Fiess v. State Farm Lloyds

• Citation: 392 F.3d 802
• Decision Date: 07 December 2004
• Docket Number: No. 03-20778.,03-20778.
• Parties: Richard FIESS and Stephanie Fiess, Plaintiffs-Appellants, v. STATE FARM LLOYDS, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

392 F.3d 802

Richard FIESS and Stephanie Fiess, Plaintiffs-Appellants, v. STATE FARM LLOYDS, Defendant-Appellee.

No. 03-20778.

United States Court of Appeals, Fifth Circuit.

December 7, 2004.

Robert G. Miller (argued), O'Donnell, Ferebee & McGonigal, Houston, TX, for Plaintiffs-Appellants.

William Joseph Boyce, Fulbright & Jaworski, Christopher Weldon Martin (argued), Levon G. Hovnatanian, Martin, Disiere, Jefferson & Wisdom, Houston, TX, for Defendant-Appellee.

Brendan K. McBride, Kevin M. Young, Prichard, Hawkins & Young, San Antonio, TX, for Policyholders of America, Amicus Curiae.

Sarah Corinne Wells (argued), Austin, TX, for Texas Dept. of Ins., Amicus Curiae.

Robert F. Scheihing, Adami, Goldman & Shuffield, San Antonio, TX, for United Services Automobile Ass'n, Amicus Curiae.

Audrey Mullert Vicknair, James E. Perschbach, Bracewell & Patterson, Corpus Christi, TX, for Farmers Ins. Exchange and Fire Ins. Exchange, Amici Curiae.

Ricky H. Rosenblum, Jo Beth Eubanks, Thomas E. Sanders, Akin, Gump, Strauss, Hauer & Feld, San Antonio, TX, for Allstate Texas Lloyds Co., Amicus Curiae.

Appeal from the United States District Court for the Southern District of Texas.

Before HIGGINBOTHAM, DENNIS and CLEMENT, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Plaintiffs Richard and Stephanie Fiess brought suit against their homeowner's insurance carrier, State Farm Lloyds (State Farm), seeking coverage for losses incurred as a result of mold contamination in their house. The district court granted summary judgment in favor of State Farm concluding that mold contamination was expressly excluded from coverage under the Fiesses' insurance policy, and was not covered under the policy's ensuing loss provision. In addition, the district court held that the Fiesses' claim failed under the doctrine of concurrent causation because they failed to raise a fact issue regarding the amount of mold contamination resulting from water damage otherwise covered under the policy. We reverse the district court's ruling with respect to the doctrine of concurrent causation, finding that the Fiesses presented some evidence that would allow a finder of fact to segregate those losses potentially covered under the policy from those that are excluded. Furthermore, because relevant state authorities conflict regarding the application of the ensuing loss provision to the mold exclusion in Texas homeowner's insurance policies,¹ and because the resolution of this issue is significant to both the insurers and homeowners in Texas, we certify the coverage question to the Texas Supreme Court.

I

A

This case began in the aftermath of Tropical Storm Allison, which ravaged the Texas coastline in the summer of 2001. Located in the city of Deer Park in Harris County, the Fiesses' house sustained substantial flood damage. The Fiesses filed a claim under their flood insurance policy issued by State Farm Fire and Casualty Company, and secured an initial payment of $48,626.00 for repairs to their home and replacement of personal property damaged by the flood.

During the days following the flood, the Fiesses began remediation work on their home, sweeping out flood water and removing damaged carpet. Approximately one week after the storm had passed, the Fiesses began removing damaged sheetrock only to discover that their home was contaminated with a voluminous amount of black mold. Upon further inspection, black mold was found to be growing in the walls adjoining the dining room, kitchen, bedrooms, and hall bath. Troubled by this discovery, the Fiesses sent samples of the mold to NOVA Labs in Conroe, Texas. Paul Pearce, Ph.D. ("Dr. Pearce") tested the samples and determined that they contained hazardous stachybotrys mold which, in his opinion, made the house dangerous to inhabit. Upon subsequent inspection of the Fiess house, Dr. Pearce found other types of mold, including alternaria, chaetomium, cladosporium, aspergillus penicillium, and all of the naturally occurring environmental molds.

Dr. Pearce attributed the mold to six areas of water intrusion into the home: flood waters related to Allison, and pre-flood roof leaks, plumbing leaks, heating, air conditioning and ventilation (HVAC) leaks, exterior door leaks, and window leaks. At his deposition, Dr. Pearce stated that 25% of the mold present in the Fiess house at the time of his inspection was "non-Allison" related. Later, Dr. Pearce revised his estimate on grounds that he had misunderstood the question. In his revised estimate, Dr. Pearce placed the percentage of non-Allison related mold in the Fiess house at 70%. He conceded, however, that the Allison-related damage had been extensive, leaving mold on virtually every wall, stud, board and baseplate of the first two to three feet of the house.

Following their discovery of the mold contamination, the Fiesses submitted a claim under their homeowner's insurance policy. Their insurance carrier, State Farm, conducted an inspection of the premises and paid the Fiesses $34,425.00 for non-covered mold remediation in those areas of the flood damaged house where there was evidence of small pre-flood water leaks. The payment was made pursuant to a reservation of rights in which State Farm maintained that it was not obligated under the policy to honor the claim.

B

Believing the award to be insufficient to fully compensate them for damage caused by mold attributable to pre-flood water leaks, the Fiesses filed suit against State Farm in the 127th Judicial District Court of Harris County, asserting claims for violations of the Texas Deceptive Trade Practices Act (DTPA), breach of contract, and fraud and intentional misrepresentation. Because their homeowner's policy explicitly excluded all damage caused by flooding, the Fiesses' claim encompassed only that mold caused by the presence of pre-flood water intrusions. State Farm removed the case to federal court on the basis of diversity of citizenship. The Fiesses then filed an amended complaint alleging claims for violations of the Texas Insurance Code and breach of warranty.

State Farm moved for summary judgment on all of the Fiesses' claims. The district court granted the motion, pointing to section 1(f)(2) of the policy excluding coverage for "rust, rot, mold or other fungi";² the court also found that mold damage caused by any non-flood related "water damage" was not covered under the policy's ensuing loss provision, thus barring the Fiesses' mold claims.³ In reaching this second conclusion, the court relied upon cases holding that "ensuing loss" provisions do not "reinsert coverage for excluded losses, but reaffirms coverage for secondary losses ultimately caused by excluded perils."⁴ Finally, the court held that the Fiesses had failed to offer competent evidence that would allow a finder of fact to segregate potentially covered mold contamination from non-covered mold contamination; that even if the Fiesses established coverage for some of the mold contamination, State Farm was entitled to summary judgment under the doctrine of concurrent causation.⁵

The Fiesses appeal this summary judgment, advancing three arguments on appeal. First, as the result of an exclusion repeal provision in their homeowner's policy, the mold exclusion does not apply to mold caused by water leaks from plumbing, heating or air conditioning systems or appliances. Second, they argue that the district court erred in rejecting the testimony of their expert witness, Dr. Pearce, as some evidence of the percentage of mold caused by non-flood sources, thereby precluding their mold claims under the doctrine of concurrent causation. Third, they contend that the district court erred in granting summary judgment because the ensuing loss provision provides coverage for mold contamination caused by otherwise covered water damage. We address these contentions in sections II, III and IV, respectively.

II

In their first issue, the Fiesses argue that coverage should be extended to all mold contamination in their house caused by water intrusions resulting from plumbing and HVAC leaks. We find that, because the Fiesses failed to appeal the district court's ruling rejecting their contention, we lack jurisdiction to address it.

The district court entered final judgment in favor of State Farm on all contested issues on June 3, 2003. On June 13, the Fiesses timely filed a Rule 59(e) Motion which was denied by the court on July 1. On July 3, they filed a reply brief in support of their Rule 59(e) Motion which the court treated as a Motion to Reconsider. On July 30, the Fiesses filed a Notice of Appeal specifically referencing the June 3 final judgment and the July 1 denial of their Rule 59(e) Motion. Finally, on August 4, the district court denied their Motion to Reconsider.

The Fiesses admit that they raised the issue of the plumbing leaks exception for the first time in their July 3 reply. Citing to our case law allowing issues to be raised for the first time in post-judgment motions,⁶ they contend that this issue was properly preserved for appeal. This argument misses the mark. While an issue initially raised in a post-judgment motion may be preserved for appeal, it cannot be considered by this court unless the judgment or order disposing of it is properly noticed for appeal.⁷

The Fiesses made no mention in their Notice of Appeal of the August 4 order denying their Motion to Reconsider for the simple reason that the order had not yet been issued. Our court has consistently taken a forgiving approach when construing notices of appeal in order to avoid technical barriers to review.⁸ To this end, "we have held that an appeal from a final judgment sufficiently preserves all prior orders intertwined with the final judgment," even when those prior orders are not specifically delineated in the notice of appeal.⁹ This rule has served to advance our underlying policy of seeking to avoid miscarriages of justice where the "intent to appeal...