Tapatio Springs Builders v. Maryland Cas. Ins. Co.

• Decision Date: 16 November 1999
• Docket Number: No. Civ.A.SA98CA1078PMA.,Civ.A.SA98CA1078PMA.
• Parties: TAPATIO SPRINGS BUILDERS, INC., Plaintiff, v. MARYLAND CASUALTY INSURANCE COMPANY, Defendant. Maryland Casualty Insurance Company, Counterclaim Plaintiff, v. Tapatio Springs Builders, Inc., Counterclaim Defendant.
• Court: U.S. District Court — Western District of Texas

82 F.Supp.2d 633

TAPATIO SPRINGS BUILDERS, INC., Plaintiff, v. MARYLAND CASUALTY INSURANCE COMPANY, Defendant.

Maryland Casualty Insurance Company, Counterclaim Plaintiff, v. Tapatio Springs Builders, Inc., Counterclaim Defendant.

No. Civ.A.SA98CA1078PMA.

United States District Court, W.D. Texas, San Antonio Division.

November 16, 1999.

COPYRIGHT MATERIAL OMITTED

Annalyn G. Smith, Bracewell & Patterson, L.L.P., San Antonio, TX, for Tapatio Springs Builders, Inc., plaintiff.

Christopher C. Strawn, Ball & Weed, San Antonio, TX, for Maryland Casualty Insurance Company, Assurance Company of America, defendants.

MEMORANDUM DECISION AND ORDER

MATHY, United States Magistrate Judge.

Pursuant to the consent of the parties in the above-styled and numbered cause of action to trial by the undersigned United States Magistrate Judge and consistent with the authority vested in the United States Magistrate Judges under the provisions of 28 U.S.C. § 636(c)(1) and Appendix C, Rule 1(I) of the Local Rules for the Assignment of Duties to United States Magistrates, in the Western District of Texas, the following order is entered.

I. JURISDICTION

The Court had diversity jurisdiction under 28 U.S.C. § 1332.

II. STATEMENT OF FACTS AND PROCEDURAL HISTORY

Plaintiff Tapatio Springs Builders, Inc. ("Tapatio") originally filed this action in the 73rd Judicial District Court of Bexar County, Texas on October 21, 1998.¹ Defendant Maryland Casualty Company ("Maryland Casualty")² and its subsidiary, Assurance Company of America ("Assurance"),³ removed the cause to the United States District Court for the Western District of Texas on November 24, 1998.⁴ In its second amended complaint, Tapatio alleged that by denying coverage for a fire loss, Assurance breached a contract for insurance and a duty of good faith and fair dealing as well as violated article 21.21 of the Texas Insurance Code and section 17.41, et seq., of the Texas Deceptive Trade Practices Act ("DTPA").⁵ Assurance denied plaintiff's allegations, contended the insurance policy did not cover Tapatio's loss, asserted various affirmative defenses, and raised a counterclaim for reformation of the contract.⁶ Tapatio answered the counterclaim, contending that Assurance was estopped from reforming the policy and denying coverage and had waived its right to assert absence of coverage.⁷ Each side has moved for summary judgment.⁸

The following facts are undisputed. Tapatio is in the business of building custom homes in the San Antonio, Texas area.⁹ In March 1997, Tapatio purchased from Bruce A. Barnard of Donegan Insurance Agency ("Donegan") a Builder's Risk Policy for which Assurance was the insurer.¹⁰ Thereafter, Assurance, through Home Builder's Insurance Program ("HBIP"), sent Tapatio monthly rate reporting forms, which Tapatio was to complete and return to HBIP by the last day of the months in which they were received.¹¹ Initially, Tapatio was to list on the monthly rate report form all houses in its inventory, including previous construction, that is, houses in the process of being built, and new starts, or newly initiated construction, for the month preceding the month in which the form was received¹² and calculate the premium owed for this inventory.¹³ In January 1998, HBIP began pre-printing previously reported construction on the monthly rate report forms, requiring the builder only to line through property to be excluded from insurance coverage and to list all new starts for the prior month, calculating the premiums on that basis.¹⁴

In February 1998, Tapatio began construction on a house at 18 Sendero Verde Drive, Bexar County, Texas ("Sendero property").¹⁵ However, the Sendero property was not listed on Tapatio's monthly rate report forms covering inventory for the months of February, March, and April, nor were premiums paid for the Sendero property for those months.¹⁶ On June 21, 1998, a fire destroyed the partially completed Sendero property.¹⁷ The next day, Ray Shaw, a Tapatio construction manager, completed the monthly rate report form and wrote the premium check for May.¹⁸ The destroyed Sendero property was listed for the first time on this report as a "new start."¹⁹ The June report, due at the end of July, listed the property as "previous construction" and a second premium accompanied the report.²⁰ Contending Tapatio had not complied with the reporting provisions of the insurance policy, Assurance denied Tapatio's claim for the Sendero property on July 31, 1998.²¹ Assurance returned the two premium payments in June 1999.²² Tapatio sued, Assurance counterclaimed, and the parties filed opposing motions for summary judgment.

Assurance has moved for summary judgment on the ground that the builder's risk policy at issue is not ambiguous, Tapatio did not comply with the continuous reporting requirement of the policy and, therefore, Tapatio is not covered for the loss at the Sendero property.²³ In addition, Assurance argues Tapatio has violated the "known loss" rule, prohibiting a person from procuring insurance coverage for a loss of which the person has knowledge.²⁴ Assurance also contends estoppel and waiver have no applicability to this case because insurance coverage may not be created by these theories.²⁵ Finally, Assurance argues that because Tapatio cannot establish coverage under the terms of the policy, summary judgment is proper as to the extra-contractual claims alleging violations of the insurance code and DTPA as well as for the alleged breach of the duty of good faith and fair dealing.²⁶

Tapatio has moved for summary judgment on the ground that the policy as issued is ambiguous because it includes Non-reporting and Monthly Rate Endorsements which impose conflicting reporting requirements on the insured.²⁷ Because the policy is ambiguous, Tapatio argues it must be construed against the insurer.²⁸ Tapatio also argues that even if the policy is deemed to be a monthly reporting policy, all reporting requirements were satisfied and that Assurance, through HBIP, failed to list the Sendero property on the necessary monthly reporting forms.²⁹ Additionally, Tapatio claims entitlement to summary judgment because Assurance breached its duty of good faith and fair dealing and violated the insurance code and the DTPA.³⁰

Tapatio and Assurance each have responded to the other's motion for summary judgment.³¹ The responses essentially set forth the same arguments raised in the parties' motions for summary judgment.³² Tapatio's response additionally advances facts it contends Assurance failed to provide.³³ Assurance objects to certain of Tapatio's evidence and asks the Court to disregard the affidavits of Ray Shaw, John J. Parker, Jr., and Mikel Fitzgerald.³⁴ Assurance has further moved to exclude Fitzgerald's testimony because it does not satisfy the established standards for expert testimony.³⁵ Finally, Assurance has requested oral argument of its motion for summary judgment.³⁶ The motions for summary judgment, Assurance's objections and motions regarding the evidence, and Assurance's request to present oral argument are the subject of this Order.

III. ISSUES

1. Whether the insurance policy is ambiguous.

2. Whether Tapatio complied with the terms of the insurance policy such that it is entitled to insurance coverage for the Sendero Property.

3. Whether estoppel or waiver bar Assurance from denying coverage.

4. Whether Tapatio is entitled to summary judgment on its extra-contractual claims.

5. Whether Assurance's evidentiary objections should be sustained.

IV. SUMMARY JUDGMENT STANDARD

The standard to be applied in deciding a motion for summary judgment is set forth in Federal Rule of Civil Procedure 56, which provides in pertinent part as follows:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.³⁷

Mere allegations of a factual dispute between the parties will not defeat an otherwise proper motion for summary judgment. Rule 56 requires that there be no genuine issue of material fact.³⁸ A fact is material if it might affect the outcome of the lawsuit under the governing law.³⁹ A dispute about a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.⁴⁰ Therefore, summary judgment is proper if, under governing laws, there is only one reasonable conclusion as to the verdict; if reasonable finders of fact could resolve a factual issue in favor of either party, summary judgment should not be granted.⁴¹

The movant on a summary judgment motion bears the initial burden of providing the court with a legal basis for its motion and identifying those portions of the record which it alleges demonstrate the absence of a genuine issue of material fact.⁴² The burden then shifts to the party opposing the motion to present affirmative evidence in order to defeat a properly supported motion for summary judgment.⁴³ All evidence and inferences drawn from that evidence must be viewed in the light favorable to the party resisting the motion for summary judgment.⁴⁴ Thus summary judgment motions permit the Court to resolve lawsuits without the necessity of trials if there is no genuine dispute as to any material facts and the moving party is entitled to judgment as a matter of law.⁴⁵

VI. ARGUMENTS AND CONCLUSIONS OF LAW

A. THE INSURANCE POLICY IS NOT AMBIGUOUS.

1. Overview

Tapatio contends it is entitled to summary judgment because its contract of insurance with defendant is ambiguous and must be strictly construed against Assurance. Alternatively, Tapatio argues it has complied with the policy's reporting requirements. On the other hand, Assurance claims summary judgment in its favor is proper because Tapatio failed to comply with the terms of an unambiguous...