John Davis D/B/A J.D. House of Style v. National Lloyds Insurance Company

ACCEPTED
01-14-00278-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
12/21/2015 12:54:32 PM
CHRISTOPHER PRINE
CLERK

NO. 01-14-00278-CV
FILED IN
1st COURT OF APPEALS
HOUSTON, TEXAS
IN THE FIRST COURT OF APPEALS OF TEXAS
12/21/2015 12:54:32 PM
CHRISTOPHER A. PRINE
Clerk

JOHN DAVIS d/b/a J.D. HOUSE OF STYLE
v.

NATIONAL LLOYDS INSURANCE COMPANY

On Appeal from the 281st Judicial District Court
Harris County, Texas, Cause No. 2010-58199

RESPONSE TO
MOTION FOR REHEARING

Scott A. Brister - SBN 00000024 Scot G. Doyen – SBN 00792982
ANDREWS KURTH LLP Alasdair Roberts – SBN 24068541
111 Congress Ave., Suite 1700 DOYEN SEBESTA, LTD., L.L.P.
Austin, Texas 78701 450 Gears Road, Suite 350
phone: (512) 320-9200 Houston, Texas 77067
Fax: (512) 320-9292 Phone: (713) 580-8900
sbrister@andrewskurth.com Fax: (713) 580-8910

ATTORNEYS FOR APPELLEE
NATIONAL LLOYDS INSURANCE COMPANY

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 TABLE OF CONTENTS

Argument ............................................................................. 1

I. “(X)” was unambiguously an instruction ....................... 1

II. The damages for repairs related to a different policy .... 4

III. No breach means no extra-contractual claims ............... 6

Conclusion .......................................................................... 12

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 INDEX OF AUTHORITIES
Page(s)

Cases

In re Allstate Cnty. Mut. Ins. Co.,
447 S.W.3d 497 (Tex. App.—Houston [1st Dist.] 2014,
orig. proceeding) ..................................................................................9, 10

Chrysler Ins. Co. v. Greenspoint Dodge of Houston, Inc.,
297 S.W.3d 248 (Tex. 2009)........................................................................9

CMA-CGM (Am.) Inc. v. Empire Truck Lines Inc.,
285 S.W.3d 9 (Tex. App.—Houston [1st Dist.] 2008, no
pet.)...............................................................................................................6

Elledge v. Friberg-Cooper Water Supply Corp.,
240 S.W.3d 869 (Tex. 2007)........................................................................8

Geodyne Energy Income Prod. P'ship I-E v. Newton Corp.,
161 S.W.3d 482 (Tex. 2005)........................................................................3

Isaacs v. Plains Transp. Co.,
367 S.W.2d 152 (Tex. 1963)........................................................................4

JAW The Pointe, L.L.C., v. Lexington Ins. Co.,
460 S.W.3d 597 (Tex. 2015)........................................................................9

In re K.M.S.,
91 S.W.3d 331 (Tex. 2002)..........................................................................8

Kachina Pipeline Co., Inc. v. Lillis,
471 S.W.3d 445 (Tex. 2015)........................................................................3

Liberty Nat’l Fire Ins. Co. v. Akin,
927 S.W.2d 627 (Tex. 1996)........................................................................9

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Provident Am. Ins. Co. v. Castañeda,
988 S.W.2d 189 (Tex. 1998)......................................................................12

Republic Ins. Co. v. Stoker,
903 S.W.2d 338 (Tex. 1995)..................................................................8, 10

State Farm Lloyds v. Page,
315 S.W.3d 525 (Tex. 2010)........................................................................8

Transp. Ins. Co. v. Moriel,
879 S.W.2d 10 (Tex. 1994)..........................................................................9

Other Authorities

BLACK’S LAW DICTIONARY 1700 (10th ed. 2014) ...........................................3

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 ARGUMENT
There is no good reason to reconsider whether a pre-printed

“(X)” as an instruction on an insurance policy made the policy

ambiguous. There is no good reason to reconsider a jury finding on

repairs based on the assumption this was a Replacement Cost Value

(RCV) policy when the Court has affirmed it was an Actual Cash

Value (ACV) policy. And there is no good reason to encourage an

insured to seek extra-contractual damages after the contract claim he

pursued for five years is dismissed as groundless. National Lloyds

respectfully urges the Court to deny Davis’s motion for rehearing.

I. “(X)” was unambiguously an instruction
Davis’s first complaint is that this Court “is just preferring one

page over another” in an ambiguous policy. The parties’ briefs have

already covered this issue thoroughly.

“(X)” and several other pre-printed instructions appear

repeatedly on the declarations page of Davis’ policy (6ARR8). In the

Optional Coverages section, the instruction “(Percentage)” appears

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next to Inflation Guard, the instruction “(Fraction)” next to Monthly

Limit of Indemnity, the instruction “(Days)” next to Extended Period

of Indemnity, and the instruction “(X)” next to both Replacement Cost

and Maximum Period of Indemnity:

Davis is correct that each of these “has to mean something”:

• “(Percentage)” means the Inflation Guard provision must
state a percentage;

• “(Fraction)” means the Monthly Limit of Indemnity must state
a fraction;

• “(Days)” means the Extended Period of Indemnity must state
the number of days extended; and

• “(X)” means an X must be placed under Replacement Cost
and Maximum Period of Indemnity if those items apply.

The instructions for the first three of these items allowed a range of

options, but Replacement Cost and the Maximum Period of Indemnity

were binary options: an insured either bought and paid for them or

did not. Mr. Davis did not.

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 Davis says the Court should have considered evidence of

industry practice in interpreting this policy. But “(X)” is not a term of

art, 1 and there is no evidence it has a special meaning by custom and

usage in the insurance industry. Since it is clearly used here as an

instruction, extrinsic evidence of industry custom cannot change that. 2

Nor does Kevin Mohr’s testimony require the Court to find this

policy ambiguous. Witnesses do not decide whether there are two

reasonable interpretations of a contract; courts do. 3 If the rule were

otherwise, parties could create ambiguity merely by hiring an expert

to say so. Mr. Mohr was designated by National Lloyds to appraise

property damage and coverage on Davis’s property (CR33), but his

1 See BLACK’S LAW DICTIONARY 1700 (10th ed. 2014) (“A word or phrase
having a specific, precise meaning in a given specialty, apart from its general
meaning in ordinary contexts.”).
2 See Kachina Pipeline Co., Inc. v. Lillis, 471 S.W.3d 445, 454 (Tex. 2015)
(“[I]ndustry custom cannot impose obligations beyond those within the written
Agreement.”).
3 See Geodyne Energy Income Prod. P'ship I-E v. Newton Corp., 161 S.W.3d 482,
490-91 (Tex. 2005) (holding that a contract provision “is not ambiguous, and thus
did not need to be submitted to the jury.”).

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opinions about whether it was ambiguous and how it should be

construed are not binding on this Court. 4

II. The damages for repairs related to a different policy
Next, Davis argues that even if National Lloyds owed nothing

on his policy, it must pay him $17,200 for repairs because “repair

damages are separate and apart from diminished property value.”

Neither the evidence nor the policy supports this claim.

The jurors were not told whether the policy was ACV or RCV,

and their answer for repairs was not specific to either. But the

evidence clearly was; as this Court stated in its opinion: “Davis

presented no evidence of the depreciated value of his roof, nor did he

provide any evidence segregating the cost of repairs[.]” See Opinion at

25. National Lloyds presented the only evidence of repairs needed to

restore the roof to its depreciated condition, and that evidence showed it

was less than the policy’s deductible (2RR94-96; 6ARR166). Thus, the

4 See Isaacs v. Plains Transp. Co., 367 S.W.2d 152, 153 (Tex. 1963) (holding truck
driver’s statements that he was at fault “were pure conclusions and opinions, were
not offered for impeachment, and were not admissible against the employer[.]”).

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jury’s answer could not have reflected the cost of restoring the roof to

its depreciated roof (per ACV coverage), but only of restoring a brand-

new roof (per RCV coverage). This Court having concluded this was

an ACV policy, the jury’s answer regarding and RCV policy had to be

disregarded.

National Lloyds had no duty to pay for damages or repairs

beyond its policy. In the policy, National Lloyds promised to pay “at

our option” either (1) the value of damaged property or (2) the cost of

repairing it. 5 The policy also provided that: “If the adjusted amount of

loss is less than or equal to the Deductible, we will not pay for that

loss.” 6 Since National Lloyds could select whether to pay for damages

or repairs “at our option,” and the damages were below the

deductible, National Lloyds could select that option and pay nothing.

So even if had Davis presented evidence of repair expenses incurred to

5 See 6CRR138, ¶¶ 1(a)(1)-(2)(“In the event of loss or damage covered by this
Coverage Form, at our option, we will either: (1) Pay either the value of lost or
damaged property; [or] (2) Pay the cost of repairing or replacing the lost or
damaged property, subject to b. below[.]”)).
6 See 6CRR137, ¶ D; 6CRR173 ¶ A(2).

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return the roof to its depreciated condition (which he did not), he could

not avoid the policy’s deductible by making repairs himself.7

III. No breach means no extra-contractual claims
Davis’s final argument is that the Court should reverse and

award him policy benefits based on his extra-contractual claims even if

National Lloyds properly denied his claim. This argument is raised for

the first time on rehearing. “As a general rule, we do not address new

arguments presented in a rehearing.” CMA-CGM (Am.) Inc. v. Empire

Truck Lines Inc., 285 S.W.3d 9, 18 (Tex. App.—Houston [1st Dist.] 2008,

no pet.). Davis had the chance to make this argument earlier, because

National Lloyds argued that disposing of Davis’s policy claims “also

disposes of Davis’s extra-contractual claims.” 8 Davis did not respond

to that argument,9 so it comes too late now.

7 See also 6CRR144 (providing that Covered Property will be valued in the
event of loss at “actual cash value”).
8 See Appellee’s Br. at 22 (citing State Farm Lloyds v. Page, 315 S.W.3d 525, 532
(Tex. 2010)).
9 See Reply Br. of Appellant at 9-11.

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 In any event, this argument is based entirely on a single case

from the Thirteenth Court of Appeals — one that is likely to be

reversed soon. In USAA Texas Lloyd's Co. v. Menchaca, the Corpus

Christi court held in a memorandum opinion that extra-contractual

claims were extinguished by a finding of no coverage, but not by a

finding of no breach due to a deductible. 10 USAA has petitioned for

review (represented by former Chief Justice Wallace Jefferson), and

the Texas Supreme Court ordered full briefing on May 1, 2015.11

Menchaca is neither binding nor persuasive for several reasons.

First, Davis’s policy treats the deductible as part of coverage, not

independent of it. The first sentence of the Commercial Property form

here stated: “Various provisions in this policy restrict coverage. Read

the entire policy carefully to determine rights, duties and what is and is

not covered.” (6CRR131 (emphasis added)). Thus, a reader looking at

what the policy covers must look at both of the following clauses:

10 See No. 13-13-00046-CV, 2014 WL 3804602 (Tex. App.—Corpus Christi July
31, 2014, pet. filed).
11 See http://www.search.txcourts.gov/Case.aspx?cn=14-0721&coa=cossup.

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 • “A. Coverage. We will pay for direct physical loss of or
damage to Covered Property at the premises described[.]”
(6CR131); and

• “D. Deductible … If the adjusted amount of loss is less than or
equal to the Deductible, we will not pay for that loss.”
(6CR137).

To determine “what is and is not covered,” one cannot disregard the

clause that provides “we will not pay” claims below the deductible.

Thus, this was a coverage dispute according to this policy, so the

Corpus Christi court’s distinction does not apply.

Second, the Menchaca court picked a few Supreme Court

opinions and ignored others, which courts of appeals cannot do.12

Some Supreme Court opinions say that “[w]hen the issue of coverage is

resolved in the insurer’s favor, extra-contractual claims do not

survive.”13 But plenty of others say that when the insurer did not

breach the contract, extra-contractual claims do not survive:

12 See, e.g., Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 870
(Tex. 2007); In re K.M.S., 91 S.W.3d 331, 331 (Tex. 2002).
13 State Farm Lloyds v. Page, 315 S.W.3d 525, 532 (Tex. 2010) (emphasis added);
see also Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995) (“As a general
rule there can be no claim for bad faith when an insurer has promptly denied a
claim that is in fact not covered.”).

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 • “[I]n most circumstances, an insured may not prevail on a
bad faith claim without first showing that the insurer
breached the contract.” Liberty Nat’l Fire Ins. Co. v. Akin, 927
S.W.2d 627, 629 (Tex. 1996) (emphasis added)).

• “Having concluded that Chrysler did not breach the insurance
contract, no basis supports these [extra-contractual]
awards.” Chrysler Ins. Co. v. Greenspoint Dodge of Houston,
Inc., 297 S.W.3d 248, 254 (Tex. 2009)

• “An insurer generally cannot be liable for failing to settle or
investigate a claim that it has no contractual duty to pay.” In
re Allstate Cnty. Mut. Ins. Co., 447 S.W.3d 497, 501 (Tex.
App.—Houston [1st Dist.] 2014, orig. proceeding) (emphasis
added).

• “The threshold of bad faith is reached when a breach of
contract is accompanied by an independent tort.” Transp. Ins.
Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994).

• “[T]he policy[] … excluded coverage for JAW’s losses, and
JAW therefore cannot recover against Lexington on its
statutory bad faith claims.” JAW The Pointe, L.L.C., v.
Lexington Ins. Co., 460 S.W.3d 597, 610 (Tex. 2015).

An insurer does not breach a policy if there is either no coverage or no

liability above the deductible, and courts sometimes use these terms

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interchangeably. 14 The Thirteenth Court had a duty to follow all of

these cases, not create a dubious distinction that ignores half of them.

It is hard to argue with Davis’s analogy that “[a] kitten is still a

cat, even though it is a smaller feline creature.” But it is irrelevant. If

an insurer says it will pay for cats but not kittens, there is no extra-

contractual duty to pay for a kitten.

It is theoretically possible that extra-contractual liability can

survive a finding that an insurer did not breach the policy, but only “if

its conduct was extreme and produced damages unrelated to and

independent of the policy claim.” 15 Davis alleges no extreme conduct

producing independent damages here; all three of his extra-

contractual claims alleged only that National Lloyds breached his

policy (4RR26-28), and without that breach they collapse.

14 See, e.g., Republic Ins. Co., 903 S.W.2d at 341 (stating “there can be no claim
for bad faith when … [it] is in fact not covered,” but citing as support cases that
bar fad-faith claims when there is no breach of contract).
15 See In re Allstate Cnty. Mut. Ins. Co., 447 S.W.3d 497, 502 n.2 (Tex. App.—
Houston [1st Dist.] 2014, orig. proceeding) (quoting Progressive Cnty. Mut. Ins. Co.
v. Boyd, 177 S.W.3d 919, 922 (Tex. 2005) (emphasis added)).

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 First, Davis claimed National Lloyds misrepresented a material

fact or policy provision by denying his claim from Hurricane Ike

(CR213, 4RR26). Denial was based on failure to meet the deductible,16

which Davis said he understood. 17 Since this Court has held that

denial correct, it cannot be an extra-contractual “misrepresentation.”

Davis’s second extra-contractual claim was that National Lloyds

failed to attempt in good faith to settle his claim after liability became

reasonably clear (CR213, CR215). Since there was no liability, National

Lloyds had no extra-contractual duty to settle it sooner.

Davis’s third extra-contractual claim was that National Lloyds

refused to conduct a reasonable investigation (CR213, CR215). But

after numerous investigations by all parties, the jurors still found $0

due on this ACV policy (CR216). Since restoring Davis’s roof to its

depreciated pre-Ike condition did not exceed the deductible no matter

16 See 6CR227 (“We have investigated your claim and must respectfully deny
Payment for the following reason(s): Total damage appears to be less than
deductible.”).
17 A. [Davis] About a week or two later, I got a letter from them saying that
they couldn't pay me but $3700 -- I mean, my deductible was $3700. So I had to
come up with that and so I didn't worry with them no more. (2RR39).

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how many reasonable investigations were made, there was neither

evidence nor a jury finding that he suffered any damage from any

unreasonable investigation.18

CONCLUSION
For the foregoing reasons, Appellee National Lloyds Insurance

Company prays this Court deny Appellant’s Motion for Rehearing.

Respectfully submitted,

ANDREWS KURTH LLP

By: /s/ Scott A. Brister
Scot G. Doyen - SBN 00792982 Scott A. Brister - SBN 00000024
Alasdair Roberts – SBN 24068541 ANDREWS KURTH LLP
DOYEN SEBESTA, LTD., L.L.P. 111 Congress Ave., Suite 1700
450 Gears Road, Suite 350 Austin, Texas 78701
Houston, Texas 77067 Phone: (512) 320-9200
Phone: (713) 580-8900 Fax: (512) 320-9292
Fax: (713) 580-8910 sbrister@andrewskurth.com
sdoyen@ds-lawyers.com
aroberts@ds-lawyers.com

COUNSEL FOR NATIONAL LLOYDS INSURANCE COMPANY

18 See Provident Am. Ins. Co. v. Castañeda, 988 S.W.2d 189, 198 (Tex. 1998)
(“[F]ailure to properly investigate a claim is not a basis for obtaining policy
benefits.”).

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 CERTIFICATE OF COMPLIANCE

I certify that this Petition for Review contains 2,204 words as
calculated per Rule 9.4(i)(1) of the Texas Rules of Appellate Procedure.

/s/ Scott A. Brister
Scott A. Brister

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing
document was served via electronic transmission on December 21,
2015 on the following counsel:

Richard P. Hogan, Jr. - rhogan@hoganfirm.com
Jennifer Bruch Hogan - jhogan@hoganfirm.com
James C. Marrow - jmarrow@hoganfirm.com
HOGAN & HOGAN
711 Louisiana, Suite 500
Houston, Texas 77002

Humberto G. Garcia - humberto@speightsfirm.com
Jason B. Speights - jason@speightsfirm.com
SPEIGHTS & WORRICH
1350 N. Loop 1604 East, Suite 104
San Antonio, Texas 78232

/s/ Scott A. Brister
Scott A. Brister

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