Case: 09-50653 Document: 00511286527 Page: 1 Date Filed: 11/05/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 5, 2010
No. 09-50653 Lyle W. Cayce
Clerk
ARM PROPERTIES MANAGEMENT GROUP,
Plaintiff – Appellee
v.
RSUI INDEMNITY COMPANY,
Defendant – Appellant
Appeal from the United States District Court
for the Western District of Texas
(1:07-CV-718)
Before JOLLY, D EMOSS, and DENNIS, Circuit Judges.
PER CURIAM:*
This appeal involves a dispute between an insured, ARM Properties
Management Group (ARM), and one of its insurance carriers, RSUI Indemnity
Company (RSUI). At issue is the second-layer excess insurance policy issued by
RSUI (the RSUI Policy) under which ARM claims $5,500,587.03. The parties
raise the following issues: (1) whether the RSUI Policy incorporates the anti-
concurrent causation clause (the ACC Clause) and the water exclusion (the
Water Exclusion) from the primary insurance policy; (2) whether RSUI’s liability
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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No. 09-50653
has attached under the RSUI Policy; (3) whether the RSUI Policy incorporates
the flood deductible from the primary insurance policy; (4) whether the RSUI
Policy’s scheduled limit of liability provision requires that coverage sub-limits
be determined on an aggregate basis; and (5) whether RSUI waived the RSUI
Policy’s anti-assignment clause and/or the insurable interest requirement.
Because we hold that the ACC Clause and Water Exclusion were incorporated
by the RSUI Policy, a threshold issue resolved in RSUI’s favor, we do not reach
the remaining issues. We therefore reverse and remand.
Facts and Background
ARM is in the business of purchasing property insurance for hundreds of
apartment complexes. By grouping separate properties together under a single
policy, ARM is able to obtain better insurance rates for the property owners.
When Hurricane Katrina struck the Mississippi Gulf Coast in August 2005, nine
of ARM’s covered properties sustained damage. Each of the properties had three
“layers” of insurance coverage. Westchester Surplus Lines Insurance Company
issued the primary insurance policy (the Primary Policy) with a $20 million
coverage limit, including a $7.5 million flood damage sub-limit. Essex Insurance
Company issued a first-layer excess insurance policy (the First-Layer Policy)
with a $10 million coverage limit for damage amounts that exceed the Primary
Policy limit. RSUI issued the RSUI Policy, a second-layer excess insurance
policy with a $470 million coverage limit for damage amounts that exceed the
combined primary and first-layer excess coverage limit of $30 million.
The Primary Policy and First-Layer Policy paid the combined liability
limit of $30 million. RSUI has not paid any of ARM’s claims. ARM contends
that $5,500,587.03 in combined wind and water damage should be paid under
the RSUI Policy. RSUI responds that no payment is due because such wind-
water damage is excluded under the Primary Policy. The parties filed a Joint
Stipulation of Facts in Lieu of Trial (the Joint Stipulation) with the district
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court, and on July 16, 2009, the district court issued an order finding in favor of
ARM. The district court found that (i) the Primary Policy’s ACC Clause and
Water Exclusion were not incorporated by the RSUI Policy; (ii) RSUI’s liability
had attached under the RSUI Policy; (iii) the Primary Policy’s flood deductible
was not incorporated by the RSUI Policy; (iv) the RSUI Policy’s scheduled limit
of liability applies on an aggregate basis; (v) the RSUI Policy’s anti-assignment
provision voided certain property owners’ assignments of their claims to ARM;
and (vi) ARM lacked an insurable interest but RSUI waived that requirement.
The district court awarded ARM its full claim of $5,500,587.03, plus interest and
attorneys’ fees. This appeal followed.
Discussion
The district court decided this case on cross motions for judgment based
on the Joint Stipulation, which is essentially a summary judgment proceeding.
See Bank of La. v. Aetna U.S. Healthcare, Inc., 571 F. Supp. 2d 728, 729 n.1
(E.D. La. 2008), aff’d, 326 F. App’x 321 (5th Cir. 2009); see also More v. Intelcom
Support Servs., Inc., 960 F.2d 466, 469 (5th Cir. 1992). Our review is de novo,
applying the same standards as would the district court. Babcock v. Hartmarx
Corp., 182 F.3d 336, 338 (5th Cir. 1999).
In the Joint Stipulation, the parties agreed that if the RSUI Policy
incorporates the Primary Policy’s ACC Clause and Water Exclusion, “the total
of the losses in question in this case will not reach RSUI’s coverage layer, i.e.,
the covered losses will total less than $30 million, and thus ARM cannot recover
under the RSUI policy.” We address this threshold issue first and find that the
ACC Clause and Water Exclusion were incorporated by the RSUI Policy.
The parties agree that Texas law governs the interpretation of the
insurance policies. Under Texas law, the construction of an insurance policy is
a question of law. See State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433
(Tex. 1995). We apply the same rules to the interpretation of insurance policies
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as to any other contract, and “read all parts of each policy together and exercise
caution not to isolate particular sections or provisions from the contract as a
whole.” Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex.
2003). “We construe the policy to give effect to each term in the contract and to
avoid rendering any term a nullity.” Lynch Props., Inc. v. Potomac Ins. Co. of
Ill., 140 F.3d 622, 626 (5th Cir. 1998). Where the policy’s language “can be given
a definite or certain legal meaning, it is not ambiguous and we construe it as a
matter of law.” Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.
2003).
Two provisions in the RSUI Policy directly reference the Primary Policy
and expressly incorporate the Primary Policy’s coverage parameters. The first
is the “Insuring Clause,” which provides:
Subject to the limitations, terms and conditions contained in this
Policy or added hereto, [RSUI] agrees to indemnify [ARM] in respect
of direct physical loss or damage to the property . . . which are also
covered by and defined in the [Primary Policy].
The second is the “Maintenance of Primary Insurance” Clause (collectively with
the Insuring Clause, the Incorporating Clauses), which provides:
In respect of the perils hereby insured against, this Policy is subject
to the same warranties, terms and conditions . . . as are contained
in or as may be added to the [Primary Policy] prior to the happening
of a loss for which claim is made hereunder.
Together, the Incorporating Clauses provide that the RSUI Policy covers only
damage also covered by the Primary Policy and excludes any damage excluded
by the Primary Policy. The question, therefore, is whether combined wind-water
damage is covered by the Primary Policy’s ACC Clause or is excluded by the
Primary Policy’s Water Exclusion.
The Primary Policy’s ACC Clause provides:
We will not pay for loss or damage caused directly or indirectly by
any of the following. Such loss or damage is excluded regardless of
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any other cause or event that contributes concurrently or in any
sequence to the loss.
The Primary Policy’s Water Exclusion excludes from coverage certain water
damage as follows:
Water . . . Flood, surface water, waves, tides, tidal waves, overflow
of any body of water, or their spray, all whether driven by wind or
not.
The district court held that “the ACC clause, as it operates with the Water
Exclusion in the [Primary] Policy, does not relate to any peril insured in the
RSUI policy and thus is not a provision adopted by that policy.” We disagree.
Our case Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007)
(applying Mississippi law), considered virtually identical insurance policy
clauses as those presented in this case. In Leonard, we found that the ACC
Clause denied coverage “whenever an excluded peril and a covered peril combine
to damage” the insured property. Id. at 425. The language specifically
“addresses situations in which damage arises from the synergistic action of a
covered peril, e.g., wind, and an excluded peril, e.g., water.” Id. We held in
Leonard that
The clause unambiguously excludes coverage for water damage
‘even if another peril’—e.g., wind—‘contributed concurrently or in
any sequence to cause the loss.’ The plain language of the policy
leaves the district court no interpretive leeway to conclude that
recovery can be obtained for wind damage that ‘occurred
concurrently or in sequence with the excluded water damage.’ . . .
The clause is not ambiguous.
Id. at 430 (internal citation omitted).
The same situation is present in this case. Like Leonard, “[t]he only
species of damage covered under the [RSUI Policy] is damage caused exclusively
by wind. But [because] wind and water synergistically caused the same damage,
such damage is excluded.” Id. (emphasis in original); see Bilbe v. Belsom, 530
F.3d 314, 317 n.3 (5th Cir. 2008). The plain language of the ACC Clause and
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Water Exclusion, read together, exclude from coverage any damage caused by
a combination of wind and water. Thus, the combined wind-water damage at
issue here is a peril expressly excluded from coverage by the Primary Policy and
the ACC Clause and Water Exclusion are therefore expressly incorporated by the
RSUI Policy pursuant to the Incorporating Clauses.
Conclusion
We hold that, pursuant to the Joint Stipulation, ARM cannot prove
sufficient wind-only damage to reach RSUI’s insurance layer. Because we
resolve this threshold issue in favor of RSUI, we do not reach the remaining
issues raised on appeal. The district court order is REVERSED and the case is
REMANDED for further proceedings consistent with this opinion.
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DENNIS, Circuit Judge, dissenting.
The issue is whether the RSUI Excess Coverage Policy (the “Excess
Policy”) incorporates the Primary Policy’s anti-concurrent causation (ACC)
clause and Water Exclusion so as to exclude coverage of perils by the Excess
Policy to the same extent as they are excluded from coverage by the Primary
Policy. In my view, the Excess Policy is ambiguous in this respect and could be
reasonably interpreted either way. See Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124
S.W.3d 154, 157 (Tex. 2003) (insurance policy provisions are ambiguous where
they are “susceptible to two or more reasonable interpretations”). Because Texas
law requires courts to construe ambiguous policy provisions in favor of coverage
for the insured, see State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433
(Tex. 1995) (ambiguous terms must be construed “against the insurer in a
manner that favors coverage”), the majority’s interpretation in favor of the
insurance company and against coverage is incorrect.
The Primary Policy’s definition of “Covered Causes of Loss” and its
“Exclusions,” which include the ACC clause and the Water Exclusion provisions
are as follows:
A. Covered Causes Of Loss
. . . Covered Causes of Loss means Risks Of Direct Physical
Loss unless the loss is:
1. Excluded in Section B., Exclusions; or
2. Limited in Section C., Limitations;
that follow
....
B. Exclusions
1. We will not pay for loss or damage caused directly or
indirectly by any of the following. Such loss or damage
is excluded regardless of any other cause or event that
contributes concurrently or in any sequence to the loss.
....
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g. Water
(1) Flood, surface water, waves, tides, tidal waves,
overflow of any body of water, or their spray, all
whether driven by wind or not . . . .
I agree with the majority that “[t]he plain language of the [Primary
Policy’s] ACC Clause and Water Exclusion, read together, exclude from coverage
[under the Primary Policy] any damage caused by a combination of wind and
water.” Majority Op. at 5-6. Our decision in Leonard v. Nationwide Mut. Ins.
Co., 499 F.3d 419 (5th Cir. 2007), so held. However, I disagree with the
majority’s subsequent conclusion that the only reasonable interpretation of the
Excess Policy is that it incorporates the Primary Policy’s coverage exclusions.
The relevant provisions of the Excess Policy are the Insuring Clause and
the Maintenance of Primary Insurance clause—what the majority calls “the
Incorporating Clauses”—as well as the “Perils Covered” clause:
3. Perils Covered: A ll R isk [s] E xcluding F lood and
Earthquake[.]
....
INSURING CLAUSE:
Subject to the limitations, terms and conditions contained in this
Policy or added hereto, [RSUI] agrees to indemnify [ARM] in respect
of direct physical loss or damage to the [covered] property . . . caused
by any such perils as are set forth in Item 3 of the schedule, and
which are also covered by and defined in the [Primary Policy].
....
MAINTENANCE OF PRIMARY INSURANCE
In respect of the perils hereby insured against, this Policy is subject
to the same warranties, terms and conditions . . . as are contained
in or as may be added to the [Primary Policy] prior to the happening
of a loss for which claim is made hereunder . . . .
These three provisions of the Excess Policy are patently ambiguous. They
can be reasonably read to provide coverage only to the same extent as provided
for in the Primary Policy. They can also reasonably be read to provide coverage
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for all perils except flood and earthquake. Under this reasonable interpretation,
the Excess Policy does not incorporate the Primary Policy’s ACC clause and
Water Exclusion because they are exclusions from coverage, not covered perils,
and are related to flood, which is not a peril covered by the Excess Policy.1
The majority, however, reads the ambiguous Excess Policy in only one
way: against coverage and in favor of the insurance company. In this diversity
case, Texas law requires that this ambiguity be resolved in favor of coverage and
the insured. For these reasons, I respectfully dissent.
1
This latter interpretation is supported by our decision in Wentwood Woodside I, LP
v. GMAC Commercial Mortgage Corp., 419 F.3d 310 (5th Cir. 2005), where we confronted a
very similar multilayer insurance scheme, with a nearly identical Maintenance of Primary
Insurance provision in the top-layer insurance policy. Id. at 312-13, 315. Flood was not a
covered peril in the excess insurance policy, and we read the provision in the excess insurance
policy that incorporated the terms of the primary policy “[i]n respect of the perils hereby
insured against” to preclude incorporation of an Errors and Omissions clause with respect to
flood damage because flood was not a covered peril. Id. at 315-16. Here, exactly the same
reasoning leads to the reasonable interpretation of the Excess Policy that it does not
incorporate the Primary Policy’s ACC and Water Exclusion clauses because they are terms
relating to flood, a peril that is not covered by the Excess Policy.
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