Wentwood Woodside I, Lp v. Gmac Commercial Mortg.
| Decision Date | 25 July 2005 |
| Docket Number | No. 04-20819.,04-20819. |
| Citation | 419 F.3d 310 |
| Parties | WENTWOOD WOODSIDE I, LP, Plaintiff-Appellant, v. GMAC COMMERCIAL MORTGAGE CORPORATION; Royal Indemnity Company, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Bruce Edwin Ramage, Christopher Weldon Martin, Levon G. Hovnatanian (argued), Melinda Lacy McGehee, Kevin Graham Cain, Martin, Disiere, Jefferson & Wisdom, Houston, TX, for Plaintiff-Appellant.
Donald E. Herrmann, Roger C. Diseker (argued), Kelly, Hart & Hallman, Fort Worth, TX, for GMAC Commercial Mortg. Corp.
Gerald John Brown (argued), Hilary Channing Borow, Jay W. Brown, Beirne, Maynard & Parsons, Houston, TX, for Royal Indem. Co.
Appeal from the United States District Court for the Southern District of Texas.
Before GARWOOD, SMITH and CLEMENT, Circuit Judges.
Wentwood Woodside I, L.P., a Texas limited partnership, (Wentwood) brought this suit against Royal Indemnity Company (Royal), which carried the excess property damage insurance on the apartments Wentwood owned, and against GMAC Commercial Mortgage Corporation (GMAC), which serviced the mortgage on Wentwood's apartments, to recover under Texas law for flood damage to the apartments sustained during Tropical Storm Allison in June of 2001. The district court granted summary judgment to both Royal and GMAC on all causes of action. We affirm.
Wentwood is a single-asset limited partnership organized under the laws of Texas. It was formed for the purposes of profitably owning the Woodside Village Apartments (Woodside Village) in Houston, Texas. On December 30, 1996, Wentwood, as sole grantor, executed a deed of trust with Column Financial, Incorporated, the deed of trust beneficiary, in order to finance Wentwood's purchase of the Woodside Village.
The indebtedness secured by the deed of trust was acquired (and possibly initially funded) by a New York common law trust structured as a real estate mortgage investment conduit (REMIC). Neither this REMIC nor Column Financial is a federally regulated lending institution. The trustee for the REMIC is LaSalle Bank of Chicago. LaSalle merely holds the REMIC's assets in trust, is not the lender, and is not at risk in the event of default by any of the REMIC's debtors, including Wentwood. The deed of trust covers no property other than Woodside Village and secures no indebtedness other than Wentwood's $5,950,000 indebtedness incurred in its purchase of Woodside Village. The deed of trust expressly requires Wentwood to maintain adequate insurance on Woodside Village. The only address for Wentwood stated in the deed of trust is 3811 Turtle Creek Boulevard, Suite 450, Dallas, Texas 75219. GMAC services the indebtedness secured by the deed of trust.
Wentwood is, in some not precisely identified manner, affiliated and under common control with a number of other separate partnerships owning other apartment buildings (over 50 in all) across the country, including seven other single-asset partnerships each of which owns a different apartment building in Houston. Among these seven other single-asset partnerships (each owning other Houston apartment buildings) were Wentwood Hartford D Partners (Wentwood Hartford) and Wentwood St. James, L.P. (Wentwood St. James). Woodside Village and the other seven Houston properties were at all relevant times managed by Pinnacle Realty Management Company (Pinnacle) in Tacoma, Washington.
On April 20, 2000, the Federal Emergency Management Agency (FEMA) redrafted its flood insurance rate map for the Houston area. Under this change, the Woodside Village became included within Flood Zone A, a special flood hazard area (SFHA). On September 14, 2000, FEMA published its revisions, including the one affecting the Woodside Village, in the Federal Register. 65 F.R. 55526-03.
On September 19, 2000, GMAC sent a letter to Wentwood Hartford, informing it that its property was in an area that had been designated an SFHA. GMAC explained, though without citing any contractual language, that Wentwood Hartford was required by its mortgage (which GMAC serviced) to provide GMAC with evidence of adequate flood insurance.1 If such evidence was not forthcoming, the letter stated, GMAC would procure such insurance at Wentwood Hartford's expense. GMAC sent an essentially identical separate letter on the same day to Wentwood St. James, likewise informing it that its property in Houston was in an area designated an SFHA. GMAC did not send such a letter to Wentwood even though the Woodside Village was also in an SFHA as a result of FEMA's April 2000 changes to its rate maps.
GMAC addressed this correspondence specifically to Wentwood Hartford and Wentwood St. James but the letters were sent in care of Pinnacle to the latter's Tacoma address. Once the letters were received by Pinnacle, they were forwarded to Janet Barnes, who was at the time the risk manager for Boreal Properties, L.L.C. (Boreal), a company affiliated with Pinnacle that worked on the eight Houston properties as an independent contractor. Barnes states in her affidavit that she was responsible for maintaining insurance for the Houston properties. There is no evidence that Barnes took any immediate action following receipt of GMAC's letters.
At some point in late 2000, a firm named Graoch Associates (Graoch), acting on behalf of the affiliated group of partnerships which included Wentwood, retained Lockton Companies, Incorporated (Lockton) to purchase a single excess property insurance policy covering all of the properties, including the Woodside Village, owned by all the various partnerships (including Wentwood) with which Wentwood was affiliated and under common control. Lockton entered into negotiations with Richard McAdam, a property underwriter for Royal Specialty Underwriting, Incorporated, to purchase excess insurance from Royal. Royal's standard form excess property insurance policy generally covered flood damage but excluded from that coverage any property located in an SFHA. An exception to this exclusion could be purchased for an additional premium.
During the underwriting process, McAdam specifically asked Lockton whether any of the properties was located in an SFHA. As reflected in the policy itself, Lockton only identified three properties as being in an SFHA, one each in Ohio, North Carolina, and Texas. The sole Texas property so identified was the Houston property owned by Wentwood St. James, which was the subject of one of GMAC's letters. Lockton did not, however, identify either the property owned by Wentwood Hartford, which was the subject of GMAC's other letter, or, more importantly, the Woodside Village owned by Wentwood.
From the policy's inception forward, the Royal policy's Excess Physical Damage Schedule read in its entirety as follows:
"Perils Covered: All Risk including Flood and Earthquake except excluding California Earthquake and excluding Flood in Zone A or V except at: 1) 2400 West Shore Blvd. Columbus, OH, 2) 215 Rippling Stream Rd., Durham, NC, 3) 9109 Fondron [sic] Road, Houston, TX."
Consequently, when Graoch purchased its one-year excess policy from Royal, which became effective on November 27, 2000, the Woodside Village did not have excess coverage for floods and the premium paid by Graoch did not incorporate the risk of insuring the Woodside Village against flood damage. The parties do not dispute that Wentwood breached its express duty under the deed of trust to maintain full replacement cost flood insurance.2
In the spring of 2001, Graoch decided to switch primary carriers. It purchased a one year policy from Lexington Insurance Company (Lexington), effective April 28 2001, with a $1,000,000 limit. The Lexington primary policy included full flood coverage and did not exclude properties in an SFHA. Thus, the Woodside Village continued to have primary flood insurance, but still did not have any excess flood coverage.
On June 9, 2001, Tropical Storm Allison came ashore in the Houston area. The Woodside Village was severely flooded and sustained more than four million dollars in damage. Wentwood filed a claim with Lexington four days later and Lexington promptly paid its policy's full $1,000,000 limit. Wentwood next filed a claim with Royal under its November 27, 2000 excess policy purchased by Graoch. Royal refused to pay, however, because it determined that the Woodside Village was in an SFHA and Graoch had not purchased the additional coverage necessary for such a property.
In July 2002, Wentwood filed a three-count complaint in a Texas court alleging breach of contract by Royal, violation by Royal of the Texas Insurance Code, and breach by GMAC of an assumed duty to notify Wentwood in the event that the Woodside Village fell within an SFHA. The case was timely removed on August 13, 2002 to the district court below. In November 2002, Wentwood filed an amended complaint which pleaded two additional causes of action against GMAC for negligence per se under Texas law in failing to abide by its asserted federal statutory duty under 42 U.S.C. § 4012a to ensure that properties in SFHAs were adequately covered, and violation of section 4012a. The district court granted summary judgment to Royal on September 12, 2003, and then to GMAC on August 31, 2004.3 The district court had also, in February 2004, denied Wentwood's motion, filed in November 2003 after the court rendered its September 2003 adverse summary judgment order, to file a further amended complaint against Royal.
It is from these dispositions that Wentwood appeals.
Wentwood appeals the grant of summary judgment in favor of Royal on the ground that Wentwood's initial failure to insure the Woodside Village was a mistake that is excused by the Errors and Omissions clause of the underlying primary policy. Wentwood also appeals the decision of the district court not to permit it to file an amended complaint against Royal after the adverse summary...
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