Balfour Beatty Constr., L.L.C. v. Liberty Mut. Fire Ins. Co.

Decision Date03 August 2020
Docket NumberNo. 19-20216,19-20216
Citation968 F.3d 504
Parties BALFOUR BEATTY CONSTRUCTION, L.L.C.; Milestone Metals, Incorporated, Plaintiffs — Appellants, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant — Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Richard Brent Cooper, Esq., Diana L. Faust, Summer Lee Frederick, Cooper & Scully, P.C., Dallas, TX, Kyle Mitchell Burke, Garland, TX, for Plaintiffs - Appellants

Richard A. Sheehy, John Mark Kressenberg, Shelley Rogers, Sheehy, Ware & Pappas, P.C., Houston, TX, for Defendant - Appellee

Before Barksdale, Higginson, and Duncan, Circuit Judges.

Stephen A. Higginson, Circuit Judge

This case involves a dispute between an insurer and insured about whether an insurance policy provides coverage for damage to the exterior glass of a Houston skyscraper. Plaintiffs Balfour Beatty Construction, L.L.C. ("Balfour") and Milestone Metals, Inc. ("Milestone") (collectively, "Appellants") sued defendant Liberty Mutual Fire Insurance Company ("Liberty") in Texas state court claiming breach of contract and violations of Sections 541 and 542 of the Texas Insurance Code. Liberty removed the case to federal court and the parties cross-moved for summary judgment. The district court granted Liberty's motion for summary judgment and denied Appellantspartial motion for summary judgment. Appellants then filed this appeal.

Because the insurance policy does not provide coverage for Appellants’ claim, we agree that summary judgment in Liberty's favor is appropriate. Therefore, we AFFIRM.

I. BACKGROUND
A. Factual Background

TCH Energy Corridor Venture, LLC ("Trammell Crow") was the developer of a commercial office building located in Houston, Texas, known as Energy Center 5 (the "Project"). Trammell Crow selected Balfour as the Project's general contractor. Balfour, in turn, subcontracted with Milestone for the erection of structural steel, stairs, and ornamental steel on the Project. Under Trammell Crow's contract with Balfour, Trammell Crow was required to procure builder's risk insurance for the Project. Accordingly, Trammell Crow obtained an insurance policy from Liberty (the "Policy"), effective from July 10, 2014, to August 10, 2016. The Policy is titled a "Commercial Inland Marine" policy that contains "Builders’ Risk Coverage." An "Additional Insured Endorsement" added Appellants as insureds to the "extent required and as their respective interests may appear."1

With insurance coverage in place, the Project proceeded. In October 2015, Milestone welded a 2-inch metal plate to external tubing on the eighteenth floor of Energy Center 5. In his affidavit, Milestone's Safety Director, Roman Lozano,2 explained the safety measures that Milestone undertook to avoid damaging the building when installing the plate:

Milestone implemented measures to protect the building and the glass from slag3 burns and fires. Because the location of the weld protruded from the vertical face of the building, Milestone draped extra fire blankets beneath the area where its operations occurred. Due to the location of the weld, it was impossible to place a person in a safe position to watch for falling slag.... However, at the time of the operations, the winds were very high, a factor that Milestone could not control.

Several months later, on July 12, 2016, Milestone learned that welding slag from the October 2015 welding project had fallen down the side of the building and damaged the exterior of certain glass windows on lower floors. Trammell Crow, Balfour, and Milestone then tendered a claim to Liberty under the Policy. Liberty denied coverage and explained that the loss was excluded. Milestone and Balfour ultimately replaced the windows for Trammell Crow at a cost of approximately $686,976.88.4

B. The Policy

The Policy contains the following relevant provisions:

PROPERTY COVERED
"We"5 cover the following property unless the property is excluded or subject to limitations.
***
PERILS COVERED
"We" cover risks of direct physical loss or damage unless the loss is limited or caused by a peril that is excluded.
***
PERILS EXCLUDED
2. "We" do not pay for loss or damage that is caused by or results from one or more of the following:
c. Defects, Errors, And Omissions –
(1) "We" do not pay for loss or damage consisting of, caused by, or resulting from an act, defect, error, or omission (negligent or not) relating to:
a) design, specifications, construction, materials, or workmanship; ...
c) maintenance, installation, renovation, remodeling, or repair.
But if an act, defect, error, or omission as described above results in a covered peril, "we" do cover the loss or damage caused by that covered peril.
(2) This exclusion applies regardless of whether or not the act, defect, error or omission:
a) originated at a covered "building or structure"; or
b) was being performed at "your" request or for "your" benefit.

In short, the Policy contains a general insuring clause, under which Liberty insures risks of loss or damage, to the extent those losses are not caused by an excluded peril. Under the exclusionary clause, Liberty will not cover losses "caused by" or "resulting from ... act[s], defect[s], error[s], or omission[s] ... relating to ... construction" (the "Exclusion"). However, under the exception to the Exclusion, Liberty will cover any loss caused by "an act, defect, error, or omission" that "results in a covered peril" (the "Exception"). A covered peril is a "risk[ ] of direct physical loss or damage unless the loss is ... caused by a peril that is excluded."

Liberty concedes that the window damage was a "direct physical loss or damage" that falls under the general insuring clause. Moreover, the parties agree that, absent the Exception, the Exclusion would bar Appellants’ recovery because the window damage resulted from Milestone's construction or installation activity. Therefore, the interpretative dilemma is whether the Exception applies to reinstate coverage for Appellants’ claim. Put differently, the question is whether the "an act, defect, error, or omission" "result[ed] in a covered peril."

C. Procedural History

When Liberty denied coverage, Appellants sued Liberty in Harris County, Texas, for breach of contract and violations of Sections 541 and 542 of the Texas Insurance Code. Tex. Ins. Code §§ 541, 542 (prohibiting unfair methods of competition or unfair trade practices in the Texas insurance market). Liberty removed to federal court, invoking diversity jurisdiction. Relevant here, the parties cross-moved for summary judgment solely with respect to the breach of contract claim.6 After a hearing, the district court granted Liberty's motion for summary judgment and denied Appellants’ motion.

Pursuant to the parties’ stipulation, the district court dismissed the Texas Insurance Code claims without prejudice. Appellants then timely appealed to this court on April 5, 2019. While the appeal was pending, Appellants filed an unopposed motion for entry of a Rule 54(b) judgment. On July 3, 2019, the district court entered a Rule 54(b) judgment "direct[ing] entry of a final judgment" on Appellants’ breach of contract claim. Following entry of the Rule 54(b) judgment, Appellants timely filed a second amended notice of appeal on July 16, 2019.

D. The District Court Opinion

In relevant part, the district court determined that the Exception to the Exclusion does not reinstate coverage under the circumstances of the loss here and, therefore, granted summary judgment in favor of Liberty. The district court reasoned that (i) Appellants’ interpretation of the Exception would render the Exclusion meaningless; and (ii) the Exception's language "suggests" that there must be two loss events that are different in kind in order to reinstate coverage—one initial loss event (an excluded peril) followed by a separate covered peril, with only the latter peril subject to coverage.

II. PRELIMINARY ISSUES
A. Jurisdiction

This court has appellate jurisdiction under 28 U.S.C. § 1291 because Appellants timely appealed the district court's entry of judgment under Federal Rule of Civil Procedure 54(b). See FED. R. CIV. P. 56(a) ; Williams v. Seidenbach , 958 F.3d 341, 344 (5th Cir. 2020) (en banc). This court has subject matter jurisdiction because there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. In a diversity case, this court must apply state substantive law. Erie R.R. Co. v. Tompkins , 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agree that Texas law applies to interpretation of the Policy.

B. Standard of Review

"This court reviews a district court's grant of summary judgment de novo, applying the same legal standards as the district court." Tradewinds Envtl. Restoration, Inc. v. St. Tammany Park, LLC , 578 F.3d 255, 258 (5th Cir. 2009) (quoting Condrey v. SunTrust Bank of Ga. , 429 F.3d 556, 562 (5th Cir. 2005) ). "Summary judgment is appropriate when ‘the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ " United States v. Nature's Way Marine, L.L.C. , 904 F.3d 416, 419 (5th Cir. 2018) (quoting Fed. R. Civ. P. 56(a) ). In Texas, the construction of a contract presents a question of law. Delta Seaboard Well Servs. v. Am. Int'l Specialty Lines Ins. Co. , 602 F.3d 340, 343 (5th Cir. 2010) ; Lubbock Cty. Hosp. Dist. v. Nat'l Union Fire Ins. Co. , 143 F.3d 239, 241–42 (5th Cir. 1998). Further, in Texas, "[w]hether a contract is ambiguous is a question of law." Texas v. Am. Tobacco Co. , 463 F.3d 399, 406 (5th Cir. 2006). When, as here, cross-motions for summary judgment have been ruled upon, we examine "each party's motion independently." Springboards To Educ., Inc. v. Houston Indep. Sch. Dist. , 912 F.3d 805, 811 (5th Cir. 2019) (quoting JP Morgan Chase Bank, N.A. v. Data Treasury Corp. , 823 F.3d 1006, 1011 (5th Cir. 2016) ).

C. Texas Contract Interpretation Principles

When construing an insurance policy, ...

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