Court Opinion

ID: 6339617
Source: CourtListenerOpinion
Date Created: 2022-05-11 18:00:41.224362+00
Date Added: 2024-06-11T15:49:12.809348
License: Public Domain

Case: 21-11047     Document: 00516314694          Page: 1    Date Filed: 05/11/2022

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

                                                                             FILED
                                                                         May 11, 2022
                                   No. 21-11047                         Lyle W. Cayce
                                                                             Clerk

   Bradford Realty Services, Incorporated,

                                                            Plaintiff—Appellant,

                                       versus

   Hartford Fire Insurance Company,

                                                            Defendant—Appellee.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                           USDC No. 3:20-CV-1659

   Before Willett, Engelhardt, and Wilson, Circuit Judges.
   Per Curiam:*
          This case turns on the difference between “rain” and “water.”
   Plaintiff-Appellant Bradford Realty Services, Inc. (“Bradford”) manages a
   building (the “Property”). Defendant-Appellee Hartford Fire Insurance
   Company (“Hartford”) issued an insurance policy to cover losses to the
   Property (the “Policy”). The Policy provides coverage for losses “caused by

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 21-11047        Document: 00516314694             Page: 2      Date Filed: 05/11/2022

                                         No. 21-11047

   or resulting from water that backs up from a sewer or drain.” It also excludes
   coverage for damage caused by rain unless the Property “first sustains
   damage by a covered Cause of Loss to its roof or walls through which the rain
   . . . enters.”
           In September 2018, a heavy rainstorm swept over the Property,
   resulting in some form of liquid dihydrogen monoxide pooling on the roof.
   Drains that would otherwise remove that substance were clogged, so it
   remained. Aquatic mayhem ensued as a leak permitted the invidious-yet-
   indeterminate substance to enter the Property’s interior and cause damage.
   Bradford filed an insurance claim with Hartford to cover repairs to the
   Property. Hartford denied coverage, claiming that because the damage was
   caused by rain that did not enter the building through damage caused by the
   storm, it fell into the Policy’s exclusion for damage caused by rain.
           Thirsting for relief, Bradford sued in the United States District Court
   for the Northern District of Texas, invoking diversity jurisdiction. It argued
   that the Policy’s rain exclusion did not apply and, in addition, that the drain
   backup coverage provision covered the loss. After discovery and cross-
   motions for summary judgment, the district court doused Bradford’s hopes
   by granting Hartford’s motion. Bradford Realty Servs., Inc. v. Hartford Fire
   Ins. Co., No. 3:20-CV-1659-C, 2021 WL 4955911, at *1 (N.D. Tex. Sept. 13,
   2021). Bradford appeals, arguing that the district court’s holding that the rain
   exclusion applied, while the drain backup coverage did not, is all wet. 1 We
   disagree and AFFIRM.

           1
              Although Bradford initially challenged Hartford’s reliance on an engineering
   report, it appears that the problem was merely crossed wires between the parties as to why
   Hartford was relying on that report. Thus, Bradford’s objection dried up.

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                                          No. 21-11047

                                                I
           We review the district court’s grant of summary judgment de novo
   and affirm if “there is no genuine dispute as to any material fact and the
   movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a);
   Renfroe v. Parker, 974 F.3d 594, 599 (5th Cir. 2020). As the district court
   noted, all material facts have been stipulated to by the parties, so we may
   resolve this case purely on matters of law. Bradford Realty Servs., 2021 WL
   4955911, at *1.
           Because this is a diversity case, Texas substantive law applies. Erie
   R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); see ACE Am. Ins. Co. v. Freeport
   Welding & Fabricating, Inc., 699 F.3d 832, 839 (5th Cir. 2012). Under Texas
   law, the insured bears the burden of establishing coverage. JAW The Pointe,
   L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 603 (Tex. 2015). If the insured
   carries its burden, the insurer must “plead and prove” that the insured’s loss
   falls within an exclusion to coverage. 2 Id. If the insurer succeeds, the insured
   must then show that there is an applicable exception to the exclusion that
   renews coverage. Id. Because Bradford and Hartford have stipulated to the
   material facts required for us to resolve the case, we proceed directly to the
   analysis.
           “When analyzing an insurance contract,” Texas courts use “well-
   established principles of contract construction.” State Farm Lloyds v. Page,
   315 S.W.3d 525, 527 (Tex. 2010) (citation omitted). The goal of the exercise
   “is to determine the contracting parties’ intent through the policy’s written

           2
            The rain exclusion is technically a “limitation” but much of the caselaw refers to
   exclusions, so we characterize it as such to avoid confusion. There is no material difference
   between the terms for the purposes of this case.

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                                     No. 21-11047

   language.” Id. (citations omitted). That analysis is frozen “within the four
   corners of the policy itself.” Id. (citation omitted).
          Important here, Texas courts do not dilute the meaning of contractual
   provisions but instead “giv[e] effect to each word, clause and sentence, and
   avoid making any provision within the policy inoperative.” Id. (citation
   omitted); see Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.
   2003) (explaining that courts “must give effect to all contractual provisions
   so that none will be rendered meaningless”). Mere disagreement between the
   parties “does not create an ambiguity” in the contract’s language, as only
   when a provision “is subject to two or more reasonable interpretations may it
   be considered ambiguous.” Page, 315 S.W.3d at 527 (citations omitted and
   emphasis added). Whether a contract is ambiguous is a question of law.
   Schaefer, 124 S.W.3d at 157. Thus, when a provision “is worded so that it can
   be given a definite or certain legal meaning, it is not ambiguous and [the
   court] construe[s] it as a matter of law.” Id.
                                           II
          Bradford presses two arguments on appeal. First, it argues that the
   policy’s drain backup provision applies. Second, it argues that the rain
   exclusion does not. Thus, Bradford argues, the district court erred both in
   granting summary judgment in favor of Hartford and for denying summary
   judgment in favor of Bradford. Neither argument holds water, rain, or any
   combination thereof.
                             A. Drain Backup Coverage
          Bradford first argues that because the policy provides coverage for
   damage caused by water backing up from a drain, and because the parties
   stipulated that the drains were clogged such that H2O accumulated on the
   roof, eventually reaching a “rooftop air handling unit” and leaking inside the
   building, the damage should be covered. Thus, Bradford argues, even if the

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                                    No. 21-11047

   rain exclusion applies, the drain backup provision is an exception to that
   exclusion that renews coverage. Hartford argues this issue under the
   assumption that Bradford is asserting the drain backup provision as
   affirmative coverage in the first instance, not as an exception. The result is
   the same either way.
          If the drain backup provision provides coverage in the first instance, it
   does not apply here. The section of the Policy that includes the drain backup
   coverage also states that the coverages provided in that section “are added
   . . . unless otherwise indicated in the Property Choice Schedule of Premises
   and Coverages or by endorsement to this policy.” The rain exclusion is
   contained within the “Property Choice” portion of the Policy. Further, the
   subsection that contains the rain exclusion states that the limitations
   contained therein “apply to all policy forms and endorsements.” Thus, the
   drain backup coverage applies “unless otherwise indicated,” and the rain
   exclusion otherwise indicates.
          If the drain backup provision is an exception, it does not apply to the
   rain exclusion. That much is evident from the case Bradford cites to support
   its argument, which instead dampens it. See Hopu, Co. v. N. Ins. Co. of N.Y.,
   No. CV H-03-2372, 2005 WL 8165597, at *4 (S.D. Tex. Nov. 22, 2005). In
   Hopu, rain from a tropical storm overflowed the gutters installed on the
   insured’s property, leaked inside, and caused damage. Id. at *3. The policy at
   issue contained a substantially similar rain exclusion and drain coverage
   provision. See id. at *3–4. Like this case, there was no evidence of damage to
   the walls or roof from the storm. Id. at *5. The court held that the drain
   backup provision did not apply because, although it was an exception, it did
   not apply to the rain exclusion. Id. at *4. That was so because the rain
   exclusion made clear that the only exception to it was when the property
   “first sustains damage by a Covered Cause of Loss to its roof or walls.” Id.
   (internal quotation marks omitted). Losses caused by something other than

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                                      No. 21-11047

   covered damage to the property’s roof or walls, therefore, were “irrelevant”
   to the application of the rainwater exclusion. Id. Since the drain backup
   coverage provision did not apply by virtue of damage to the property’s roof
   or walls, it was therefore inapplicable to the loss. Id.
            So too here. The rain exclusion’s only listed exceptions are
   unambiguous and only concern losses that result from covered damage “to
   [the Property’s] roof or walls through which the rain . . . enters” and damage
   “caused by . . . thawing of snow, sleet or ice on the building or structure.”
   Bradford has stipulated that the cause of undefined liquid entering the
   Property was only that “the roof drains were clogged with debris” which
   allowed the liquid to pool and leak into the Property through an air handling
   unit. Thus, Bradford cannot establish that the drain backup provision fits
   within either of the two exceptions to the rain exclusion, and this argument
   fails.
                                  B. Rain Exclusion
            That brings us to the question of whether the rain exclusion applies.
   Specifically, we consider whether pooled rainwater is “rain” or “water”
   under the insurance contract between Bradford and Hartford, applying
   Texas principles of contractual interpretation.
            We note that there is no reservoir of precedent to guide us. A
   sprinkling of Texas appellate caselaw deals with insurance policies that have
   a substantially similar rain exclusion provision, but not with the precise issue
   before us. See, e.g., Tex. Windstorm Ins. Ass’n v. James, No. 13-17-00401-CV,
   2020 WL 5051577, at *15–16 (Tex. App.-Corpus Christi Aug. 20, 2020, pet.
   denied) (there was sufficient evidence to support a finding that rain entered
   through an opening created by wind); Davis v. Nat’l Lloyds Ins. Co., 484
   S.W.3d 459, 463 (Tex. App.-Houston [1st Dist.] 2015, pet. denied) (damage
   calculation dispute); U.S. Fire Ins. Co. v. Matchoolian, 583 S.W.2d 692, 694

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                                          No. 21-11047

   (Tex. Civ. App.-Houston [14th Dist.] 1979, writ ref’d n.r.e.) (insured failed
   to delineate between causes of damage); Hartford Fire Ins. Co. v. Christianson,
   395 S.W.2d 53, 60 (Tex. Civ. App.-Corpus Christi 1965, writ ref’d n.r.e.)
   (house was completely destroyed by Hurricane Carla, so there was no
   evidence that rain entered the house when it was intact).
           Thus, we cannot find any guidance from either the Texas Supreme
   Court or Texas intermediate courts on this issue, nor do the parties cite any. 3
   In these situations, we make an “Erie guess,” predicting what we think the
   Texas Supreme Court would do with this case. Jiao v. Xu, 28 F.4th 591, 599
   (5th Cir. 2022) (citation omitted).
           Bradford argues that water is only “rain” when it is actively falling
   from the sky. Once rain hits a roof, it becomes water and, as a result, a rain
   exclusion cannot apply to deny coverage for damage it causes. In support,
   Bradford cites a Supreme Court of Wyoming case wherein the court held that
   a policy provision denying coverage for damage caused by “surface water”
   applied to bar recovery when floodwater from a rain-and-hailstorm inundated
   the insured’s basement. State Farm Fire & Cas. Co. v. Paulson, 756 P.2d 764,
   764–65, 772 (Wyo. 1988). But Paulson defined surface water as water that had
   “diffused over the surface of the ground,” so its reasoning is inapplicable here
   where the water pooled on a rooftop. See State v. Hiber, 48 Wyo. 172, 44 P.2d
   1005, 1008 (1935) (citations omitted and emphasis added) (adopted as the
   definition of surface water by Paulson, 756 P.2d at 772). Hartford and the
   district court rely on a case from the Supreme Court of Iowa, which reasoned

           3
            Although the Texas Supreme Court is the state’s highest judicial authority and,
   therefore, the only court that can say for certain what Texas law is, we often look to Texas
   intermediate courts for “the strongest indicator of what [the Texas Supreme Court] would
   do, absent a compelling reason to believe that the [Texas Supreme Court] would reject the
   lower courts’ reasoning.” Hux v. S. Methodist Univ., 819 F.3d 776, 780–81 (5th Cir. 2016)
   (emphasis added).

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                                    No. 21-11047

   that rain exclusions would be meaningless if rain became water upon landing
   because water only damages property “after it strikes a surface.” Amish
   Connection, Inc. v. State Farm Fire & Cas. Co., 861 N.W.2d 230, 237 (Iowa
   2015).
            The Texas Supreme Court would likely hold that the damage in this
   case was caused by rain. To hold otherwise would render the rain exclusion
   meaningless. Rain does not damage anything when it is in mid-air, as it only
   damages something once it lands and soaks, splashes, or otherwise touches
   that thing. See id. In other words, if rain becomes water on contact with a
   surface, then the rain exclusion excludes nothing. Because Texas law is awash
   in admonitions to give meaning to every contractual provision, we give
   meaning to the rain exclusion by holding that it applies to the rainwater that
   pooled on the roof of the Property and caused damage. See Page, 315 S.W.3d
   at 527; Schaefer, 124 S.W.3d at 157.
                                          III
            We hold that the Policy’s drain backup provision does not provide
   coverage because it does not fall within either of the enumerated exceptions
   to the rain exclusion. We likewise hold that the water that caused damage
   here falls within the rain exclusion. To do otherwise would render the
   exclusion meaningless and water down Texas’ principle of contractual
   interpretation that each provision be given meaning. Thus, we AFFIRM.

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