building . . . .”CR 25. Kelley Street Associates’ plumbing contractor

stated the septic system was unable to keep up with the volume of water into the

sanitary sewer system. CR 170. More specifically, the contractor testified that flush

valves in the building were damaged and malfunctioning. Due to that malfunction,

      water had been continually flowing into the sanitary sewer septic
      system in the building. The septic system could not keep up with the
      volume of water being introduced to the system; after the septic
      system filled, water came up through the drains throughout the
      building, resulting in the flooding of the building.

                                        - 13 -
CR 99 (emphasis added). This summary judgment evidence demonstrates water

backed up or overflowed from a sewer or drain, in a direction opposite (“up”) the

intended and usual flow, resulting in an excluded loss.

      The terms “sewer,” “drain,” “sump,” and “sump pump” are also

unambiguous and have no special, technical meaning. They should be given their

ordinary and generally accepted meaning. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124
S.W.3d 154, 158 (Tex. 2003) citing Sec. Mut. Cas. Co. v. Johnson, 584 S.W.2d 703,

704 (Tex. 1979). As United Fire explained in the district court, the noun “drain” is

primarily defined by the Merriam-Webster dictionary as “something (such as a

pipe) that is used for removing a liquid from a place or container.” CR 135.

“Sewer” is primarily defined as “an artificial usually subterranean conduit to carry

off sewage and sometimes surface water (as from rainfall).”

      Kelley Street Associates claims that a different provision of the contract

providing “additional water coverage” and a definition of “water damage,” both at

CR 69, mean that the Water Exclusion Endorsement only applies to events outside

the property and losses within the plumbing system of the building will be covered.

See appellant’s brief at 8. To be sure, all of the policy terms should be read

together; but the “additional water coverage” provision (referencing loss or

                                        - 14 -
damage from “covered water”) 3 does not modify the language of the Water

Exclusion Endorsement. And the definition of “water damage” to mean leakage of

water or steam as the direct result of breaking apart or cracking of a system located

on the premises and containing water or steam does not aid in construing the Water

Exclusion Endorsement. Further, the “water damage” definition excludes a

“sump system, including its related equipment and parts” which is plainly part of

the Water Exclusion Endorsement.

         Moreover, there is simply no policy language that qualifies the terms

“sewer,” “drain,” “sump,” and “sump pump” by dividing them into parts or

with reference to building locations, or to the inside or outside of the insured

premises. Even considering the “water damage” definition at CR 69, it provides no

additional language that would permit the Court to construe the Water Exclusion

Endorsement as Kelley Street Associates desires. Rather, the Court would have to

assert additional language into the policy, which it should refuse to do. Gilbert, 327
S.W.3d at 126 (cautioning that courts will honor the parties’ agreement and must

not remake the contact by reading additional provision into the insurance policy).

3
    CR 69 (Water Damage, Other Liquids, Powder Or Molten Material Damage).

                                         - 15 -
      Kelley Street Associates also attempts to reframe the issue here as an

internal “failure of the plumbing system.” CR 25. In a similar fashion, Kelley

Street Associates argues that an overflow of water originating inside the building

would be covered. See appellant’s brief at 9. A failure of the plumbing system may

not be explicitly excluded, but among the excluded losses are losses or damage

“caused directly or indirectly” by water. CR 60-61. “Such loss or damage is

excluded regardless of any other cause or event that contributes concurrently or in

any sequence to the loss.” CR 60. Thus the policy language broadly covers damage

by water that backs up or overflows or is otherwise discharged from a drain

regardless of other events or causes that contributed to the event. With this

language, Kelley Street Associates’ proposed internal/external distinction lacks

any support in the insuring language of the policy.

      Intent to make such distinctions could be easily reflected in the language of

an exclusion, as this example shows:

      This peril does not include loss

      c. caused by or resulting from water from outside the plumbing system
      that enters through sewers or drains or water which enters into and
      overflows from within a sump pump, sump pump well or other type
      system designed to remove subsurface water which is drained from the
      foundation area . . . .

                                         - 16 -
Silow v. State Farm Ins. Co., No. CIV.A. 94-2956, 1994 WL 709362, at *1 (E.D. Pa.

Dec. 20, 1994) (emphasis supplied). Such language is absent here.

      Kelley Street Associates also deviates from a common understanding in its

proposed definition of “drain.” See appellant’s brief at 9. It is undisputed in the

summary judgment record that water in the Kelley Street Associates building

backed up or overflowed from a floor drain because

      “damaged flush valves caused the holding tanks in the septic system
      to fill rapidly. As a result of the Building’s tanks filling, water came up
      through the floor drains located throughout the Building, flooding it.”

CR 18 (Kelley Street Associates’ motion for summary judgment, at “The Facts”

section); CR 23. See also CR 25 (affidavit of D. Kamins stating “water began to

flow through a series of floor drains in the building.”); CR 96 (“According to

[Kelley Street Associates] employees, . . . [w]hen the water was turn back on, they

noticed water coming from the drains in all bathrooms and the wet bar drain in Mr.

Kamins[‘] office.”). In construing this policy, the Court’s inquiry is, first, an effort

to determine the ordinary lay meaning of the words to the general public. See

Lundstrom v. United Servs. Auto. Ass’n-CIC, 192 S.W.3d 78, 91 (Tex. App.—

Houston [14th. Dist.] 2006, pet. denied) citing Balandran v. Safeco Ins. Co. of Am.,

972 S.W.2d 738, 740–41 (Tex. 1998). The general meaning of “drain” as a pipe

that carries off water would include a floor drain.

                                        - 17 -
       Kelley Street Associates also criticizes United Fire for equating “sewer”

with “septic system” or “septic tank.” See appellant’s brief at 10. But again, the

subtle distinctions that Kelley Street Associates proposes are beyond the ordinary

lay meaning of these words to the general public. 4 Further, these fine distinctions

are not consistent with the policy language excluding losses from “water that backs

up or overflows from a sewer, drain, sump, sump pump, or related equipment”

(emphasis added).

       For all of these reasons, based on the policy language, summary judgment for

United Fire should be affirmed.

4.     The Application of the Water Exclusion Endorsement is not Changed by
       Reference to Case Law.

       In section III of its brief, Kelley Street Associates argues that case law

supports its interpretation of the policy, primarily relying on a case from the Dallas

Court of Appeals. See appellant’s brief at 10, citing For Kids Only Dev. Ctr., Inc. v.

Philadelphia Indem. Ins. Co., 260 S.W.3d 652 (Tex. App.—Dallas 2008, pet.

denied). The case arose from a day care center that was flooded with sewage

4
 A septic tank or system is part of a sewer system. Kelley Street Associates’ attempt to
distinguish between sewer as public system and septic as private system, see appellant’s
brief at 10, is another construction requiring words to be read into the policy in the guise
of interpretation.

                                           - 18 -
flowing from floor drains in the building. A witness said that water had also flowed

from a manhole in the street outside, and a city official had testified that the

overflow was caused by stoppage in the city sewer main.

      The policy at issue provided covered causes of loss, representing direct

physical losses subject to a long list of exclusions. 260 S.W.3d at 653. The exclusion

at issue excluded from coverage such damage caused directly or indirectly by

“water that backs up or overflows from a sewer, drain or sump.” There was also an

endorsement that provided limited recovery for sewer and drain backups, including

loss or damage resulting from flood damage or water that backs up from a sewer,

drain or sump. The insured claimed that the sewage overflow was an overflow from

its plumbing system that did not trigger the sewer and drain backup exclusion and

its more limited coverage. Id. at 654.

      The court of appeals held that the policy plainly excluded coverage for water

that backed up from a sewer drain or sump. The court held that reading the

exclusion so as to eliminate instances where water had traveled through the

insured’s plumbing system “would read the exclusion out of the policy.” Id. at 655.

The court of appeals thus concluded the policy unambiguously excluded from

coverage the type of drain and sewer backup that the insured had experienced.

                                         - 19 -
      Thus, the claimant in the For Kids Only suit made a similar argument to

Kelley Street Associates here: once water enters a building’s plumbing system, its

status changes and any damage it causes becomes a non-excluded occurrence. Yet

the Dallas Court of Appeals rejected that argument. Kelley Street Associates states

that notwithstanding the Dallas court’s analysis, what matters is that the court

focused “on the source of the overflow.” See appellant’s brief at 11. Thus, explains

Kelley Street Associates, here the overflow was caused by damaged valves that

were part of its plumbing system and the overflow thus “came” from Kelley Street

Associates’ system. In this case, regardless of what the overflow source was, when

water “backs up or overflows or is otherwise discharged from a sewer, drain, sump,

sump pump or related equipment,” resulting damage is excluded from coverage.

Compare with Haines v. United Sec. Ins. Co., 602 P.2d 901, 902 (Colo. App. 1979)

(policy provided coverage for accidental discharge or “overflow from within a

plumbing system” but not “water that backs up through sewers or drains,” thus

requiring the court to determine whether cause of accidental discharge was inside

or outside a plumbing system). In short, For Kids Only Dev. Ctr., Inc. v. Philadelphia

Indem. Ins. Co. presents no reason to reverse the summary judgment for United

Fire, and actually supports the result in this case.

                                        - 20 -
       Kelley Street Associates notes that the Dallas court in For Kids Only cited

Jackson v. Am. Mut. Fire Ins. Co., 299 F. Supp. 151, 152 (M.D.N.C. 1968) aff’d, 410
F.2d 395 (4th Cir. 1969). See appellant’s brief at 11. Jackson, however, is quickly

distinguished because it contained specific policy language that provided coverage

for leaks or failure of the internal plumbing system, and thus the court concluded

the “sewers or drains” in the exclusion must have referred to fixtures outside the

internal plumbing system. Jackson, 299 F. Supp. at 155-56. Thus, the policy terms

set up the “internal/external” analysis –although the court ultimately concluded

“it would appear that the parties intended to exclude loss caused by the backing up

of water through sewers or drains even though this water overflows from within the

plumbing system in the plaintiff’s home.” Jackson, 299 F. Supp. at 157.

       Kelley Street Associates also cites a New York case, see appellant’s brief at

13, for the on premises/off premises analysis.5 In that case, the court was faced with

a water damage exclusion that applied to loss caused by “water which backs up

through sewers or drains.” Another exclusion stated there was no coverage “for

5
 Kelley Street Associates cites Pichel v. Dryden Mut. Ins. Co., 965 N.Y.S.2d 342, 343 (Sup.
Ct. 2013) which is the trial court decision. The appellate decision is Pichel v. Dryden Mut.
Ins. Co., 117 A.D.3d 1267, 1267-68, 986 N.Y.S.2d 268, 270 (2014).

                                          - 21 -
loss caused by repeated or continuous discharge, or leakage of liquids or steam from

within a plumbing . . . system.” But that exclusion also stated the insurer would

“pay for loss caused by the accidental leakage, overflow or discharge of liquids or

steam from a plumbing . . . system.” And, the court noted, a “plumbing system”

could include drains. The court reconciled these provisions so that the exclusion

applied to a backup that originates off an insured’s property, while the coverage

provision applies to an occurrence originating within the insured’s property and

within the “plumbing system.” As the Court can see, the New York case

incorporated the “plumbing system” concept because the policy language did too.

Pichel v. Dryden Mut. Ins. Co., 117 A.D.3d 1267, 1267-68, 986 N.Y.S.2d 268, 270

(2014). Unlike the New York case, here there are no competing exclusion and

coverage provisions.

      Kelley Street Associates also cites Old Dominion Ins. Co. v. Elysee, Inc., 601
So. 2d 1243 (Fla. Dist. Ct. App. 1992). See appellant’s brief at 13. In that case, a

blockage formed in the main sewer line located outside the insured’s retail store at

a mall. When other stores which were connected to the main sewer line used their

toilets or sinks, the water was discharged onto the insured’s premises. The

insurance policy at issue excluded damage caused by water that “backs up from a

sewer or drain.” While the trial court had heard testimony about the relevant sewer

                                        - 22 -
system and where the mall owner and store owner divided responsibility, 601 So. 2d

at 1244, the court of appeals found that the water that discharged from the sewer

and into the retail store was plainly water that had backed up from a sewer or drain.

Id. at 1245. Contrary to Kelley Street Associates’ suggestion, the Old Dominion

case does not set a bright-line rule that sewer systems always end at property lines,

or cannot be part of an insured’s premises.

      The other cases cited by Kelley Street Associates at appellant’s brief 13-14

likewise do not demonstrate that the district court’s summary judgment ruling as to

this insurance contract was in error, or that Kelley Street Associates is entitled to

rendition on its cross-motion. The cases also do not raise a genuine issue of fact

precluding summary judgment for United Fire. At best, the case law reminds

reviewing courts that each policy must be interpreted based on its own specific

contract language. Here, Kelley Street Associates has failed to demonstrate that the

district court incorrectly interpreted the Water Exclusion Endorsement and the

CGL policy as a matter of law, or of fact.

                           CONCLUSION AND PRAYER

      For the reasons stated in this brief, appellee United Fire and Casualty

Company requests the Court affirm the judgment. The costs of appeal should be

                                        - 23 -
taxed against appellant Kelley Street Associates, LLC. Appellee also requests any

other proper relief.

                                      Respectfully submitted,

                                      MILLS SHIRLEY L.L.P.

                                      By:    /s/ George W. Vie III
                                             George W. Vie III
                                      State Bar No. 20579310
                                      2228 Mechanic Street, Suite 400
                                      Galveston, Texas 77550
                                      (713) 571-4232
                                      Fax (713) 893-6095
                                      gvie@millsshirley.com

                                      ATTORNEYS FOR APPELLEE

                       CERTIFICATE OF COMPLIANCE

      The undersigned hereby certifies that this computer-generated document
contains (in full) 6002 words according to the word count provided by Microsoft
Word 2010 (version 14.0.6129.5000 (32-bit)).

                                               /s/ George W. Vie III

                                      - 24 -
                           CERTIFICATE OF SERVICE

      The undersigned hereby certifies that a true and accurate copy of the
foregoing was served via e-service to the following counsel of record on April 3,
2015:

      APPELLANT’S ATTORNEY:

      H. Miles Cohn
      Michelle V. Frier
      Crain, Caton & James, P.C.
      1401 McKinney St., 17th Floor
      Houston, Texas 77010
      mcohn@craincaton.com

                                       /s/ George W. Vie III
                                           George W. Vie III

                                       - 25 -
Appendix Tab 1
                                     CAUSE NO. 2013-36796

KELLEY STREET APARTMENTS                        §         IN THE DISTRICT COURT OF
                                                §
vs.                                             §         HARRIS COUNTY, TEXAS
                                                §
CITY OF HOUSTON and UNITED                      §
AND CASUALTY COMPANY                            §         295 1h JUDICIAL DISTRICT

                                              ORDER

      Came on to be heard Plaintiff Kelley Street Apartments' Motion for Partial Summary

Judgment. Upon consideration, the Court DENIES Plaintiff Kelley Street Apartments' Motion

for Partial Summary Judgment.

      Signed this   9th   day of May, 2014

                                                               c~~6~
                                                              Judge Presiding

                                      FILED
                                      · Chris Oanlel
                                         District Clerk
                                        MAY -9 201't
                                nme·---~~~=---:;:::::-~
                                       Harri• County, Texas

                                                                                      276
Appendix Tab 2
                                                                                    (? l
                                  CAUSE NO. 2013-36796                                7A
KELLEY STREET APARTMENTS                   §          IN THE DISTRICT COURT OF          /JCA
                                           §
vs.                                        §          HARRIS COUNTY, TEXAS
                                           §
CITY OF HOUSTON and UNITED                 §
AND CASUALTY COMPANY                       §          295th JUDICIAL DISTRICT

                                          ORDER

      Came on to be heard Defendant United Fire and Casualty Company's Counter-Motion for

Final Summary Judgment Upon consideration, the Court GRANTS Defendant United Fire and

Casualty Company's Counter-Motion for Final Summary Judgment.

      Signed this 9th day of May, 2014.

                                                       tv\_~6~
                                                      Judge Presiding

             FILED
              Chrfa Danlal
                Dlatrlct Clerk'
               MAY - 9 201~
       Timo:_•-,:r.:;:ir:-,r,~~~--­
               Aarrl1 dounl;, foaa
       BY.------~a~.p~u~~:-------

                                                                                      277
Appendix Tab 3
                                                                                                             6/6/2014 • 20 47 PM
                                                                                        Chns Daniel • D1s1nc1 Clerk Hams Coun1y
                                                                                                          Envelope No 1473586
                                                                                                              By GILBERT LIRA

..
....
                                             CAUSE NO. 2013-36796        A
0
                                                          §                    IN THE DISTRICT COURT
'"'"'   KELLEY STREET ASSOCIATES, LLC,
                                                          §
'"'
IO
                Plaintiff,                                §
 ..

..~
                                                          §
        V.                                                §               OF HARRIS COUNTY, TEXAS
H                                                         §
H
        CITY OF HOUSTON and UNITED FIRE                   §
"'
Cl
        Al'o'D CASUAL TY COMPANY,                         §
~
H
                                                          §
"'u~            Defendants.                               §                   295TH JUDICIAL DISTRICT

             ORDER GRANTING MOTION TO SEVER PLAINTIFF'S CLAIMS AGAINST
          DEFENDANT UNITED FIRE A.i'ID CASUALTY COMPANY & FOR ENTRY OF FINAL
         .nJOGMENT REGARDING DEF!i:NDANT UNITED FIRE AND CASUALTY COMPANY

                On this day came on to .be considered Defendant,. United Fire and Casualty Company's

        Motion to Sever and for Entry of Final Judgment regarding Plaintiffs claims against Defendant

        United Fire and Casualty Company. After considering said Motion and the pleadings on file, the

        Court is of the opinion and finds that said Motion is well taken. It is therefore,

                ORDERED that United Fire and Casually Company's Motion to Sever and for Entry of

        Fianl Judgment is GRANTED. It is further ORDERED that Plaintiffs claims against United Fire

        and Casualty Company arc hereby severed from Plaintiffs remaining claims against City of

        Houston. The Clerk of the Court shall assign the severed case the separate cause number of

        2013-36796-A; and file copies of the following pleadings with new Cause Nu. 2013-36796-i\:

        1.      06/2112013      Plaintiffs Original Petition

        2.      07/12/2013      Citation filed with the Court pertaining to service on Defendant United
                                Fire and Casualty Company

        3.      0712612013      Defendant United Fire and Casualty Company's Original Answer

        4.      08/05/2013      Notice of (Plaintiffs) Counsel's Change of Law Firm and Address

        r~g.o   17

                                                                                                                285
        ,.

             5.      08/06/2013    Designation of Lead Counsel (Defendant United Fire's counsel)

             6.      01108/2014    Plaintiffs Motion for Partial Summary Judgment against Defendant
                                   United Fire and Casualty Company, including exhibits and proposed
                                   order

             7.      01110/2014    Notice of Oral Hearing (on Plaintiff's Motion for Partial Summary
                                   Judgment Against United Fire and Casualty Company)

             8.      01/09/2014    Docket Control Order

             9.      01/31/2014    Defendant's First Amended Answer

             I 0.    01/31 /2014   Defendant, United Fire and Casualty Company's Response to Plaintiffs
                                   Motion for Partial Sununary Judgment & Counter-Motion for Final
                                   Summary Judgment Against Plaintiff & Request for Resetting of Oral
                                   Hearing. Including all exhibits and Proposed Orders

             11.     02/05/2014    Defendant United Fire and Casualty~ Company's Unopposed Motion for
                                   Leave to File Exhibit Attachment to its MSJ Response, Exhibit and
                                   proposed Order

             12.     02/06/2014    Amended Notice of Oral Hearing (on Plaintiff's Motion for Partial
                                   Summary Judgment Against United Fire and Casualty Company)

             13.     02/06/2014    Notice of Hearing (For United Fire and Casualty Company's Counter·
                                   Motion for Final Summary Judgment Against Plaintiff)

             14.     02/21/2014    Amended Notice of Hearing (for Defendant, United Fire and Casualty
                                   Company's Counter-Motion for Final Summary Judgment Against
                                   Plaintiff)

             15.     02/24/2014    Second Amended Notice of Oral Hearing (for Plaintiffs Motion for
                                   Partial Sununary Judgment Against United Fire and Casualty Company)

             16.     03/12/2014    Plaintiffs Combined (I) Reply In Support of Motion for Partial Summary
                                   Judgment and (II) Response to Defendant United Fire's Counter-Motion
                                   for Swnmary Judgment, including proposed Partial Summary Judgment
                                   Against United Fire and Casualty Company

             17.    03/21/2014     Defendant's Second Amended Answer

·,::,        18.    03/24/2014     Defendant, United Fire and Casualty Company's Combined (1) Reply to
                                   Plaintiffs Response to United Fire's Motion for Final Summary

             Pa g l: I 8

'~
                                                                                                       286
      .   '   '

                                           Judgment & (2) Sur-Reply to Plaintiff's Motion for Partial Summary
                                           Judgment

                  19.      03/31 /2014     Order Granting Defendant's Motion for Leave to File Exhibit Attaclunent
                                           to Its MSJ Response

                  20.      0413012014      Agreed Motion for Cominuance, and proposed Order

                  21.      05/09/2014      Order (Denying Plaintiff's Motion for Partial Summary Judgment)

                  22.      0510912014      Order (Granting Defendant United Fire and Casualty Company's
                                           Counter-Motion for Final Summary Judgment)

                  23.                      This Motion To Sever and for Entry of Final Judgment regarding
                                           Plaintiffs claims against Defendant United Fire and Casualty Company

                  24.                      This Order Granting Motion to Sever and for Entry of Final Judgment;
                                           and

                  25.                      Fjnal J~dgment Regardi11g Plaintiffs Claims Against Defendant United
                                           Fire and Casualty Company

                  SIGNED this     ~ayof ~ ,2014.

                                                                          ~rO~
                                                                       JUDGE PRESIDfNG

,.,
c
,.,

                  Sl.P/tr.ibn63909/000120 446
z

                  f' a g <: i 9

                                                                                                                  287
Appendix Tab 4
IL 70 28 UF 01 08

                      ll)   UNITED FIRE GROUP®

                    UNITED FIRE & CASUAL TY COMPANY
                               118 Second Avenue SE
                                   P.O. Box 73909
                             Cedar Rapids, IA 52407-3909

                                                                 Secretary

                       A STOCK INSURANCE COMPANY

IL 70 28 UF 01 08                                      EXHIBIT

                                                  I    iA-1-                 UFGKelley_ 00386
                                                                                   27
                                                                                               0106
 UNITED FIRE & CASUALTV COMPANY
 PO BOX 73909, CEDAR RAPIDS IA 52407                                             IPOLICY NUMBER:                   85315789

 ACCOUNT NUMBER:3000193367                           (2) COMMERCIAL PROPERTY
     DIRECT BILL - 150                                                    COMMERCIAL PROPERTY COVERAGE PART
  ISSUE DATE l 0 -1 Q - 2 Q 12     MD3 REPLACEMENT OF 0 1 0 6   85315789   DECLARATIONS AMENDED 06/20/2012
   NAMED       KELLEY STREET ASSOCIATES LLC                               AGENCY & CODE    830117
  INSURED HOUSTON TRANSPORTATION SERVICE                                      GEM INSURANCE AGENCIES LP
     AND       ATTN DWANE KAMI NS                                             PO BOX 27469
   MAILING 5825 KELLEY ST
 ADDRESS HOUSTON                                    TX 77026-1901             HOUSTON TX                 77227
 POLICY
                12:01 A.M. Standard time          FROM:     01-01-2012   TO:  01-01-2013
 PERIOD:                                                                                             And   ror successive policy poriods as staled below.
 We will provide the insurance described in this policy in return tor the premium and compliance with all applicable policy provisions. If
 we elect to continue this insurance, we will renew this policy if you pay the required renewal premium for each successive policy
 period. subject to our premiums. rules and forms then In effect. You must pay us prior to the end of the current policy period or else
 this policy will terminate after anv statutorilv reouired notices are malled to you. An insufficient funds check Is not considered payment.
 PREM/                                                                                                       LIMITOF
 BLDG          DESCRIBED PREMISES AND COVERAGES                                                             INSURANCE             RATE         PREMIUM
             E:QUIPMENT BREAKDOWN                                                                                                                   226
             SEWER BACKUP                                                                               50,000                                      330

  01 01 5825 KELLEY ST
       !HOUSTON TX 77026-1901
       !FRAME
        bFFICES

            !BUILDING                                                                             1,083,508                    .297            3,219
                  Special Causes Of Loss                                       2,500 Ded
                  Windstorm or Hail Deductible
                  Percentage: 2%
                  Replacement cost                                              80%    Coins
                  Automatic Valuation Adjustment
            rt OUR BUSINESS PERSONAL PROPERTY                                                         546,000                  .349            1,906
                  Special causes Of Loss                                       2,500 Ded
                  Windstorm or Hail Deductible
                  Percentage: 2%
                  Replacement cost                                             80%     Coins
                  4% Inflation Guard

            11.DDITIONAL INTEREST   Loss Payable      -
                     PITNEY BOWES GLOBAL FINANCIAL
                     SERVICES LLC
             CONTINUED ON CP7002
 ABBREVIATIONS: BLDG=BUILDING COINS=CO!NSURANCE DED=OEDUCTtBLE INCL=INCLUOED PREM=PREMISES
 Premium Charge Forms                    Advance Premium    Premium Charge Forms                                                   Advance Premium
                                         SEE UW7002

 Other Forms                             SEE UW7002
                                                                                                                                                 ~---

AMEND REASON:       ADDING SEWER BACKUP COVERAGE EFFECTIVE 01/01/2012
PREMIUM FOR THIS COVERAGE PART    $ 6,452
   Endorsement Adjustment Premium $   187 ADDITIONAL
This Declarations Page supersedes and replaces any preceding               x
declarations page bearing the same policy number ror 1hls polled period.       (COUNTERSIGNED BY AUTHORIZED REPRESENTATIVE)
CP 70 0112 92

                                                                                                                             UFGKelley_00387
                                                                                                                                         28
                                                                    0106           06-20-2012

                                                        I  POLICY NUMBER:      85315789

                             COMMERCIAL PROPERTY SUPPLEMENTAL DECLARATIONS

  PREMf                                                                LIMIT OF
  BLDG            DESCRIBED PREMISES AND COVERAGES                     INSURANCE   RATE   PREMIUM

  01 01 CONTINUED
              PO BOX 909
              SHELTON CT 06484-0949
       ADDITIONAL INTEREST - Loss Payable
              BANK OF HOUSTON

                 3900 ESSEX LN STE 100
                 HOUSTON TX 77027-5316
          ADDITIONAL INTEREST - LOSS Payable
                 KONICA BUSINESS TECHNOLOGIES

              15325 S.W. 30TH PLACE # 100
              BELLEVUE WA 98007
              0082255031000
  02 OJlOOO LOUISIANA ST FL 81ST
       HOUSTON TX 77002-5005
       FIRE RESISTIVE
       NON-GOVERNMENTAL OFFICES

      YOUR BUSINESS PERSONAL PROPERTY                                  25,000      .336         84
          Special causes of Loss                     2,500 Ded
          Replacement Cost                            80%  Coins
          4% Inflation Guard
          Sprinkler Leakage Exclusion
 03 OJ600 TRAVIS ST RM K
      HOUSTON TX 77002-3009
      FIRE RESISTIVE
      NON-GOVERNMENTAL OFFICES

      YOUR BUSINESS PERSONAL PROPERTY                                  25,000      .338         84
           Special Causes of Loss                    2,500 Ded
           Replacement Cost                           80% Coins
           4% Inflation Guard
           Sprinkler Leakage Exclusion
 04 015611 KELLEY ST
      HOUSTON TX 77026-1966
      JOISTED MASONRY
      MERC - MODERATE SUSCEPTIBILITY

          BUILDING                                                    142,000      .292        415
              Special causes of Loss                 2,500 Ded
              Windstorm or Hail Deductible
              Percentage: 2%
              Replacement Cost                       80%    Coins
              Automatic Valuation Adjustment
              Sprinkler Leakage Exclusion

          ADDITIONAL INTEREST - 1st Mortgagee
                 BANK OF HOUSTON
           CONTINUED ON CP7002
CP 70 0212 92

                                                                                   UFGKelley_00388
                                                                                          29
                                                                   0106          06-20-2012

                                                       IPOLICY NUMBER:      85315789

                            COMMERCIAL PROPERTY SUPPLEMENTAL DECLARATIONS

 PREM/                                                               LIMITOF
 BLDG            DESCRIBED PREMISES AND COVERAGES                    INSURANCE   RATE   PREMIUM

 04 01 CONTINUED

             3900 ESSEX LN STE 100
             HOUSTON TX 77027-5316
 04 0~5611 KELLEY ST
      HOUSTON TX 77026-1966
      JOISTED MASONRY
      MERC - MODERATE SUSCEPTIBILITY

         BUILDING                                                     21,000     .292         61
             Special Causes of Loss                 2,500 Ded
             Windstorm or Hail Deductible
             Percentage: 2%
             Replacement cost                        80%   Coins
             Automatic Valuation Adjustment
             Sprinkler Leakage Exclusion

         ADDITIONAL INTEREST - 1st Mortgagee
                BANK OF HOUSTON

                3900 ESSEX LN STE 100
                HOUSTON TX 77027-5316

         Certified Acts of Terrorism coverage                                                127

CP 70 0212 92

                                                                                 UFGKelley_00389
                                                                                        30
                                                             0106      06-20-2012

                                           IPOLICY NUMBER:          85315789

                         FORMS SUPPLEMENTAL DECLARATIONS
                               Premium
Applicable to the state of Texas
*SPECENDS(02-02)   SPECIAL END-OUT OF SEQUENCE                                  143

Other Forms

 Applicable to the state of Texas
  CP0010(06-07)     BLDG & PERSONAL PROP COVG FORM
  CP0090(07-88)     COMM PROP CONDITIONS
  CP0140(07-06)     EXCL OF LOSS DUE TO VIRUS/BACTERIA
  CP0142(01-ll)     TX-CHGS
  CP0321(06-07)     WINDSTORM/HAIL PERCENTAGE DED
  CP1030(06-07)     CAUSES OF LOSS-SPECIAL FORM
  CP1032(08-08)     WATER EXCL END
  CP1056(06-07)     SPRINKLER LEAKAGE EXCL
  CP1218(06-07)     LOSS PAYABLE PROVISIONS
*CP7001(12-92)      COMM PROP DEC
*CP7002(12-92)      COMM PROP SUPPLEMENTAL DEC
  CP7003 (11-86)    AUTOMATIC VALUATION ADJUSTMENT-APPLIES TO BLDG
*CP7034 (12-01)     SEWER BACKUP COVG
  CP7053(08-0l)     TX-CHGS-EQUIPMENT BREAKDOWN
  CP7067(07-07)     EQUIP BREAKDOWN ENHANCEMENT END
  CP9993(10-90)     TENTATIVE RATE
  IL0017(11-98)     COMMON POLICY CONDITIONS
  IL0275(09-07)     TX-CHGS CANCEL & NONRENEW PROVISIONS FOR CASUALTY
  IL0415(04-98)     PROTECTIVE SAFEGUARDS
  IL0952(03-0B)     CAP ON LOSSES FROM CERTIFIED ACTS OF TERRORISM
  IL7083(08-10)     PAYMENT OF LOSSES
  SPECEND(00-00)    SPECIAL END
  ST0013 (05-08)    EQUIPMENT BREAKDOWN STUFFER
  ST1333(05-07)     TX-IMPORTANT NOTICE
  ST1644(01-09)     POLICY WEBSITE STUFFER
  ST1646(03-09)     NOTICE-IMPORTANT-SECURITY
  ST1698(03-ll)     NOTICE-PROTECTIVE SAFEGUARDS
:1cUW7002 (04-96)   FORMS SUPPLEMENTAL DEC

UW70 02 04 96

                                                                      UFGKelley_00390
                                                                           31
Appendix Tab 5
                                                                                                 COMMERCIAL PROPERTY
                                                                                                         CP 10 30 06 07

                           CAUSES OF LOSS - SPECIAL FORM
Words and phrases that appear in quotation marks have special meaning. Refer to Section G., Definitions.

A. Covered Causes Of Loss                                                   b.   Earth Movement
   When Special is shown in the Declarations, Covered                            (1) Earthquake, including any earth sinking,
   Causes of Loss means Risks Of Direct Physical                                     rising or shifting related to such event;
   Loss unless the loss is:                                                      (2) Landslide, including any earth sinking,
   1. Excluded in Section 8., Exclusions; or                                         rising or shifting related to such event;
   2.   Limited in Section C., Limitations;                                      (3) Mine subsidence, meaning subsidence
   that follow.                                                                      of a man-made mine, whether or not
                                                                                     mining activity has ceased;
B. Exclusions
                                                                                 (4) Earth sinking (other than sinkhole
   1.   We will not pay for loss or damage caused                                    collapse), rising or shifting including
        directly or indirectly by any of the following.                              soil conditions which cause settling,
        Such loss or damage is excluded regardless of                                cracking     or other disarrangement
        any other cause or event that contributes                                    of foundations or other parts of realty.
        concurrently or in any sequence to the loss.                                 Soil conditions include contraction,
        a.   Ordinance Or Law                                                        expansion, freezing, thawing, erosion,
             The enforcement of any ordinance or law:                                improperly compacted soil and the
                                                                                     action of water under the ground
             {1) Regulating the construction, use or                                 surface.
                 repair of any property; or
             {2) Requiring the tearing down of any                               But if Earth Movement, as described in b.(1)
                 property, including the cost of removing                        through {4} above, results in fire or
                 its debris.                                                     explosion, we will pay for the loss or
                                                                                 damage caused by that fire or explosion.
             This exclusion, Ordinance Or Law, applies
             whether the loss results from:                                      (5) Volcanic eruption, explosion or effusion.
                                                                                     But if volcanic eruption, explosion or
                  (a) An ordinance or law that is enforced                           effusion results in fire, building glass
                      even if the property has not been                              break age or Volcanic Action, we will
                      damaged; or                                                    pay for the loss or damage caused by
                  (b) The     increased      costs incurred                          that fire, building glass breakage or
                      to comply with an ordinance or                                 Volcanic Action.
                      law in the course of construction,
                                                                                     Volcanic Action means direct loss or
                      repair, renovation, remodeling or
                                                                                     damage resulting from the eruption of a
                      demolition of property, or removal                             volcano when the loss or damage is
                      of its debris, following a physical
                                                                                     caused by:
                      loss to that property.
                                                                                     (a) Airborne volcanic blast or airborne
                                                                                         shock waves;
                                                                                     {b) Ash, dust or particulate matter; or

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                 {c) Lava flow.                                                But if the failure or surge of power, or the
                 All volcanic eruptions that occur within                      failure of communication, water or other
                 any 168-hour period will constitute a                         utility service, results in a Covered Cause of
                 single occurrence.                                            Loss, we will pay for the loss or damage
                 Volcanic Action does not include the                          caused by that Covered Cause of Loss.
                 cost to remove ash, dust or particulate                       Communication services include but are not
                 matter that does not cause direct                             limited to service relating to Internet access
                 physical loss or damage to the                                or access to any electronic, cellular or
                 described property.                                           satellite network.
       c.   Governmental Action                                           f.   War And Military Action
          Seizure or destruction of property by order                          (1) War, including undeclared or civil war;
          of governmental authority.                                           {2} Warlike  action by a military force,
          But we will pay for loss or damage caused                              including     action    in    hindering     or
          by or resulting from acts of destruction                               defending against an actual or expected
          ordered by governmental authority and                                  attack, by any government, sovereign or
          taken at the time of a fire to prevent its                             other authority using military personnel
          spread, if the fire would be covered under                             or other agents; or
          this Coverage Part.                                                (3} Insurrection,      rebellion,     revolution,
       d. Nuclear Hazard                                                         usurped power, or action taken by
            Nuclear reaction or radiation, or radioactive                        governmental authority in hindering or
            contamination, however caused.                                       defending against any of these.
            But if nuclear reaction or radiation, or                      g. Water
            radioactive contamination, results in fire, we                     {1) Flood, surface water, waves, tides, tidal
            will pay for the loss or damage caused by                               waves, overflow of any body of water,
            that fire.                                                              or their spray, all whether driven by
                                                                                    wind or not;
       e.   Utility Services
                                                                               (2) Mudslide or mudflow;
            The failure of power, communication, water
            or other utility service supplied to the                           (3) Water that backs up or overflows from a
                                                                                    sewer, drain or sump; or
            described premises, however caused, if the
            failure:                                                           (4) Water under the ground surface
                                                                                    pressing on, or flowing or seeping
            (1} Originates away from the described                                  through:
                 premises; or
                                                                                    (a) Foundations, walls, floors or paved
            (2) Originates at the described premises,                                   surfaces;
                 but only if such failure involves
                                                                                    (b) Basements, whether paved or not;
                 equipment used to supply the utility
                                                                                        or
                 service to the described premises from
                 a source away from the described                                   (c} Doors, windows or other openings.
                 premises.                                                     But if Water, as described in g.(1) through
            Failure of any utility service includes lack of                    g.(4) above, results in fire, explosion or
            sufficient capacity and reduction in supply.                       sprinkler leakage, we will pay for the loss or
                                                                               damage caused by that fire, explosion or
            Loss or damage caused by a surge of power
                                                                               sprinkler leakage.
            is also excluded, if the surge would not have
            occurred but for an event causing a failure
            of power.

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        h. "Fungus", Wet Rot, Dry Rot And Bacteria                           c.   Smoke, vapor or gas from agricultural
             Presence, growth, proliferation, spread or                           smudging or industrial operations.
             any activity of "fungus", wet or dry rot or                     d.   (1) Wear and tear;
             bacteria.                                                            {2) Rust    or other corrosion,       decay,
             But if "fungus", wet or dry rot or bacteria                              deterioration, hidden or latent defect or
             results in a "specified cause of loss", we will                          any quality in property that causes it to
             pay for the loss or damage caused by that                                damage or destroy itself;
             "specified cause of loss".                                           {3) Smog;
             This exclusion does not apply:                                       (4) Settling,  cracking,       shrinking     or
                                                                                      expansion;
             1.   When "fungus", wet or dry rot or
                  bacteria results from fire or lightning; or                     (5) Nesting or infestation, or discharge or
                                                                                      release of waste products or secretions,
             2. To the extent that coverage is provided
                                                                                      by insects, birds, rodents or other
                in the Additional Coverage - Limited
                                                                                      animals.
                Coverage For "Fungus", Wet Rot, Dry
                Rot And Bacteria with respect to loss or                          (6) Mechanical        breakdown,     including
                damage by a cause of loss other than                                  rupture or bursting caused by centrifugal
                fire or lightning.                                                    force. But if mechanical breakdown
        Exclusions B.1.a. through 8.1.h. apply whether                                results in elevator collision, we will pay
        or not the loss event results in widespread                                   for the loss or damage caused by that
        damage or affects a substantial area.                                         elevator collision.
                                                                                  (7) The following causes of loss to personal
   2.   We will not pay for loss or damage caused by or
                                                                                      property:
        resulting from any of the following:
                                                                                      (a) Dampness       or     dryness     of
        a.   Artificially generated electrical, magnetic or
                                                                                          atmosphere;
             electromagnetic      energy that damages,
             disturbs, disrupts or otheiwise interferes with                          (b) Changes     in   or extremes         of
             any:                                                                         temperature; or
                                                                                      {c) Marring or scratching.
             {1) Electrical or electronic wire, device,
                 appliance, system or network; or                                 But if an excluded cause of loss that is listed
                                                                                  in 2.d.{1) through (7) results in a "specified
             {2) Device, appliance, system or network
                                                                                  cause of loss" or building glass breakage,
                  utilizing cellular or satellite technology.
                                                                                  we will pay for the loss or damage caused
             For the purpose of this exclusion, electrical,                       by that "specified cause of loss" or building
             magnetic       or     electromagnetic      energy                    glass breakage.
             includes but is not limited to:
                                                                             e.   Explosion of steam boilers, steam pipes,
                  {a) Electrical current, including arcing;
                                                                                  steam engines or steam turbines owned or
                  (b) Electrical charge      produced       or                    leased by you, or operated under your
                      conducted   by a magnetic             or                    control. But if explosion of steam boilers,
                      electromagnetic field;                                      steam pipes, steam engines or steam
                  (c) Pulse of electromagnetic energy; or                         turbines results in fire or combustion
                                                                                  explosion, we will pay for the loss or
                 (d) Electromagnetic          waves        or
                                                                                  damage caused by that fire or combustion
                       microwaves.
                                                                                  explosion. We will also pay for loss or
             But if fire results, we will pay for the loss or                     damage caused by or resulting from the
             damage caused by that fire.                                          explosion of gases or fuel within the furnace
        b,   Delay, loss of use or loss of market.                                of any fired vessel or within the flues or
                                                                                  passages through which the gases of
                                                                                  combustion pass.

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        f. Continuous or repeated seepage or leakage                           (3) Any      cracking,   bulging,    sagging,
           of water, or the presence or condensation of                            bending, leaning, settling, shrinkage or
           humidity, moisture or vapor, that occurs                                expansion as such condition relates to
           over a period of 14 days or more.                                       (1) or (2) above.
       g. Water, other liquids, powder or molten                               But if collapse results in a Covered Cause
           material leaks or flows from plumbing,                              of Loss at the described premises, we will
           heating, air conditioning or other equipment                        pay for the loss or damage caused by that
           (except fire protective systems} caused by                          Covered Cause of Loss.
          or resulting from freezing, unless:
                                                                               This exclusion, k., does not apply:
          (1) You do your best to maintain heat in the
               building or structure; or                                           (a) To the extent that coverage is
                                                                                       provided     under the Additional
          (2) You drain the equipment and shut off                                     Coverage - Collapse; or
               the supply if the heat is not maintained.
                                                                                   (b) To collapse caused by one or more
       h. Dishonest or criminal act by you, any                                        of the following:
          of your partners, members,             officers,
                                                                                        (i) The "specified causes of loss";
          managers, employees (including leased
          employees), directors, trustees, authorized                                    (ii} Breakage of building glass;
          representatives or anyone to whom you                                         {iii) Weight of rain that collects on a
          entrust the property for any purpose:                                               roof; or
          (1) Acting alone or in collusion with others;                                 (iv) Weight of people or personal
                 or                                                                           property.
             (2) Whether or not occurring during the                      I.   Discharge, dispersal, seepage, migration,
                  hours of employment.                                         release or escape of "pollutants" unless the
             This exclusion does not apply to acts of                          discharge, dispersal, seepage, migration,
             destruction by your employees (including                          release or escape is itself caused by any of
             leased employees); but theft by employees                         the "specified causes of loss". But if the
             (including    leased employees}     is not                        discharge, dispersal, seepage, migration,
             covered.                                                          release or escape of "pollutants" results in a
       i.    Voluntary parting with any property by you                        "specified cause of loss", we will pay for the
             or anyone else to whom you have entrusted                         loss or damage caused by that "specified
             the property if induced to do so by any                           cause of loss".
             fraudulent scheme, trick, device or false                         This exclusion, I., does not apply to damage
             pretense.                                                         to glass caused by chemicals applied to the
       j.    Rain, snow, ice or sleet to personal property                     glass.
             in the open.                                               m. Neglect of an insured to use all reasonable
       k.    Collapse, including any of the following                        means to save and preserve property from
             conditions of property or any part of the                       further damage at and after the time of loss.
             property:                                               3. We will not pay for loss or damage caused by or
             (1) An abrupt falling down or caving in;                   resulting from any of the following, 3.a. through
                                                                        3.c. But if an excluded cause of loss that is
             (2) Loss of structural integrity, including
                                                                        listed in 3.a. through 3.c. results in a Covered
                 separation of parts of the property or
                                                                        Cause of Loss, we will pay for the loss or
                 property in danger of falling down or
                                                                        damage caused by that Covered Cause of Loss.
                 caving in; or

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        a. Weather conditions. But this exclusion only                               (a) Delay in rebuilding, repairing or
           applies if weather conditions contribute in                                   replacing the property or resuming
           any way with a cause or event excluded in                                     "operations", due to interference at
           Paragraph 1. above to produce the loss or                                     the location of the rebuilding, repair
           damage.                                                                       or replacement by strikers or other
        b. Acts or decisions, including the failure to                                   persons; or
           act or decide, of any parson, group,                                      (b} Suspension, lapse or cancellation
           organization or governmental body.                                            of any license, lease or contract.
        c.   Faulty, inadequate or defective:                                             But if the suspension, lapse or
                                                                                         cancellation is directly caused by
           {1) Planning,        zoning,   development,
                                                                                         the "suspension" of "operations", we
                surveying, siting;
                                                                                         will cover such loss that affects your
           {2) Design, specifications, workmanship,                                      Business Income during the "period
                repair,    construction,     renovation,                                 of restoration" and any extension
                remodeling, grading, compaction;                                         of the "period of restoration" in
           (3) Materials used in repair, construction,                                   accordance with the terms of
                renovation or remodeling; or                                             the Extended Business Income
           (4) Maintenance;                                                              Additional    Coverage      and    the
           of part or all of any property on or off the                                  Extended Period Of Indemnity
           described premises.                                                           Optional Coverage or any variation
                                                                                         of these.
   4.   Special Exclusions
                                                                                 (4) Any Extra Expense caused by            or
        The following provisions apply only to the
                                                                                     resulting from suspension, lapse       or
        specified Coverage Forms.
                                                                                     cancellation of any license, lease     or
        a. Business Income {And Extra Expense)                                       contract      beyond the    "period    of
           Coverage      Form,    Business Income                                    restoration".
           (Without Extra Expense) Coverage Form,
                                                                                 (5} Any other consequential loss.
           Or Extra Expense Coverage Form
                                                                            b.   Leasehold Interest Coverage Form
             We will not pay for:
                                                                                 (1} Paragraph B.1.a., Ordinance Or Law,
             {1) Any loss caused by or resulting from:                               does not apply to insurance under this
                 {a) Damage or destruction of "finished                              Coverage Form.
                      stock"; or                                                 (2) We will not pay for any loss caused by:
                 (b) The time required to reproduce                                  (a) Your cancelling the lease;
                     "finished stock".
                                                                                     (b} The suspension, lapse or cancel-
                     This exclusion does not apply to                                    lation of any license; or
                     Extra Expense.
                                                                                     (c} Any other consequential loss.
             (2} Any loss caused by or resulting from
                 direct physical loss or damage to radio                    c.   Legal Liability Coverage Form
                 or     television   antennas     (including                     (1} The following exclusions do not apply to
                 satellite dishes) and their lead-in wiring,                         insurance under this Coverage Form:
                 masts or towers.                                                    (a} Paragraph 8.1.a., Ordinance Or
             (3) Any increase of loss caused by or                                       Law;
                 resulting from:                                                    (b} Paragraph     B.1.c.,    Governmental
                                                                                        Action;
                                                                                    (c) Paragraph B.1.d., Nuclear Hazard;
                                                                                    (d} Paragraph B.1.e., Utility Services;
                                                                                        and
                                                                                    {e) Paragraph B.1.f., War And Military
                                                                                        Action.

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           (2) The following  additional exclusions              C. Limitations
               apply to C. insurance under this                      The following limitations apply to all policy forms
               Coverage Form:                                        and endorsements, unless otherwise stated.
                 (a) Contractual Liability                               We will not pay for loss of or damage
                     We will not defend any claim or                    to property, as described and limited in this
                     "suit", or pay damages that you are                 section. In addition, we will not pay for any loss
                     legally liable to pay, solely by                    that is a consequence of loss or damage as
                     reason of your assumption of                        described and limited in this section.
                     liability in a contract or agreement.                a. Steam boilers, steam pipes, steam engines
                     But this exclusion does not apply to                      or steam turbines caused by or resulting
                     a written lease agreement in which                        from any condition or event inside such
                     you have assumed liability for                            equipment. But we will pay for loss of or
                     building damage resulting from an                         damage to such equipment caused by or
                     actual or attempted burglary or                           resulting from an explosion of gases or fuel
                     robbery, provided that:                                   within the furnace of any fired vessel or
                                                                               within the flues or passages through which
                     (1) Your assumption of liability was                      the gases of combustion pass.
                         executed prior to the accident;
                         and                                              b.   Hot water boilers or other water heating
                                                                               equipment caused by or resulting from any
                     (ii) The    building  is  Covered                         condition or event inside such boilers or
                          Property under this Coverage                         equipment, other than an explosion.
                          Form.
                 (b) Nuclear Hazard                                       c. The interior of any building or structure, or
                                                                               to personal property in the building or
                     We will not defend any claim                              structure, caused by or resulting from rain,
                     or "suit", or pay any damages,                            snow, sleet, ice, sand or dust, whether
                     loss,    expense   or    obligation,                      driven by wind or not, unless:
                     resulting from nuclear reaction
                     or     radiation, or    radioactive                       (1) The building or structure first sustains
                     contamination, however caused.                                damage by a Covered Cause of Loss to
                                                                                   its roof or walls through which the rain,
   5. Additional Exclusion                                                         snow, sleet, ice, sand or dust enters; or
       The following provisions apply only to the
                                                                               (2) The loss or damage is caused by or
       specified property.
                                                                                    results from thawing of snow, sleet or
       LOSS OR DAMAGE TO PRODUCTS                                                  ice on the building or structure.
       We will not pay for loss or damage to                              d.   Building materials and supplies not attached
       any merchandise, goods or other product                                 as part of the building or structure,. caused
       caused by or resulting from error or omission                           by or resulting from theft.
       by any person or entity (including those having
       possession under an arrangement where                                   However, this limitation does not apply to:
       work or a portion of the work is outsourced)                            (1) Building materials and supplies held for
       in any stage of the development, production                                 sale by you, unless they are insured
       or use of the product, including planning,                                  under the Builders Risk Coverage Form;
       testing, processing, packaging, installation,                               or
       maintenance or repair. This exclusion applies                           (2) Business Income Coverage        or Extra
       to any effect that compromises the form,                                    Expense Coverage.
       substance or quality of the product. But if such
       error or omission results in a Covered Cause of
       Loss, we will pay for the loss or damage caused
       by that Covered Cause of Loss.

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          e.   Property that is missing, where the only                       c. $2,500 for patterns, dies, molds and forms.
               evidence of the loss or damage is a                          d. $250 for stamps, tickets, including lottery
               shortage disclosed on taking inventory, or                        tickets held for sale, and letters of credit.
               other instances where there is no physical
                                                                            These special limits are part of, not in addition
               evidence to show what happened to the
                                                                            to, the Limit of Insurance applicable to the
               property.
                                                                            Covered Property.
         f.    Property that has been transferred to a                      This limitation, C.3., does not apply to Business
               person or to a place outside the described                   Income Coverage           or to Extra Expense
               premises on the basis of unauthorized                        Coverage.
               instructions.
                                                                        4. We will not pay the cost to repair any defect to a
    2.   We will not pay for loss of or damage to the                      system or appliance from which water, other
         following types of property unless caused by the                  liquid, powder or molten material escapes. But
         "specified causes of loss" or building glass                      we will pay the cost to repair or replace
         breakage:                                                         damaged parts of fire-extinguishing equipment if
                                                                           the damage:
         a.    Animals, and then only if they are killed or
               their destruction is made necessary.                          a.   Results in discharge of any substance from
                                                                                  an automatic fire protection system; or
         b.    Fragile articles such as statuary, marbles,
               chinaware and porcelains, if broken. This                     b.   Is directly caused by freezing.
               restriction does not apply to:                                However, this limitation does not apply to
               (1) Glass; or                                                 Business Income Coverage or to Extra Expense
                                                                             Coverage.
               {2) Containers of property held for sale.
         c.    Builders' machinery, tools and equipment             D. Additional Coverage - Collapse
               owned by you or entrusted to you, provided               The coverage provided under this Additional
               such property is Covered Property.                       Coverage - Collapse applies only to an abrupt
               However, this limitation does not apply:                 collapse as described and limited in 0.1. through
               (1) If the property is located on or within              D.7.
                   100 feet of the described premises,                  1. For the purpose of this Additional Coverage -
                   unless the premises is insured under the                  Collapse, abrupt collapse means an abrupt
                   Builders Risk Coverage Form; or                           falling down or caving in of a building or any
               (2) To Business Income Coverage or to                         part of a building with the result that the building
                   Extra Expense Coverage.                                   or part of the building cannot be occupied for its
   3.    The special limit shown for each category, a.                       intended purpose.
         through d., is the total limit for loss of or                  2.   We will pay for direct physical loss or damage to
         damage to all property in that category. The                        Covered Properly, caused by abrupt collapse of
         special limit applies to any one occurrence of                      a building or any part of a building that is
         theft, regardless of the types or number of                         insured under this Coverage Form or that
         articles that are lost or damaged in that                           contains Covered Property insured under this
         occurrence. The special limits are:                                 Coverage Form, if such collapse is caused by
         a. $2,500 for furs, fur garments and garments                       one or more of the following:
              trimmed with fur.                                              a. Building decay that is hidden from view,
                                                                                   unless the presence of such decay is known
         b. $2,500    for jewelry,    watches,     watch
                                                                                   to an insured prior to collapse;
            movements, jewels, pearls, precious and
            semi-precious stones, bullion, gold, silver,                     b. Insect or vermin damage that is hidden from
            platinum and other precious alloys or                                  view, unless the presence of such damage
            metals. This limit does not apply to jewelry                           is known to an insured prior to collapse;
            and watches worth $100 or less per item.

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         c. Use of defective material or methods in                        i.   Walks, roadways and other paved surfaces;
            construction, remodeling or renovation if the                        if an abrupt collapse is caused by a cause
            abrupt collapse occurs during the course of                          of loss listed in 2.a. through 2.d., we will pay
            the construction, remodeling or renovation.                         for loss or damage to that property only if:
         d. Use of defective material or methods                                 (1) Such loss or damage is a direct result of
            in construction, remodeling or renovation if                              the abrupt collapse of a building insured
            the abrupt collapse occurs after the                                      under this Coverage Form; and
            construction, remodeling or renovation is
                                                                                {2) The property is Covered Property under
            complete, but only if the collapse is caused
                                                                                      this Coverage Form.
            in part by:
                                                                      5.   If personal property abruptly falls down or caves
            (1) A cause of loss listed in 2.a. or 2.b.;                    in and such collapse is not the result of abrupt
            (2) One or more of the "specified causes of                    collapse of a building, we will pay for loss or
                 loss";                                                    damage to Covered Property caused by such
            (3) Breakage of building glass;                                collapse of personal property only if:
            (4) Weight of people or personal property;                     a. The collapse of personal property was
                 or                                                             caused by a cause of loss listed in 2.a.
            (5) Weight of rain that collects on a roof.                         through 2.d.;
   3.   This Additional Coverage - Collapse does not                       b.   The personal property which collapses is
        apply to:                                                               inside a building; and
        a. A building or any part of a building that is in                 c. The property which collapses is not of a kind
            danger of falling down or caving in;                              listed in 4., regardless of whether that kind
        b. A part of a building that is standing, even if                       of property is considered to be personal
            it has separated from another part of the                           property or real property.
            building; or                                                   The coverage stated in this Paragraph 5. does
        c. A building that is standing or any part of a                    not apply to personal property if marring and/or
            building that is standing, even if it shows                    scratching is the only damage to that personal
            evidence of cracking, bulging, sagging,                        property caused by the collapse.
            bending, leaning, settling, shrinkage or
                                                                      6.   This Additional Coverage - Collapse does not
            expansion.
                                                                           apply to personal property that has not abruptly
   4.   With respect to the following property:                            fallen down or caved in, even if the personal
        a. Outdoor       radio or television      antennas                 property shows evidence of cracking, bulging,
              (including satellite dishes) and their lead-in               sagging, bending, leaning, settling, shrinkage or
              wiring, masts or towers;                                     expansion.
        b.    Awnings, gutters and downspouts;                        7.   This Additional Coverage - Collapse will not
                                                                           increase the Limits of Insurance provided in this
        c.    Yard fixtures;
                                                                           Coverage Part.
        d.    Outdoor swimming pools;
                                                                      8.   The term Covered Cause of Loss includes the
        e.    Fences;                                                      Additional Coverage - Collapse as described
        f.    Piers, wharves and docks;                                    and limited in D.1. through D.7.
        g.    Beach or diving platforms or appurtenances;
        h.    Retaining walls; and

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E.   Additional Coverage - Limited Coverage For                        4. The      coverage provided under this Limited
     "Fungus", Wet Rot, Dry Rot And Bacteria                                Coverage does not increase the applicable Limit
     1. The coverage described in E.2. and E.6. only                        of Insurance on any Covered Property. If a
        applies when the "fungus", wet or dry rot or                        particular occurrence results in loss or damage
        bacteria is the result of one or more of the                        by "fungus", wet or dry rot or bacteria, and other
        following causes that occurs during the policy                      loss or damage, we will not pay more, for the
        period and only if all reasonable means were                        total of all loss or damage, than the applicable
        used to save and preserve the property from                         Limit of Insurance on the affected Covered
        further damage at the time of and after that                        Property.
        occurrence.                                                          If there is covered loss or damage to Covered
          a. A "specified cause of loss" other than fire or                 Property, not caused by "fungus", wet or dry rot
               lightning; or                                                or bacteria, loss payment will not be limited by
                                                                            the terms of this Limited Coverage, except to
          b.   Flood, if the Flood Coverage Endorsement
                                                                            the extent that '1ungus", wet or dry rot or
               applies to the affected premises.
                                                                            bacteria causes an increase in the loss. Any
     2.   We will pay for loss or damage by "fungus", wet                   such increase in the loss will be subject to the
          or dry rot or bacteria. As used in this Limited                   terms of this Limited Coverage.
          Coverage, the term loss or damage means:
                                                                       5.   The terms of this Limited Coverage do not
          a.  Direct physical loss or damage to Covered                     increase or reduce the coverage provided under
              Property caused by "fungus", wet or dry rot                   Paragraph F.2. (Water Damage, Other Liquids,
             or bacteria, including the cost of removal of                  Powder Or Molten Material Damage) of this
             the "fungus", wet or dry rot or bacteria;                      Causes Of Loss Form or under the Additional
          b. The cost to tear out and replace any part of                   Coverage - Collapse.
             the building or other property as needed to
                                                                       6.   The following, 6.a. or 6.b., applies only if
             gain access to the "fungus", wet or dry rot or
             bacteria; and                                                  Business     Income and/or Extra         Expense
                                                                            Coverage applies to the described premises and
          c. The cost of testing performed after removal,
                                                                            only if the "suspension" of "operations" satisfies
             repair, replacement or restoration of the
                                                                            all terms and conditions of the applicable
             damaged property is completed, provided
                                                                            Business     Income    and/or Extra      Expense
             there is a reason to believe that "fungus",
                                                                            Coverage Form.
             wet or dry rot or bacteria are present.
                                                                            a.   If the loss which resulted in '1ungus", wet or
     3.   The coverage described under E.2. of this                              dry rot or bacteria does not in itself
          Limited Coverage is limited to $15,000.                                necessitate a "suspension" of "operations",
          Regardless of the number of claims, this limit is                      but such "suspension" is necessary due to
          the most we will pay for the total of all loss or                      loss or damage to property caused by
          damage arising out of all occurrences of                               "fungus'', wet or dry rot or bacteria, then our
          "specified causes of loss" (other than fire or                         payment under Business Income and/or
          lightning) and Flood which take place in a 12-                         Extra Expense is limited to the amount of
          month period (starting with the beginning of the                       loss and/or expense sustained in a period of
          present annual policy period). With respect to a                       not more than 30 days. The days need not
          particular occurrence of loss which results in                         be consecutive.
          "fungus", wet or dry rot or bacteria, we will not
          pay more than a total of $15,000 even if the                      b.   If a covered "suspension" of "operations"
          "fungus", wet or dry rot or bacteria continues to                      was caused by loss or damage other
          be present or active, or recurs, in a later policy                     than "fungus", wet or dry rot or bacteria but
          period.                                                                remediation of "fungus", wet or dry rot
                                                                                 or bacteria      prolongs the "period of
                                                                                 restoration", we will pay for loss and/or
                                                                                 expense      sustained   during the delay
                                                                                 (regardless of when such a delay occurs
                                                                                 during the "period of restoration"), but such
                                                                                 coverage is limited to 30 days. The days
                                                                                 need not be consecutive.
CP 10 30 06 07                               © ISO Properties, Inc., 2007                                         Page 9 of 10

                                                                                                              UFGKelley_00427
                                                                                                                       68
                                                                                                             CP 10 30 06 07

F. Additional Coverage Extensions                                   3.   Glass
    1. Property In Transit                                               a. We will pay for expenses incurred to put up
        This Extension applies only to your personal                        temporary plates or board up openings if
        property to which this form applies.                                repair or replacement of damaged glass is
                                                                            delayed.
        a. You may extend the insurance provided by
            this Coverage Part to apply to your personal                 b.   We will      pay for expenses incurred to
            property (other than property in the care,                        remove       or replace obstructions when
            custody or control of your salespersons) in                       repairing   or replacing glass that is part of a
            transit more than 100 feet from the                               building.   This does not include removing or
            described premises. Property must be in or                        replacing   window displays.
            on a motor vehicle you own, lease or                         This Coverage Extension, F.3.,            does   not
            operate while between points in the                          increase the Limit of Insurance.
            coverage territory.
                                                                G. Definitions
        b.   Loss or damage must be caused by or result
                                                                    1.   "Fungus" means any type or form of fungus,
             from one of the following causes of loss:
                                                                         including mold or mildew, and any mycotoxins,
             (1) Fire, lightning, explosion, windstorm                   spores, scents or by-products produced or
                 or hail, riot or civil commotion, or                    released by fungi.
                 vandalism.                                         2.   "Specified causes of loss" means the following:
             (2) Vehicle collision, upset or overturn.                   fire; lightning; explosion; windstorm or hail;
                 Collision means accidental contact of                   smoke; aircraft or vehicles; riot or civil
                 your vehicle with another vehicle or                    commotion; vandalism; leakage from fire-
                 object. It does not mean your vehicle's                 extinguishing equipment; sinkhole collapse;
                 contact with the roadbed.                               volcanic action; falling objects; weight of snow,
             (3) Theft of an entire bale, case or package                ice or sleet; water damage.
                 by forced entry into a securely locked                  a.   Sinkhole collapse means the sudden sinking
                 body or compartment of the vehicle.                          or collapse of land into underground empty
                 There must be visible marks of the                           spaces created by the action of water on
                 forced entry.                                                limestone or dolomite. This cause of loss
        c.   The most we will pay for loss or damage                          does not include:
             under this Extension is $5,000.                                  (1) The cost of filling sinkholes; or
        This    Coverage     Extension     is  additional                     {2) Sinking or collapse of land into
        insurance.     The      Additional    Condition,                           man-made underground cavities.
        Coinsurance, does not apply to this Extension.
                                                                         b.   Falling objects does not include loss or
   2.   Water Damage, Other Liquids, Powder Or
                                                                              damage to:
        Molten Material Damage
                                                                              {1) Personal property in the open; or
        If loss or damage caused by or resulting from
        covered water or other liquid, powder or molten                       {2) The interior of a building or structure, or
        material damage loss occurs, we will also                                  property inside a building or structure,
        pay the cost to tear out and replace any part of                           unless the roof or an outside wall of the
        the building or structure to repair damage to                              building or structure is first damaged by
        the system or appliance from which the water                              a falling object.
        or other substance escapes. This Coverage                        c.   Water damage means accidental discharge
        Extension does not increase the Limit of                              or leakage of water or steam as the direct
        Insurance.                                                            result of the breaking apart or cracking of a
                                                                              plumbing, heating, air conditioning or other
                                                                              system or appliance (other than a sump
                                                                              system including its related equipment and
                                                                              parts), that is located on the described
                                                                              premises and contains water or steam.

CP 10 30 06 07                            © ISO Properties, Inc., 2007                                          Page 10of10

                                                                                                            UFGKelley_00428
                                                                                                                     69
Appendix Tab 6
                                                                                                COMMERCIAL PROPERTY
                                                                                                        CP 10 32 08 08

             THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

                         WATER EXCLUSION ENDORSEMENT
This endorsement modifies insurance provided under the following:

   COMMERCIAL PROPERTY COVERAGE PART
   STANDARD PROPERTY POLICY

A. The exclusion in Paragraph B. replaces the Water                   5.   Waterborne   material carried or otherwise
   Exclusion in this Coverage Part or Policy.                              moved by any of the water referred to in
B. Water                                                                   Paragraph 1., 3. or 4., or material carried or
   1.   Flood, surface water, waves (including tidal                       otherwise moved by mudslide or mudflow.
        wave and tsunami), tides, tidal water, overflow               This exclusion applies regardless of whether any of
        of any body of water, or spray from any of                    the above, in Paragraphs 1. through 5., is caused by
        these, all whether or not driven by wind                      an act of nature or is otherwise caused. An example
        (including storm surge);                                      of a situation to which this exclusion applies is the
   2.   Mudslide or mudflow;                                          situation where a dam, levee, seawall or other
                                                                      boundary or containment system fails in whole or in
   3.   Water that backs up or overflows or is otherwise              part, for any reason, to contain the water.
        discharged from a sewer, drain, sump, sump
        pump or related equipment;                                    But if any of the above, in Paragraphs 1. through 5.,
   4.   Water under the ground surface pressing on, or                results in fire, explosion or sprinkler leakage, we will
        flowing or seeping through:                                   pay for the loss or damage caused by that fire,
                                                                      explosion or sprinkler leakage (if sprinkler leakage is
        a. Foundations,      walls, floors   or paved
                                                                      a Covered Cause of Loss).
             surfaces;
        b.   Basements, whether paved or not; or
        c.   Doors, windows or other openings; or

CP 10 32 08 08                           @   Insurance Services Office, Inc., 2008                               Page 1of1

                                                                                                            UFGKelley_00429
                                                                                                                     70
Appendix Tab 7
                         CAUSE l'\O. 2013-36796
KELLEY STREET ASSOCIATES, LLC       §     IN Tl IF DISTRICT COURT OF
                                                   ~
                                                    s
       Plaintifl                                   s~
                                                   ss
vs.                                                ss    OF HARRIS COU::-..ITY. TEXAS
                                                   §
CITY OF I IOUSTO:.l :\ND UNITED FIRE               §
AND CASUALTY COMl'A:.IY                            §
                                                   ~
                                                   ~

       Defendants.                                 ~      295 1i; JUDICIAi. DISTRICT

                AFFIDAVIT OF DUANE H. KAM INS IN SUPPORT OF
            PLAIJWIFF'S MOTION FOR PARTIAL SUMMARY .JUDGMENT
                AGAINST UNITED FIRE AND CASUALTY COMPANY

THE ST ATE OF TEXAS

COUNTY OF HARRIS

       On this day Duane I I. Kamins personally appeared before me. the undersigned notary public,
\\ho being by me duly sworn on his oath deposed and said:

l."My name is Duane 11. Kamins. I am the President of Kelley Street Associates. LLC ("Kelley
Street"). the Plaintiff in the above-styled lawsuit. I am responsible for insuram:c coverage and
claims for Kelley Street. l have personal knowkdge of all the statements made herein. each of
which is trm: and corre<:I.

        2.     "Kelley Street was formed in 2005 for the purpose of developing and owning an
office building and industrial facility located at 5825 Kelley Stn:et in l louston. Texas (the ·Kelley
Street Building'). The Kelley Street Building was completed in 2008.

          3.     "Kelley Street purchased commercial propc11y insurance for the Kelley Street
Building from United Fire & Casualty Company(' United Fire'), an insurance company licensed
to ::;ell property insurance in Texas.    LJnited Fire issued Sl1ch insmancc under its policy no.
85315789 (the 'Policy'). co\'ering the period from January I. 2012. to 2013. A true copy of the
Policy is attached hereto as Exhibit A-1.

        4.      ..On October 2, 2012, Kelley Street suffered a loss due to a failure of the plumbing
system in the Kelley Street Building. Specifically. on the evening of October 2 water began to flow
through a series of floor drains in the building. most but not all of which wcre lrn:atcd in bathrooms.
The water Jcvcl reached scvcrnl inchcs throughout the building beforc water to the building was
shut off. Kelley Street incurred costs of more than $150.000.00 to drain and dry the building and
to repair the damagc caused by this cxeessivc water llow.

       5.     "On Oetobcr 3. 2012. Kelley Street provided notice of this loss to United Fire.
Notice was givcn to United Fire by Kelley Street's insurance llgcnt, GEM Insurance Agencies. LP.
A true copy of the Property l.oss Notice is attached hereto as Exhibit A-2.

                                                                                                     EXHIBIT

                                                                                             I A
                                                                                                           25
       6.       "'By letter dated October 8. 2012, United Fire denied coverage for this loss. A true
copy of this letter is attached hereto as Exhibit A-3.

         7.     ..ln November 2012. United Fire issued an endorsement to the Policy that. according
lo United Fire, would provide coverage for the loss to $50.000.00. Payment in that amount was
subsequently made and accepted by Kelley Street without waiving the right to claim full coverage
under the Policy. An exchange of emails between myself and Joyce Wilson, an adjustt:r for United
fire. is attached hert:to as Exhibit A-4: Ms \Vi Ison confirmed that the payment and acceptance of
this partial payment of losses would not prejudice Kelley Street's clOIS
                                                                   ~,.,,.,...._.....   __
                                                                             Comm, EJll CM/0512017
                                                                                            ~~...,.,..

                                                 2

                                                                                                                         26
Appendix Tab 8
                         CAUSE NO. 2013-36796
KELLEY STREET ASSOCIATES, LLC     §     IN THE DISTRICT COURT OF
                                                   §
        Plaintiff,                                 §
                                                   §
VS.                                                §      OF HARRIS COUNTY, TEXAS
                                                   §
CITY OF HOUSTON AND UNITED FIRE                    §
AND CASUALTY: COMPANY                              §
                                                   §
        Defendants,                                §      295TH JUDICIAL DISTRICT

                  AFFIDAVIT OF JOHN MOORE IN SUPPORT OF
            PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
                AGAINST UNITED FIRE AND CASUALTY COMPANY

THE STATE OF TEXAS                     §
                                       §
COUNTY OF HARRIS                       §

       On this day John Moore personally appeared before me, the undersigned notary public, who
being by me duly sworn on his oath deposed and said:

         1.     "My name is John Moore. I am a plumber employed by Raven Mechanical, LP.
I inspected the Kelley Street property personally, as described below. I have personal lrnowledge
of all the statements made herein, each of which is true and correct.

       2.    "I have been employed as a plumber since about 2002, and I have been employed
at Raven Mechanical since 2005, I am licensed as a Master Plumber in the'state of Texas.

       3.         "On October 2, 2012, Raven Mechanical was called regarding an emergency at 5825
Kelley Street i.J.1 Houston. I was assigned to visit the property, to assess the cause of the flooding
water in the building, and to propose any necessary plumbing repairs.

        4,      "When I arrived and walked tlrrough the building, I found that the water level was
at several inches throughout the building.
                11
         5.       1 examined the plumbing throughout the. building, including the bathrooms and
'kitchen as well as floor drains at various locations. I found that the flush valves in all the toilets
 were malfunctioning due to damage caused by debris, rocks and dirt that had been introduced into
 the domestic water main following a repair on the water main in Kelley Street, in front of the
 building. Due to the damaged flush valves, water had been continually flowing into the sanitary
 sewer septic system in the building. The septic system could not keep up with the volume of water
 being introduced to the system; after the septic system filled, water came up through the drains
 throughout the building, resulting in the flooding of the building.

                                                                                EXHIBIT

                                                                         I      rs
                                                                                                          99
       6.       11
                   After my examination, I filled out a report on the work order issued by Raven
Mechanical. A true copy of the completed Work Order, with the notes that I wrote on it the same
day as my visit to the property, is attached hereto as Exhibit B-1. I made these notes in the ordinary
course of business h1 connection with the above-des •'b site assessment."

STATE OF TEXAS                 §
                               §
COUNTY OF HARRIS               §

        SWORN TO AND SUBSCRIBED BEFO

                                                    e            CJNDYYOUNG
                                                             Notary Publlo, State of Tew
                                                               My Comm!Mlon Expires
                                                             SEPTEMBER 13. 2018

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