`
`HIDDEN COVE PARK & MARINA,
`MARINE QUEST HIDDEN COVE, LP,
`MQTXM, LLC d/b/a TEXOMA PARK &
`MARINA
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`
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`v.
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`LEXINGTON INSURANCE COMPANY,
`and AIG CLAIMS, INC.
`
`
`§
`§
`§
`§
`§
`§
`§
`§
`§
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`Civil Action No. 4:17-CV-00193
`Judge Mazzant
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`United States District Court
`EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
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`
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`MEMORANDUM OPINION AND ORDER
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`Pending before the Court is Defendants Lexington Insurance Company (“Lexington”) and
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`
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`AIG Claims, Inc.’s Motion for Partial Summary Judgment Regarding Policy Interpretation (Dkt.
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`#31) and Plaintiffs Hidden Cove Park & Marina, Marine Quest Hidden Cove, LP (collectively,
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`“Hidden Cove”), and MQTXM, LLC d/b/a Texoma Park & Marina’s (“Texoma Park”) Motion for
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`Partial Summary Judgment Against Defendants Lexington Insurance Company and AIG Claims
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`Inc. (Dkt. #32). After reviewing the motions, the Court finds that Defendants’ Motion should be
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`denied and Plaintiffs’ Motion should be granted.
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`BACKGROUND
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`Hidden Cove owns property at 20400 Hackberry Creek Park Rd., Denton County, The
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`Colony, Texas 75034 and Texoma Park owns property at 449 Creek Park Rd., Grayson County,
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`Whitesboro, Texas, 76273 (collectively, “the Property”). The Property was insured by Lexington.
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`In May and June 2015, several storms occurred that caused damage to the Property. Lexington
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`issued advanced payments on the policy to Plaintiffs of $1,000,000.00 to cover undisputed flood
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`damage.
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 2 of 9 PageID #: 1050
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`The dispute in this case arises out of the amount of coverage owed under the language in
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`the policy. The policy provides for all-risk coverage except for losses listed in the exclusions,
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`even caused concurrently with an included peril pursuant to the anti-concurrent-causation (“ACC”)
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`clause. The policy, in relevant part, reads:
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`
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`B. Coverage
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`. . .
`3. Covered Causes of Loss
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`Covered Causes of Loss means all risk of direct physical “loss” to Covered Property
`except those causes of “loss” listed in Section C. Exclusions.
`. . .
`C. Exclusions
`1. We will not pay for a “loss” if one or more of the following exclusions apply to
`the “loss” regardless of other causes or events that contribute to or aggravate the
`“loss”, whether such causes or events act to produce the “loss” before, at the same
`time as or after the excluded causes or events:
`. . .
`e. Flood
`“Flood”, unless a Limit of Insurance is shown on the Supplemental
`Declarations page, and then coverage applies only up to specified amount.
`Nevertheless, if a Limit of Insurance is not indicated on the Supplemental
`Declarations and “flood” results in fire or explosion, we will pay for the
`“loss” or damage caused by the resulting fire or explosion.
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`(Dkt. #31, Exhibit A at pp. 10–11). Further, the Supplemental Declarations page states:
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`
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`(Dkt. #31, Exhibit A at p. 8).
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`Optional and Additional Coverages:
`. . .
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`Flood:
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`Per Occurrence
`“Policy Period” Aggregate
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`
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`Limit of Insurance
`$1,000,000
`$1,000,000
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`Based on this language, Defendants moved for partial summary judgment because they
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`contend the policy language makes clear that flood is an exclusion with a $1,000,000.00 exception
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`(Dkt. #31). Plaintiffs filed a response (Dkt. #39), Defendants filed a reply (Dkt. #41), and Plaintiffs
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`2
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 3 of 9 PageID #: 1051
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`filed a sur-reply (Dkt. #46). Plaintiffs also moved for partial summary judgment based on the
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`policy language, arguing that flood is a covered peril (Dkt. #32). Defendants filed a response
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`(Dkt. #38) and Plaintiffs filed a reply (Dkt. #42).
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`LEGAL STANDARD
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`The purpose of summary judgment is to isolate and dispose of factually unsupported claims
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`or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). Summary judgment is proper
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`under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no
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`genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
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`FED. R. CIV. P. 56(a). A dispute about a material fact is genuine when “the evidence is such that
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`a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc.,
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`477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court
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`“must resolve all reasonable doubts in favor of the party opposing the motion for summary
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`judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).
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`The party seeking summary judgment bears the initial burden of informing the court of its
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`motion and identifying “depositions, documents, electronically stored information, affidavits or
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`declarations, stipulations (including those made for purposes of the motion only), admissions,
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`interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of
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`material fact. FED. R. CIV. P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden
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`of proof on a claim or defense for which it is moving for summary judgment, it must come forward
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`with evidence that establishes “beyond peradventure all of the essential elements of the claim or
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`defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant
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`bears the burden of proof, the movant may discharge the burden by showing that there is an absence
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`of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning
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`3
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 4 of 9 PageID #: 1052
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`News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the
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`nonmovant must “respond to the motion for summary judgment by setting forth particular facts
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`indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at
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`248–49). A nonmovant must present affirmative evidence to defeat a properly supported motion
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`for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn
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`allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this
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`burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss
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`a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440
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`(5th Cir. 1982) (quoting Ferguson v. Nat’l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The
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`Court must consider all of the evidence but “refrain from making any credibility determinations or
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`weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.
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`2007).
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`ANALYSIS
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`
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`Both Plaintiffs and Defendants move for summary judgment based on their interpretation
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`of the language of the policy. Both parties agree that Defendants have paid the $1,000,000.00 in
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`flood coverage, but dispute whether Plaintiffs can recover an additional payment for wind damage
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`that was contributed to or aggravated by flood.
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`Defendants assert that the policy language clearly and unambiguously establishes that flood
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`is an exclusion with a $1,000,000.00 exception. Defendants contend that, because flood is
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`excluded after the $1,000,000.00 exception, the ACC clause applies to damage caused by flood
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`even in combination with any covered loss, such as wind.
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`Plaintiffs claim that the policy language does not contain an exception to an exclusion
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`because such a reading is unreasonable as it would allow Defendants to unilaterally decide what
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`4
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 5 of 9 PageID #: 1053
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`is covered under the policy. Rather, Plaintiffs maintain that the language in the policy is an
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`affirmation of coverage, which takes flood from an exclusion to a covered peril. Plaintiffs argue
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`that Defendants could have included language to make flood an exclusion after payment reached
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`the sublimit listed on the Supplemental Declarations page, but aver that Defendants did not. As
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`such, Plaintiffs represent that the ACC clause does not apply, and they can recover for wind
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`damage that may have been contributed to or aggravated by flood.
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`Insurance policies are simply a specialized form of contract. Tex. Farmers Ins. Co. v.
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`Murphy, 996 S.W.2d 873, 879 (Tex. 1999). As such, general rules of contract construction apply.
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`Am. Mfrs. Mut. Ins. Co. v. Schafer, 124 S.W.3d 154, 157 (Tex. 2003). The primary goal of contract
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`construction “‘is to give effect to the written expression of the parties’ intent.’” Nautilus Ins. Co.
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`v. Country Oaks Apartment Ltd., 566 F.3d 452, 454 (5th Cir. 2009) (quoting Balandran v. Safeco
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`Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998)). While it is generally the insured’s burden to
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`show that a claim is within the scope of coverage, if “‘the insurer relies on the policy’s exclusions,
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`it bears the burden of proving that one or more of those exclusions apply.’” Trinity Universal Ins.
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`Co. v. Emp’rs Mut. Cas. Co., 592 F.3d 687, 691–92 (5th Cir. 2010) (quoting Federated Mut. Ins.
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`Co. v. Grapevine Excavation, Inc., 197 F.3d 720, 723 (5th Cir. 1999)).
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`Policy language that is unambiguous or, in other words, so clearly worded that it can be
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`given a definite legal meaning, is applied as written. Nautilus Ins. Co., 566 F.3d at 454 (citing
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`Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)). However, if a provision “is susceptible of two
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`or more reasonable interpretations,” the provision is deemed ambiguous and courts will construe
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`the meaning of the ambiguous provision in the light most favorable to the insured. Am. Mfrs. Mut.
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`Ins. Co., 124 S.W.3d at 157 (citing Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462,
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`465 (Tex. 1998)). Further, “[w]hen assessing the insurer's proffered exclusion, ‘[t]he court must
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`5
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 6 of 9 PageID #: 1054
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`adopt the construction of an exclusionary clause urged by the insured as long as that construction
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`is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or
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`a more accurate reflection of the parties’ intent.’” Trinity Universal Ins. Co., 592 F.3d at 692
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`(quoting Utica Nat'l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 202 (Tex. 2004)); Nat’l
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`Union Fire Ins. Co. of Pittsburgh v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991) (citing
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`Glover v. Nat’l Ins. Underwriters, 545 S.W.2d 755, 761 (Tex. 1977); Continental Casualty Co. v.
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`Warren, 254 S.W.2d 762, 763 (1953); Ramsay v. Md. Am. Gen. Ins. Co., 533 S.W.2d 344, 349
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`(Tex. 1976)). Thus, the Court’s “inquiry is whether the construction advanced by [Plaintiffs] is a
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`reasonable interpretation.” Nat’l Union Fire Ins., 811 S.W.2d at 555.
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`Plaintiffs have met their burden to show that their interpretation of Defendants’ proffered
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`flood exclusion is reasonable. The exclusion clause does not clearly establish that, after payment
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`of the $1,000,000.00 limit contained on the Supplemental Declarations page, flood becomes an
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`exclusion. The policy states that flood is an exclusion “unless a Limit of Insurance is shown on
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`the Supplemental Declarations page . . . .” (Dkt. #31, Exhibit A at pp. 10–11) (emphasis added).
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`“Unless” means “except on the condition that.” MERRIAM WEBSTER ONLINE DICTIONARY,
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`https://www.merriam-webster.com/dictionary/unless (Nov. 1, 2017). Therefore, it is not
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`unreasonable to read this part of the provision to mean flood is an exclusion except when there is
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`a limit of insurance on the Supplemental Declarations page.
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`The sentence in the policy continues to say, “and then coverage applies only up to specified
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`amount.” (Dkt. #31, Exhibit A at p. 11). It is not unreasonable to interpret this section of the
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`clause to create a sublimit of coverage, or a cap on the amount of coverage, as opposed to turning
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`flood into an excluded peril. See United Specialty Ins. Co. v. Porto Castelo, Inc., 2016 U.S. Dist.
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`LEXIS 59715, at *10 n.5 (S.D. Tex. May 5, 2016) (citing Six Flags, Inc. v. Westchester Surplus
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`6
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 7 of 9 PageID #: 1055
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`Lines Ins. Co., 565 F.3d 948, 955 (5th Cir. 2009)) (explaining that a “sublimit sets the maximum
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`liability for that particular kind of coverage, [i.e.,] a cap on liability that is less than the overall
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`coverage limits.”). A sublimit and an exclusion are not one and the same. See id.; see also Six
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`Flags, 565 F.3d at 959 n.13 (citing Altru Health Sys v. Am. Protection Ins. Co., 238 F.3d 961 (8th
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`Cir. 2001); Arjen Motor Hotel Corp. v. Gen. Accident Fire & Life Assurance Corp., 379 F.2d 265
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`(5th Cir. 1967); Gilbert/Robinson, Inc. v. Sequoia Ins. Co., 655 S.W.2d 581 (Mo. App. 1983)).
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`“An intent to exclude coverage must be expressed in clear and unambiguous language. . . . If
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`[Lexington] wanted to exclude [flood coverage after the $1,000,000.00 sublimit], then it was
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`incumbent upon [Lexington] to expressly and clearly state the exclusion in the policy.” Nat’l
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`Union Fire Ins., 811 S.W.2d at 556.
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`Defendants argue that the Fifth Circuit in Stewart precludes Plaintiffs’ interpretation as a
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`reasonable interpretation of the policy. Stewart Enters., Inc. v. RSUI Indem. Co., 614 F.3d 117,
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`125 (5th Cir. 2010) (per curiam). This argument is unpersuasive. The parties in Stewart presented
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`different issues for the Fifth Circuit Court of Appeals to decide. In Stewart, the plaintiff had three
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`levels of insurance, and the Fifth Circuit needed to determine whether the third layer of insurance
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`included flood coverage and whether the ACC clause barred recovery for flood caused
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`concurrently with wind. Id. at 118–19. The plaintiff in that case interpreted the policy to mean
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`that flood was covered up to the limit and then, after reaching the limit, flood would become an
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`excluded peril. See id. at 119 (arguing that the third layer of coverage “adopts the limits set forth
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`in the [first two levels’] policies, covering any of the $25 million in flood coverage unpaid by [the
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`first two levels of insurance], and that the ACC clause only operates above that $25 million limit.”).
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`Accordingly, the Fifth Circuit never considered whether flood was an exclusion with an exception
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`or if flood was a covered loss with a sublimit. See generally id. Therefore, even though some
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`7
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 8 of 9 PageID #: 1056
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`language in the Fifth Circuit’s opinion is instructive as to one reasonable interpretation of the
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`policy,1 it does not hold that there is only one way to interpret the policy or foreclose the
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`reasonableness of Plaintiffs’ interpretation. See generally id. As such, Stewart is not determinative
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`in this case.
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`Aside from being a reasonable interpretation, Plaintiffs’ interpretation of the policy also
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`makes practical sense. Under Defendants’ reading, Plaintiffs’ “total recovery could depend on
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`arbitrary accounting decisions by” Defendants. Id. at 124. For example, if, as happened here,
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`Lexington paid $1,000,000.00 in coverage labeled as flood damage, Lexington would not have to
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`pay anything for wind damage if it could not be separated from flood damage; however, if
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`Lexington paid for wind damage that was also aggravated by flood first, then Lexington would
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`still be able to cover any pure flood damage under the $1,000,000.00 limit. This essentially gives
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`Defendants the ability to decide what is covered under the policy, even though certain losses could
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`possibly otherwise have been covered. USAA Texas Lloyds Co. v. Menchaca, 2017 WL 1311752,
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`at *10 (Tex. Apr. 7, 2017) (citing JAW the Pointe v. Lexington Ins. Co., 460 S.W.3d 597, 602 (Tex.
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`2015)). Thus, the Court finds Plaintiffs’ interpretation reasonable, without determining whether
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`Defendants’ interpretation is more reasonable or a more accurate reflection of the parties’ written
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`intent. See Trinity Universal Ins. Co., 592 F.3d at 692 (quoting Utica Nat'l Ins. Co., 141 S.W.3d
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`at 202); Nat’l Union Fire Ins. Co., 811 S.W.2d at 555 (citing Glover, 545 S.W.2d at 761;
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`Continental Casualty Co., 254 S.W.2d at 763 (1953); Ramsay, 533 S.W.2d at 349).
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`1 “Under the [primary insurance] policy, flood is excluded from coverage, with the exception of a $10 million sublimit,
`such that up to $10 million in damage, flood is treated as an included peril.” Stewart Enters., Inc., 614 F.3d at 123.
`“To the extent P(2) defines flood as an excluded peril, the prefatory clause bars recovery for damage caused by an
`included peril acting in conjunction with flood.” Id. at 126.
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`8
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`Case 4:17-cv-00193-ALM Document 53 Filed 11/09/17 Page 9 of 9 PageID #: 1057
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`CONCLUSION
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`It is therefore ORDERED that Defendants’ Motion for Partial Summary Judgment
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`Regarding Policy Interpretation (Dkt. #31) is hereby DENIED and Plaintiffs’ Motion for Partial
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`Summary Judgment Against Defendants Lexington Insurance Company and AIG Claims Inc.
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`(Dkt. #32) is hereby GRANTED. It is further ORDERED that:
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`1. Flood did not become an excluded peril once the sublimits for flood were exhausted.
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`2. The Policy’s anti-concurrent-causation clause does not apply to damages caused by a
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`combination of flood and wind.
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`3. Lexington remains liable for any damages caused by pure wind, and the combination
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`of wind and flood if such damages proven by the Plaintiffs.
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`9
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`