Landmark Am. Ins. Co. v. Port Royal by the Sea Condo. Owners Ass'n

• Decision Date: 26 March 2022
• Docket Number: Civil Action 2:19-CV-00006
• Parties: LANDMARK AMERICAN INSURANCE COMPANY, Plaintiff, v. PORT ROYAL BY THE SEA CONDOMINIUM OWNERS ASSOCIATION, INC., Defendant.
• Court: U.S. District Court — Southern District of Texas

LANDMARK AMERICAN INSURANCE COMPANY, Plaintiff,
v.
PORT ROYAL BY THE SEA CONDOMINIUM OWNERS ASSOCIATION, INC., Defendant.

Civil Action No. 2:19-CV-00006

United States District Court, S.D. Texas, Corpus Christi Division

March 26, 2022

MEMORANDUM AND RECOMMENDATION

JULIE K. HAMPTON UNITED STATES MAGISTRATE JUDGE

Plaintiff Landmark American Insurance Company (“Landmark”) filed suit in January 2019 against Defendant Port Royal by the Sea Condominium Owners Association, Inc. (“Port Royal”). (D.E. 1). Port Royal subsequently filed a counterclaim, later amended, against Landmark, to which Landmark has answered.^[1] (D.E. 120, 126). Now pending are various motions for summary judgment, including: (1) Port Royal's “Motion for Partial Summary Judgment on Plaintiff/Counter-Defendant's First and Seventeenth Affirmative

1

Defenses”^[2] (D.E. 143); (2) Landmark's “Motion for Summary Judgment on Port Royal's Failure to Allocate Causation and Damages” (D.E. 146); (3) Landmark's “Motion for Summary Judgment on Port Royal's Building Two Claims” (D.E. 147); (4) Landmark's “Motion for Summary Judgment on Port Royal's Business Income (and Extra Expense) Claims” (D.E. 148); and (5) Landmark's “Motion for Summary Judgment on Port Royal's Extracontractual Counterclaims” (D.E. 149). Also pending is Landmark's “Objections to and Motion to Strike Port Royal's Summary Judgment Evidence” (D.E. 208), along with the responses, replies, and supplemental authorities related to these six motions (D.E. 191, 192, 197, 198, 207, 209, 210, 211, 214, 215, 218, 219, 229, 230, 233, 235, 238, 239, 251, 256).

For the reasons discussed further below, it is recommended that: (1) Landmark's motion to strike (D.E. 208) be GRANTED in part and DENIED in part; (2) Port Royal's motion for partial summary judgment (D.E. 143) be DENIED; (3) Landmark's motion for summary judgment on Port Royal's failure to allocate (D.E. 146) be DENIED; (4) Landmark's motion for summary judgment on Port Royal's Building 2 claims (D.E. 147) be GRANTED; (5) Landmark's motion for summary judgment on Port Royal's business income claims (D.E. 148) be GRANTED; and (6) Landmark's motion for summary judgment on Port Royal's extracontractual claims (D.E. 149) be GRANTED.

2

I. PLEADINGS

This court has jurisdiction pursuant to 28 U.S.C. § 1331 and venue is appropriate because Thomas was convicted in Kleberg County, Texas. 28 U.S.C. § 2254(a); 28 U.S.C. § 124(b)(6); Wadsworth v. Johnson, 235 F.3d 959, 961 (5th Cir. 2000).

a. Landmark's Complaint

Landmark alleges the following in its complaint. (D.E. 1). Port Royal is the named insured under a commercial property policy issued by Landmark. (Id. at 2). This policy was in effect between August 31, 2016, and August 31, 2017, and provided coverage for three of the five condominium buildings on Port Royal's property. Port Royal made an insurance claim following damage caused by Hurricane Harvey on August 25, 2017. (Id.). The policy covered only damage caused by the windstorm, not damage caused by flooding. (Id. at 3). On November 21, 2018, Port Royal sent Landmark a Sworn Statement in Proof of Loss of $23,571,298.82, and further requested an advance of $2,000,000 for the building portion of the loss. (Id. at 4). However, the report that Port Royal relied on to reach its estimates did not indicate that all categories of damage were caused by Hurricane Harvey. Accordingly, Landmark rejected the Proof of Loss and did not advance any funds. At the time of the complaint, Landmark had issued claim payments to Port Royal of $9,375,678.57, and the Texas Windstorm Insurance Association (“TWIA”) had issued claim payments of $13,272,000, for a total of $22,647,678.57 for Hurricane Harvey damage. (Id.).

Landmark seeks a declaratory judgment either stating that it has paid Port Royal for all covered damages owed for the loss or indicating the extent to which further payment is

3

owed. (Id. at 5). Specifically, Landmark seeks a declaration resolving the following issues: (1) whether claimed losses for 2018 rainstorms constitute separate occurrences that have separate deductibles under the policy; (2) whether the policy excludes coverage for damage not commencing between August 31, 2016, and August 31, 2017; (3) whether the policy excludes damage that existed before Hurricane Harvey; (4) whether Port Royal may recover business income and extra expense coverage for costs associated with building a temporary restaurant building when it had made no efforts to repair the original restaurant building; (5) whether the policy excludes building coverage for the restaurant because it was damaged by a named storm; (6) whether the policy excludes damage to the property caused by wind-driven rain that cannot be linked to nearby damage to the roof or walls; (7) whether the policy excludes coverage for damage caused by Port Royal, its consultants, or its contractors; and (8) whether Landmark has paid Port Royal for all covered damages or the extent to which further payment is owed. (Id. at 5-6, 27-28).^[3] Landmark also seeks attorney's fees and costs. (Id. at 29).

b. Port Royal's Counterclaims

In its second amended counterclaim, Port Royal alleges that Landmark acknowledged that their property was damaged by Hurricane Harvey, but Landmark has paid only a portion of the money due under the terms of the insurance policy. (D.E. 120 at

4

2). Port Royal does not dispute Landmark's summary of the basic facts of the case, including the limits of the policy and the claimed loss totals. (Id. at 2-3).

Port Royal further alleges the following. It sustained a physical loss or damage as a result of Hurricane Harvey's winds. (Id. at 4). The Landmark insurance policy was in effect at the time of the damage, and all damages and losses were caused by a peril covered by the policy. (Id.). Port Royal timely reported its claim for these damages, which included major damage to roofs, blown out walls and windows, missing and displaced walls, exterior building damage to walls and windows, interior damage to the buildings caused by wind and rain entering through the damaged roofs and walls, and business interruption and extra expense claims resulting from the damage. (Id. at 4-5). The property was not subject to general flooding and all damage was related to the wind. (Id. at 5). Alvarez inspected the property on behalf of Landmark and Engle Martin, but ultimately took the position that Port Royal was making false claims, that the property damage was caused by flooding rather than wind, that contractors had removed too much unidentified debris from the property, and that Port Royal failed to mitigate its loss and damages. Alvarez knowingly and intentionally failed to properly investigate Port Royal's claim by failing to communicate with TWIA's adjusters, who had determined that Building 2 was a total loss. (Id.). Alvarez also ignored determinations of wind-related loss by TWIA. (Id. at 6).

Port Royal engaged the assistance of a damage consultant and engineering experts to aid in estimating the reasonable costs of repair and evaluating the cause of the damage, by Alvarez failed to communicate with any of these consultants and engineers. (Id.) He instead continued to accuse Port Royal of attempting to obtain policy funds to make pre

5

planned upgrades to its property. Port Royal cooperated with the terms and conditions of the policy and replaced damaged HVAC systems as soon as reasonably possible to mitigate damages. (Id.). Even though one of Landmark's engineering experts verified that there was wall displacement to the buildings, Alvarez maintained that there was no wall displacement. (Id. at 6-7). Landmark knowingly and intentionally engaged unskilled or outcome-oriented adjusters, consultants, and experts in an effort to avoid investigating and paying Port Royal's claim. (Id. at 7). They continually argued against best practices of repair and/or replacement and pricing, even when presented with invoices for completed work. Alvarez refused to adequately adjust Port Royal's claim by arguing that Port Royal's consultant's pricing did not comply with industry standards, even though the consultant offered to let Alvarez review the pricing means book used for the estimate. Alvarez instead insisted on using his own pricing and ignored actual bids obtained for repairs. He also refused to acknowledge any damage caused by wind and water intrusion through openings in the roof and walls caused by Hurricane Harvey's wind. (Id.). He also would not discuss damages to other buildings, even though Port Royal promptly submitted such claims. (Id. at 7-8).

Landmark arbitrarily determined that Port Royal had not suffered a covered business income or extra expense loss, but never fully or substantially presented the denial of that claim to Port Royal. (Id. at 8). In sum, Landmark engaged in an investigation that was clearly designed to avoid liability. On November 21, 2018, Port Royal submitted a Sworn Proof of Loss and supporting documents for wind-related damages caused by Hurricane Harvey, but Landmark rejected the Proof of Loss. (Id.). Rather than adhere to its

6

contractual obligations and notify Port Royal of the basis for delaying or denying insurance proceeds through specific citations to the policy provisions, Landmark instead breached the contract and filed this lawsuit, resulting in additional expenses for Port Royal. (Id. at 8-9).

Port Royal raises five specific claims against Landmark. First, Port Royal contends that Landmark breached the insurance contract by: (a) refusing to pay the full amounts due; and (b) failing to properly investigate, evaluate, adjust, and pay Port Royal's claims under the contract. (Id. at 11-12). Second, Port Royal asserts that Landmark violated the Texas Unfair Methods of Competition and Unfair or Deceptive Acts or Practices Act by refusing to pay a claim without conducting a reasonable investigation...