Opinion issued October 29, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00677-CV
———————————
PETER TSAI AND BARBARA TSAI, Appellants
V.
LIBERTY MUTUAL INSURANCE COMPANY, Appellee
On Appeal from the 269th District Court
Harris County, Texas
Trial Court Case No. 2013-61457-A
MEMORADUM OPINION
This appeal arises from an insurance-coverage dispute between Liberty
Mutual Insurance Company and its insureds, Peter Tsai and Barbara Tsai,
involving the applicability of a water-damage exclusion in an all-risk homeowner’s
policy. Each side filed a motion for summary judgment. The trial court denied the
Tsai’s motion, granted Liberty Mutual’s motion, and rendered final judgment in
Liberty Mutual’s favor. In five issues on appeal, the Tsais contend that the trial
court erred in denying them summary judgment and in granting summary judgment
to Liberty Mutual.
We affirm.
Background
The facts underlying this case are undisputed. In 2006, the Tsais purchased
their home in a residential gated community. The house is a three-level, wood-
frame structure, constructed with a concrete slab-on-grade foundation. The
exterior of the dwelling is a combination of conventional stucco cladding and stone
veneer. The perimeter of the home has a combination of pavers, planters, and
grass.
In March of 2012, the Tsais noticed what they later described as “ridges” on
the wood floors in the living room of their home. By August 2012, the damage
had spread across the living room, and the wood flooring was separating.
The Tsais made a claim with Liberty Mutual under their homeowners’
policy regarding the damage to their wood floors. Liberty Mutual began an
investigation to determine the source and the cause of the damage. Liberty Mutual
first eliminated a plumbing leak as the cause of the damage. Liberty Mutual
retained HSA Engineers & Scientists (“HSA”) to evaluate the Tsais’s home and to
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uncover “the cause and extent of water ingress,” which had resulted in the flooring
damage.
Following its evaluation of the Tsais’s home, HSA prepared a report of its
findings, signed by two professional engineers. Both Liberty Mutual and the Tsais
agree with the findings in the HSA report.
HSA observed that the wood flooring in the Tsais’ living room “displayed
an uneven appearance where the edges on the top of the board were higher than the
top of the center of the boards, which is commonly referred to as a ‘cupped’
condition.” The report states,
There was evidence that the cupped appearance of the boards was
reasonably attributed to moisture migrating under the wood floor from
the planter at the north edge/perimeter of the Tsai property . . ., which
. . . did not feature detailing for drainage, was near the same elevation
as the top of the first level wood floor, and was higher than the
foundation slab of the Tsais’ residence.
The report provides a description of the home’s wood floors, including the
following:
The wood floor had been elevated above the foundation slab
surface utilizing a screed system, and measurements indicated that the
distance between the top of the wood floor boards and the foundation
slab surface measured on the order of 2–1/2 inches. These
measurements are consistent with a one-inch thick wood floor board
installed over a 1–1/2 [inch] thick screen member. . . . There was no
ready access below the first level wood floor.
The report continues, “Mr. Tsai stated that the first one to two feet of land
north of the edge/perimeter of the Tsai foundation are part of the land parcel
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owned by the Tsai family. However, Mr. Tsai stated that adjacent landowners
commonly are allowed to use/modify this strip of land.” The Tsais informed HSA
that in 2007 their neighbors to the north “installed a swimming pool, concrete patio
areas, and gravel planters in areas of the north neighbors’ yard, and a planter with
shrubs were installed in the strip of land along the north edge/perimeter of the Tsai
residence.”
The report also provides,
Mr. Tsai stated that the previous north neighbor (original owner in
2006 per HCAD) did not reportedly water the shrubs and the planter
significantly. However, the more recent north neighbor (purchased
the dwelling in February 2010 per HCAD) reportedly watered
significantly . . . . The planter that lined the north edge/perimeter of
the Tsai foundation featured a watering system, but it was not clear
when this watering system was installed.
The report further describes the planter located on the north side of the
house:
The north edge/perimeter of the Tsai residence foundation had been
lined with a planter that featured shrubs set in a mulch base. The
planter was edged with metal that extended above the level of the
mulch to separate the planter from the adjacent concrete patio.
Relative elevations of the concrete patio revealed a general slope
down from the northwest to the southeast, and there were consistently
lower elevations at the south edge of the patio (near the Tsai
residence) compared to the north edge of the patio (near the north
neighbor dwelling). Elevations of the planter revealed that the top of
the mulch was between 0.76 feet and 0.85 feet, which is similar or
higher than the top of the finished wood floor at the interior of the
Tsai residence adjacent to this area (about 0.79 feet to 0.81 feet along
the north edge of the living room). The top of the continuous metal
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edging also measured between around 0.78 feet for the west half of
the planter and tapered down to about 0.66 feet. . . . .
The report explained HSA’s findings more specifically, as follows:
HSA’s investigation reasonably correlated the detailing along the
north edge/perimeter of the dwelling as a source of moisture migration
below the wood floor of the Tsai residence. Relative elevations and
visual observations revealed that the planter, which lined the north
edge/perimeter of the foundation . . ., was built up to a level near the
same height as the top of the finished wood floor at the interior of the
Tsai residence . . . . The top of the continuous metal edging that lined
the north edge of this planter also was at a similar elevation as the top
of the wood floor at the interior. Thus, the top of the foundation,
which is nominally 2-1/2 inches below this level, was below the top of
the planter that lined the north edge/perimeter of the foundation.
There were no alternative means of drainage observed in this planter
(surface drains, French drains, etc.), thus, water that drains into the
planter can travel the path of least resistance for drainage. The path of
least resistance, here, is for water to seep between the top of the
foundation and the sill plate and migrate to the lower interior area
below the wood floor of the Tsai residence. . . .
HSA understands that this condition has progressed recently to the
owners’ surprise. HSA understands that the north neighbor purchased
the dwelling in February 2010. Soon after that time[,] the greater
Houston, Texas area experienced an extended and extensive drought.
Thus, the supplemented moisture applied to the shrubs during
watering at this time was not sufficient to build to a sufficient level (as
a result of the lack of drainage in the planter) to overwhelm the
detailing and migrate below the first level wood floor. HSA also
understands that the previous owner did not water significantly and
that the pool/patio construction was not completed until 2007. Thus,
the return of rainfall to the Houston, Texas area in late 2011 and early
2012, the drainage of the north patio/planter, watering of shrubs in the
north planter, and the detailing of this area resulted in a combination
of factors sufficient to result in moisture migration/accumulation
below the first level wood floor of the Tsai residence.
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In sum, HSA concluded that the cupped appearance in the wood floors was caused
by water migration from the planter to underneath the flooring.
Based on the HSA’s investigation, Liberty mutual denied the Tsais’
homeowners’ policy claim. Liberty Mutual’s denial letter stated, “Based on the
results of the [HSA] engineer’s report, we are unable to assist you with your
homeowner’s claim. Unfortunately, the policy does not cover damages resulting
from surface water entering the home at ground level.” Liberty Mutual referred
the Tsais to language in the insurance policy that excluded coverage for “water
damage,” including damage from “surface waters.”
The Tsais disagreed with Liberty Mutual’s denial of coverage based on the
water-damage exclusion. The Tsais sued Liberty Mutual and the neighbor, who
had installed the planter. The Tsais asserted that Liberty Mutual had breached the
insurance contract and had engaged in deceptive trade practices.
Liberty Mutual answered the suit and filed a traditional motion for summary
judgment. In the motion, Liberty Mutual argued that it had not breached the
insurance contract as a matter of law because the Tsais’ claim was not covered by
the policy. Liberty Mutual asserted that the claim fell within the policy’s water
damage exclusion. Liberty Mutual also claimed it was entitled to summary
judgment regarding the Tsais’ extra-contractual claims. In support of its motion,
Liberty Mutual offered the homeowner’s policy and the HSA report.
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The Tsais responded to Liberty Mutual’s motion for summary judgment and
also filed their own motion for partial summary judgment. The Tsais asserted that
their claim did not fall within the policy’s water-damage exclusion, as a matter of
law. Alternatively, the Tsais asserted that their reasonable interpretation of the
exclusionary language must be adopted because the exclusionary language is
ambiguous. The trial court signed two orders: one order denying the Tsais’ motion
for partial summary judgment and one order granting Liberty Mutual’s motion for
summary judgment. The trial court then severed the Tsais’ claims against their
neighbor, rendering a final judgment against the Tsais’ claims in favor of Liberty
Mutual.
This appeal followed. The Tsais identify five intertwined issues. With
respect to their breach of contract claim, they aver that the trial court erred in
rendering summary judgment for Liberty Mutual and in denying their motion for
summary judgment. The Tsais assert that their homeowner’s claim for the
damaged wood flooring did not fall within the policy’s water-damage exclusion, as
Liberty Mutual maintains.
Summary Judgment
A. Standard of Review
The well-settled principles governing the review of summary judgments
apply in insurance coverage cases. Hanson v. Republic Ins. Co., 5 S.W.3d 324,
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327 (Tex. App.—Houston [1st Dist.] 1999, pet. denied). We review a grant of
summary judgment de novo. SeaBright Ins. Co. v. Lopez, 465 S.W.3d 637, 641
(Tex. 2015) (citing State v. Ninety Thousand Two Hundred Thirty–Five Dollars &
No Cents in U.S. Currency ($90,235), 390 S.W.3d 289, 292 (Tex. 2013)). A party
moving for traditional summary judgment has the burden to prove that there is no
genuine issue of material fact and that it is entitled to judgment as a matter of law.
TEX. R. CIV. P. 166a(c); SeaBright Ins. Co., 465 S.W.3d at 641 (citing Mann
Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.
2009)).
We review summary judgment evidence “in the light most favorable to the
party against whom the summary judgment was rendered, crediting evidence
favorable to that party if reasonable jurors could, and disregarding contrary
evidence unless reasonable jurors could not.” SeaBright Ins. Co., 465 S.W.3d at
641 (citing Mann Frankfort Stein & Lipp Advisors, Inc., 289 S.W.3d at 848).
When, as here, both sides move for summary judgment and the trial court grants
one motion and denies the other, we review the summary judgment evidence
presented by both sides, determine all questions presented, and render the
judgment the trial court should have rendered. Id. at 641–42 (citing Comm’rs
Court of Titus Cty. v. Agan, 940 S.W.2d 77, 81 (Tex. 1997)). Each party filing a
motion for summary judgment must carry its burden; neither party may prevail
8
because the other failed to discharge its own burden. Pratt v. Amrex, Inc., 354
S.W.3d 502, 505 (Tex. App.—San Antonio 2011, pet. denied).
B. Analysis
In the all-risk homeowner’s policy issued to the Tsais, the relevant
provisions are as follows:
SECTION I – PERILS INSURED AGAINST
A. Coverage A –Dwelling And Coverage B –Other Structures
1. We insure against risk of direct physical loss to property
described in Coverages A and B.1
2. We do not insure, however, for loss:
a. Excluded under Section I –Exclusions;
....
SECTION I –EXCLUSIONS
A. We do not insure for loss caused directly or indirectly by any of
the following. Such loss is excluded regardless of any other cause or
event contributing concurrently or in any sequence to the loss.
....
3. Water Damage
Water Damage means:
a. Flood, surface water, waves, tidal water, overflow of a
body of water, or spray from any of these, whether or not
driven by wind;
....
1
Here, the Tsais’s home was covered property as a dwelling under Coverage A.
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c. Water or water-borne material below the surface of the
ground, including water which exerts pressure on or seeps or
leaks through a building . . . .
caused by or resulting from human or animal forces or any act of
nature.
The Tsais are quick to point out that this is an all-risk policy. All-risk
insurance covers any peril not specifically excluded in the policy. ECF N. Ridge
Assocs., L.P. v. ORIX Capital Mkts., L.L.C., 336 S.W.3d 400, 403 (Tex. App.—
Dallas 2011, pet. denied). Liberty Mutual asserts, however, that the peril in this
case was expressly excluded in the policy. Throughout the summary-judgment
proceedings and on appeal, Liberty Mutual has maintained that the Tsais’ loss was
caused by either “surface water” or by water “below the surface of the ground,” as
those terms are used in water-damage exclusion.
The Tsais claim that Liberty Mutual’s denial of coverage constitutes breach
of contract; that is, a breach of the insurance policy. 2 As they did in the trial court,
the Tsais assert that their loss was not caused by surface water or water below the
surface of the ground; rather, it was caused by “generic water.” In other words, the
2
To prevail on a breach of contract claim, a plaintiff must show (1) the existence of
a valid contract; (2) performance or tendered performance by the plaintiff; (3)
breach of the contract by the defendant; and (4) damages sustained as a result of
the breach. B & W Supply, Inc. v. Beckman, 305 S.W.3d 10, 16 (Tex. App.—
Houston [1st Dist.] 2009, pet. denied) (citing Valero Mktg. & Supply Co. v.
Kalama Int’l, 51 S.W.3d 345, 351 (Tex. App.—Houston [1st Dist.] 2001, no
pet.)). Here, the element at the center of the dispute is whether Liberty Mutual
breached the insurance contract by improperly denying coverage.
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Tsais contend that the damage was not caused by a type of water identified within
the water-damage exclusion. For this reason, they assert that the damage to their
floors is a covered, non-excluded loss under the policy. The Tsais claim that, at a
minimum, the exclusionary language is latently ambiguous when viewed in the
context of the undisputed findings presented in the HSA report.
To determine who is correct in this case, we interpret the Tsais’
homeowners’ policy according to the rules of contract construction. See Am. Mfrs.
Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003); Balandran v. Safeco
Ins. Co. of Am., 972 S.W.2d 738, 740–41 (Tex. 1998). Our primary goal,
therefore, is to give effect to the written expression of the parties’ intent. State
Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995). To this end, we
construe the terms of the contract as a whole and consider all of its terms, not in
isolation, but within the context of the contract. Id.; Forbau v. Aetna Life Ins. Co.,
876 S.W.2d 132, 133–34 (Tex. 1994). In construing an insurance contract, its
terms are given their “ordinary and generally accepted meaning.” Sec. Mut. Cas.
Co. v. Johnson, 584 S.W.2d 703, 704 (Tex. 1979).
If a policy provision has only one reasonable interpretation, it is
unambiguous and we must construe it as a matter of law. Fiess v. State Farm
Lloyds, 202 S.W.3d 744, 746 (Tex. 2006). If an exclusion has more than one
reasonable interpretation, we must construe it in favor of the insured as long as that
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construction is not unreasonable. Id. A policy provision is not ambiguous merely
because different parties or different courts have interpreted it differently. Id.
An ambiguity in a contract generally will fall into one of two categories:
“patent” or “latent.” “A patent ambiguity is evident on the face of the contract.”
Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).
“A latent ambiguity arises when a contract which is unambiguous on its face is
applied to the subject matter with which it deals and an ambiguity appears by
reason of some collateral matter.” Id.
Because it is dispositive, we begin by discussing the language within the
water-damage exclusion that states losses caused by “surface water” are not
covered under the policy. The Tsais do not argue that the term “surface water” is
patently ambiguous. Instead, the Tsais indicate that exclusionary language
becomes latently ambiguous when viewed in the context of HSA’s undisputed
determination that the loss was caused when water migrated from the neighbor’s
planter to underneath their hardwood floors. We do not agree with the Tsais that
“surface water” is latently ambiguous. As discussed below, there is only one
reasonable conclusion in this case: surface water caused the Tsais’ loss.
In the insurance context, surface water has been “defined as water or natural
precipitation diffused over the surface of the ground until it either evaporates, is
absorbed by the land, or reaches channels where water naturally flows.” State
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Farm Lloyds v. Marchetti, 962 S.W.2d 58, 61 (Tex. App.—Houston [1st Dist.]
1997, pet. denied) (citing Transamerica Ins. Co. v. Raffkind, 521 S.W.2d 935, 939
(Tex. Civ. App.—Amarillo 1975, no writ); Emp’rs’ Fire Ins. Co. v. Howsley, 432
S.W.2d 578, 580 (Tex. Civ. App.—Amarillo 1968, no writ)); see also Valley Forge
Insurance Co. v. Hicks Thomas & Lilienstern, L.L.P.,174 S.W.3d 254, 258 (Tex.
App.—Houston [1st Dist.] 2004, pet. denied) (“Surface water is generally defined
as that which is derived from falling rain . . . and is diffused over the surface of the
ground. . . .”); Sun Underwriters Ins. Co. of N.Y. v. Bunkley, 233 S.W.2d 153, 155
(Tex. Civ. App.—Fort Worth 1950, writ ref’d) (explaining surface water generally
defined as derived from falling rain or melting snow and diffused over surface of
ground, following no defined course or channel, not gathered into natural body of
water, and lost by evaporation, percolation, or natural drainage).
The water that migrated under the Tsais’ flooring derived from rain and
sprinkler water that had fallen onto the surface of the planter. After falling on the
planter’s surface, the water did not follow a defined path or channel. Instead, it
passed freely, moving through the upper two to three inches of mulch, a
manufactured product commonly placed over the soil of flower beds. As
referenced in the HSA report, it was not until the planter was “overwhelmed” with
water that it migrated under the floors, which were at or slightly below the
elevation of the mulch. That is, the water that entered the home was either water
13
that had pooled and collected within the surface layer of the mulch before being
released, or it was newly introduced water that served as the tipping point to
release water from the saturated mulch. The water that reached the Tsais’ home
was not absorbed “by land.” Given these characteristics, the water that migrated
under the Tsais’ flooring was surface water, as defined by the cases cited supra.
The Tsais cite three reasons why the water was not surface water: (1) the
water was not “natural precipitation”; (2) the water was not diffused over the
surface of the ground; and (3) alternatively, presuming it was surface water, it lost
its character as surface when “it was absorbed by the mulch in the flower bed and
drained into the Tsais’ house.”
We begin by addressing the Tsais’ assertion that the water was not “surface
water” because it was not natural precipitation. Although acknowledging that
rainwater contributed to the water damage, the Tsais aver that the primary source
of the water that damaged their floors came from the sprinkler system and not from
natural precipitation. The Tsais’ argument, however, is not supported by the HSA
report or by the policy language.
The HSA report indicates that the sprinkler water from the planter did not
migrate from the planter to underneath the flooring until the drought ended and
rainfall returned. This shows that natural-occurring rainwater was a causative
factor of the loss in this case. Importantly, the exclusion involved in this case
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contains the following lead-in clause: “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 contributed concurrently or in any
sequence to the loss.” This provision serves to preclude coverage under the policy
when a claimed loss is caused by a combination of covered and excluded perils.
Thus, the fact that sprinkler water “contributed concurrently or in any sequence to
the loss” along with the rainwater does not remove the Tsais’ claimed loss from the
exclusion. Cf. Valley Forge, 174 S.W.3d at 259 (noting that surface-water
exclusion applied, even though surface water had flowed into underground man-
made tunnels, because exclusion contained lead-in clause).
In addition, as Liberty Mutual points out, the exclusionary language does not
require surface water to be “natural precipitation.” To contrary, the exclusion
applies when the water damage is “caused by or resulting from human or animal
forces or any act of nature.” In other words, the exclusion is not limited to
naturally-occurring precipitation, as the Tsais claim.
The Tsais also assert that the water was not surface water because it was not
“diffused and flowing over the surface of the ground when it infiltrated” their
home. In this regard, Crocker v. American National General Insurance Co. is
instructive. 211 S.W.3d 928, 936 (Tex. App.—Dallas 2007, no pet.). There, the
court determined whether the meaning of “surface water,” as used in an exclusion
15
in a homeowner’s policy, reasonably included rain water that had collected on the
surface of a raised patio before flowing into the insured’s home. Id. The court
concluded that “an average reasonable person would not limit surface water to rain
falling only on dirt and not on any paved surfaces or other structures.” Id.
In Valley Forge, we determined that water which flowed from the surface
through pedestrian tunnels and other manmade structures before flooding the
insured’s premises did not lose its character as surface water. See Valley Forge,
174 S.W.3d at 258. We explained, “Surface water is generally defined as that
which is derived from falling rain . . . and is diffused over the surface of the
ground. . . . Such waters are not divested of their character as surface waters by
reason of their flowing from the land on which they first make their appearance
onto lower land in obedience to the law of gravity.” Id. (citing Bunkley, 233
S.W.2d at 155). We held that the insured’s claim was excluded under a surface-
water exclusion, similar to the one in this case. Id. at 258–59.
Applying the reasoning employed in Crocker and Valley Forge, the water
that flowed through the mulch—like water flowing over or through a manmade
structure—did not lose its character as surface water. The bare fact that the water
migrated from the planter to the Tsais’ home did not change its essential character
as surface water.
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The Tsais alternatively assert that, even if the water was surface water, it lost
its character as such when it was “absorbed by the mulch in the flower bed and
drained into the Tsais’ house.” As noted, the exclusion has a lead-in clause stating
that water damage from surface water is excluded if the loss was caused directly or
indirectly by surface water. Thus, whether the loss was caused directly by surface
water once the mulch had reached its saturation point or whether it was caused by
water released by the mulch once other surface water drained into the planter, the
loss would be either directly or indirectly caused by surface water.
We conclude that the Tsais’ loss was caused by surface water. Accordingly,
the loss was excluded under the terms of the policy. We hold that the trial court
properly granted Liberty Mutual’s motion for summary judgment and properly
denied that of the Tsais.
We overrule the Tsais’ issues relevant to determining whether the water was
surface water and whether the trial court properly ruled on the motions for
summary judgment. 3
3
Because the surface-water issues are dispositive, we do not reach the Tsais’ third
issue, which discusses the exclusionary language precluding coverage for a loss
caused by water below the ground.
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Conclusion
We affirm the judgment of the trial court.4
Laura Carter Higley
Justice
Panel consists of Justices Jennings, Higley, and Brown.
4
The Tsais did not specifically address on appeal the trial court’s grant of summary
against them on their extra-contractual claims. However, when insurance
coverage is resolved in the insurer’s favor, extra-contractual claims, including
DTPA claims, do not survive. State Farm Lloyds v. Page, 315 S.W.3d 525, 532
(Tex. 2010).
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