Ridglea Estate Condominium Ass'n v. Lexington Ins.

• Citation: 415 F.3d 474
• Decision Date: 01 July 2005
• Docket Number: No. 04-10447.,04-10447.
• Parties: RIDGLEA ESTATE CONDOMINIUM ASSOCIATION, Plaintiff-Counter Defendant-Appellant, v. LEXINGTON INSURANCE COMPANY, Defendant-Counter Claimant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

415 F.3d 474

RIDGLEA ESTATE CONDOMINIUM ASSOCIATION, Plaintiff-Counter Defendant-Appellant, v. LEXINGTON INSURANCE COMPANY, Defendant-Counter Claimant-Appellee.

No. 04-10447.

United States Court of Appeals, Fifth Circuit.

July 1, 2005.

Russell Joseph Bowman (argued), Scott, Bowman & Stella, Dallas, TX, for Plaintiff-Appellant.

Julia Leigh Kurtz (argued), Wright, Brown & Close, Houston, TX, Marcus Jarrett Coleman, Cozen & O'Connor, Dallas, TX, for Defendant-Appellee.

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

Before KING, Chief Judge, and JOLLY and DENNIS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

No member of this panel nor judge in regular active service on the court having requested that the court be polled on Rehearing En Banc, (FED. R.APP. P. and 5th CIR. R. 35) the Petition for Rehearing En Banc is DENIED.

IT IS ORDERED that the Petition for Panel Rehearing is GRANTED. The opinion of the court issued on January 21, 2005, at 398 F.3d 332, is withdrawn, and the following opinion substituted in its place, with the only change appearing in Part II D.

In November 2001, Ridglea Estate Condominium Association ("Ridglea") submitted a claim to its insurer, Lexington Insurance Company ("Lexington"), for hail damage—apparently occurring in 1995—to the roofs of its property in Fort Worth, Texas. Lexington denied the claim and brought suit against Ridglea, seeking a declaratory judgment that it was not liable for the damage. The district court realigned the parties, making Ridglea the plaintiff and Lexington the defendant. Both parties then moved for summary judgment. The district court granted Lexington's motion, holding that Ridglea's claim was barred because Ridglea failed to provide prompt notice of the damage and rejecting the argument that a showing of prejudice was required. Ridglea appeals, arguing, inter alia, that the district court erred in not requiring Lexington to show that its defense was prejudiced by Ridglea's late notice. We agree, and therefore VACATE and REMAND.

I

In July 2001, a roofing inspector informed Ridglea that the roofs of its property in Fort Worth, Texas had suffered significant hail damage. In November 2001, Ridglea submitted a claim to its then-insurer, Chubb Custom Insurance. Based on its inspection, Chubb advised Ridglea that the damage must have been caused by a May 5, 1995 hail storm, and that Ridglea would need to submit the claim to the insurer who insured the property on that date.

Ridglea then submitted a claim to Lexington, the insurer of the property as of May 1995. After inspecting the roofs, Lexington concluded that the damage likely did not exceed Ridglea's deductible. Lexington also asserted that it found no evidence that the damage was incurred during the policy period, which ran from February 1995 to February 1996. As a result, in a letter of December 19, 2001, Lexington denied Ridglea's claim.

After roughly a year of negotiations involving Ridglea, Lexington, Chubb, and another insurer, General Star, Ridglea made a final demand against Lexington for $449,198.63 plus attorney's fees of $10,000. Lexington again denied the claim and brought suit seeking a declaratory judgment that it was not liable for the hail damage to Ridglea's property. The district court dismissed the declaratory judgment action and realigned the parties, making Ridglea the plaintiff and Lexington the defendant in a direct suit for damages on the insurance policy.

Both parties moved for summary judgment. The district court granted Lexington's motion, holding that Ridglea's claim was barred because it had failed to comply with the policy's notice requirement. Ridglea's policy states, in pertinent part, that no policy holder may bring an action against Lexington without first giving "prompt notice of the loss or damage" to covered property. The policy further requires that prospective litigants provide, "as soon as possible[,] a description of how, when and where the loss or damage occurred". The district court concluded that the interval between May 1995, when the damage allegedly occurred, and November 2001, when Ridglea notified Lexington of its claim, was so great that "no rational finder of fact could conclude ... that Ridglea reported the hail loss and damage to buildings within a reasonable time after it was suffered". Ridglea now appeals the grant of summary judgment.

II

We review the grant of summary judgment de novo, applying the same standard as the district court. American Guarantee and Liability Ins. Co. v. The 1906 Co., 129 F.3d 802, 805 (5th Cir.1997). Summary judgment is appropriate where there are no genuine issues as to any material fact and the movant is entitled to a judgment as a matter of law. FED.R.CIV.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Ridglea contends that the district court committed four discrete, reversible errors—all relating to the notice requirement of the policy—in granting Lexington's motion for summary judgment. Specifically, Ridglea asserts that the court erred: (1) in finding that Lexington had not waived its late notice defense; (2) in failing to find the notice requirement unenforceable as a matter of public policy; (3) in failing to find the notice requirement ambiguous, and thus construe it in the manner most favorable to the insured; and (4) in not requiring Lexington to show prejudice in order to raise late notice as a defense.

A

We first address Ridglea's contention that Lexington has waived any defense it might have under the policy's prompt notice provision because it originally denied the claim (in its December 19, 2001 letter) on the sole basis that the damage did not occur during the coverage period.

Ridglea relies on Farmers Insurance Exchange v. Nelson to argue that, when an insurer denies a claim for reasons unrelated to notice of damage, the insurer waives any requirement that the insured provide notice before filing suit. 479 S.W.2d 717, 721-22 (Tex.Civ.App.1972). Ridglea notes that Lexington's claims adjuster originally gave only one reason—a lack of evidence that the hail damage occurred during the coverage period—for denying Ridglea's claim. Thus, by failing to identify late notice of damage as an independent reason for its denial of the claim, Lexington waived its late notice defense.

Lexington replies that Texas courts have recognized an exception to the general rule of Farmers Insurance Exchange and points to United States Fidelity & Guaranty Co. v. Bimco Iron & Metal Co. There, the Texas Supreme Court held that an insurer's "total denial of liability on any grounds, after the time for filing [a] proof of loss had expired would not constitute a waiver of the defense of late filing of the proof of loss". 464 S.W.2d 353, 357 (Tex. 1971). In Stonewall Insurance Co. v. Modern Exploration, Inc., the Texas Court of Appeals applied the Supreme Court's holding in Bimco to the precise issue before this court, holding that "waiver of [a] notice requirement occurs when the insurer denies liability within the time limited for giving notice" and "[c]onversely, a total denial of liability on any grounds after the time limited for giving notice would not constitute a waiver of the defense of unreasonably late notice". 757 S.W.2d 432, 436 (Tex.App.1988) (emphases in original) (citing Bimco, 464 S.W.2d at 357).

Our task, then, is to determine whether the exception to the waiver rule set forth in Bimco and Stonewall Insurance applies in the case before us. In order to do so, we must determine whether Lexington's December 19, 2001 denial of liability was made within the policy's time limit for giving notice, or after it had expired. Because Lexington's denial of liability was made shortly after Ridglea's November 2001 notice of damage, the district court's conclusions as to the timeliness of notice provide a useful benchmark for the waiver inquiry.

The district court held that "no rational finder of fact could conclude from the summary judgment evidence that Ridglea reported the hail loss and damage to its building within a reasonable time".¹ In support of its conclusion, the court observed that Ridglea's own expert, Patrick Brady, testified that there was "extensive damage to [Ridglea's] buildings", that said damage "was such that it would require replacement of the roofs", and even that the "damage would have been evident on May 5, 1995". Moreover, Brady testified that the buildings' shutters and windows had been chipped and broken as a result of hail strikes, though he could not say with certainty that the May 1995 storm was the cause. Finally, the record indicates that automobiles in the area of Ridglea's property suffered severe hail damage as a result of the May 1995 storm.

In response to this evidence, Ridglea offers only Brady's assertion that the damage would have been difficult for Ridglea to discover, as the roofs involved are on two story buildings, and thus, "not visible from the ground". This argument is not on point. Given the magnitude of the 1995 storm, as well as the hail damage to other portions of Ridglea's property—i.e., the shutters and windows—Ridglea should have been aware of the likelihood that its roofs had suffered hail damage, and thus should have had the roofs inspected by an expert at some reasonable time soon after the hailstorm occurred. The fact that Ridglea's management neglected to do so does not serve to toll the policy's prompt notice provision in Ridglea's favor.

Thus, we hold that the prompt notice period ran from on or about the date on which Ridglea's hail damage was incurred: May 5, 1995. We need not determine precisely where, under Texas law, the boundaries of "prompt notice" or "reasonableness" lay. Instead, we simply affirm the district court's holding that to delay an inspection for six years is unreasonable as a matter of law.

In sum, because Ridglea gave its notice of...