Segregating Damages Case – 5th Circuit

Insurance lawyers in the Dallas and Fort Worth need to read this 2022, United States 5th Circuit opinion.  It is styled, Advanced Indicator And Manufacturing, Incorporated v. Acadia Insurance Company; Nicolas Warren.

Advanced asserts it suffered damage to the roof of its building as the result of the storm, Hurricane Harvey.  Advanced submitted a claim to Acadia and Acadia assigned Warren to adjust the claim.  Warren inspected the building and determined that the damage was pre-existing and leaks resulted from deterioration and poor workmanship.    Based on Warren’s report, Acadia denied the claim.

On August 7, 2018, Advanced sued Acadia and Warren in state court, alleging various claims, including breach of contract, common law bad faith, and violations of the Texas Prompt Payment of Claims Act.

Acadia filed a motion for summary judgement which was granted by the district court.  The Court reviews the grant of a motion for summary judgement de novo and applies the same standard as the district court, viewing the evidence in the light most favorable to the nonmovant.  Pursuant to Federal Rule 56(a), summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”  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.  Courts do not disfavor summary judgment, but, rather, look upon it as an important process through which parties can obtain a just, speedy and inexpensive determination of every action.

The district court essentially granted summary judgment on Advanced’s policy breach claim for two reasons.  First, the district court credited Acadia’s investigation over Advanced’s investigation, essentially finding that Hurricane Harvey did not cause Advanced’s damages.  Second, the district court found that because Advanced could not differentiate its pre-existing losses from its Hurricane Harvey losses, its claim fails under Texas’s concurrent causation doctrine.

In a claim for breach of an insurance contract, Texas law requires the insured to prove: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of the breach.  The view taken by the district court seems to have been that Acadia did not breach the contract because it properly denied Advanced’s claim based on Watson’s report and Warren’s recommendation.

The question before us is whether Advanced has put forth sufficient summary judgment evidence to create a disputed issue of material fact regarding whether the damage to the building came from a covered cause, here, wind from Hurricane Harvey.  We hold that it has.  Specifically, Advanced points to the testimony of Thomas Ross, a public adjuster, who stated that the roofing system “completely failed,” and that the damage was “absolutely” caused only by the hurricane.  De la Mora, Advanced’s expert, also testified at his deposition that the damage was caused by Hurricane Harvey.  Finally, the record contains previous reports demonstrating that the building was in good shape.  Viewing this evidence in the light most favorable to Advanced, a reasonable jury could find that Hurricane Harvey’s winds were the cause of the damage to the building.  To be sure, Acadia offers evidence to the contrary.  But this evidence serves only to create a factual dispute.

We next turn to the district court’s alternative holding: that the concurrent causation doctrine bars Advanced’s claim because it cannot segregate covered losses from non-covered losses.  Under this doctrine, when covered and non-covered perils combine to create a loss, the insured is entitled to recover that portion of the damage caused solely by the covered peril.  Because an insured can recover only for covered events, the burden of segregating the damage attributable solely to the covered event is a coverage issue for which the insured carries the burden of proof.  Failure to segregate covered and noncovered perils is fatal to recovery.  An insured may carry its burden by putting forth evidence demonstrating that the loss came solely from a covered cause or by putting forth evidence by which a jury may reasonably segregate covered and non-covered losses.

Here, the same evidence that supports Advanced’s argument that Hurricane Harvey caused some of its damage supports its argument that Hurricane Harvey caused all of the damage.  Indeed, both Ross and De la Mora testified that the hurricane was the sole cause of Advanced’s loss.  Accordingly, because a jury could reasonably find that all of Advanced’s loss comes from a covered cause, the concurrent causation doctrine does not bar recovery.

Contact Information