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Fifth Circuit Sides with Insurer’s Denial of 30-Month Late Hail Damage Claim

20 June 2018

The United States Court of Appeals for the Fifth Circuit ruled this month in favor of Certain Underwriters at Lloyd’s, London in a property coverage matter related to hail damage claims asserted by a North Texas hotel.  Certain Underwriters at Lloyd’s, London, v. Lowen Valley View, LLC, ___ F.3d ___, No. 1710914 (5th Cir. June 6, 2018) (not yet published).

In late 2014, the owner of the Dallas-area Hilton Garden Inn, submitted a claim for hail damage to the roofs and exterior elevations of the hotel. The property was covered under a commercial property insurance policy issued by Certain Underwriters at Lloyd’s, with effective dates from June 2, 2012, to June 2, 2013. In making the claim, Lowen Valley’s vice president notified the company’s insurance agent that the building appeared to have sustained hail damage at some undetermined point in the past. He did not attribute the damage to a specific storm. Instead, he provided a weather history report that listed nine hail events occurring near the hotel over a nine-year period between January 1, 2006, and December 22, 2014. According to the data, the largest hail reported in those storms occurred on May 24, 2011, which was a year before the policy went into effect. Lowen Valley’s agent subsequently submitted a property loss notice to Underwriters, identifying the loss as “Roof damage due to hail” and claiming it had occurred thirty months earlier on June 13, 2012, the only hail event occurring during the policy period.

After conducting an investigation and obtaining expert analysis, the Underwriters sought a declaratory judgment, asking the U.S. District Court  for  the Northern District of Texas to find no coverage under the policy for the claimed hail damage because the insured violated the policy’s notice condition. Lowen Valley then requested its own declaratory judgment, stating that there was coverage under the policy, and asserted a multi-million dollar counterclaim against Underwriters, alleging breach of the policy and violations of the Texas Insurance Code. Underwriters then moved for summary judgment.

The Honorable Jane Boyle, U.S. District Judge for the Northern District of Texas, granted summary judgment in favor of Underwriters on all claims and dismissed them with prejudice. Judge Boyle’s judgment was based on two grounds: (1) Lowen Valley failed to meet its burden to offer evidence that would allow a jury to segregate covered losses from non-covered losses, and (2) Lowen Valley failed to provide prompt notice of its loss, prejudicing Underwriters. The hotel appealed the matter to the Fifth Circuit.

The court of appeals agreed with the district court on the first ground and did not reach the second point. Here, the evidence in the record showed that numerous hail storms that could have caused the damage occurred over an extended period of time, and only one of those storms struck during the policy period. Because the record lacked reliable evidence that would permit a jury to determine which storm damaged the hotel, summary judgment was proper. The court also rejected the arguments of the insured that a fact issue on the timing of the damage was created by: (1) a computer log note by the adjuster noting that damage had occurred in the past, and (2) a misstatement in an expert report, which the expert subsequently corrected and which was clearly a mistake when read in the context of the supporting information.

The court concluded that summary judgment was also warranted on Lowen Valley’s counterclaims and extra-contractual claims because they were based solely on its allegations of unpaid coverage benefits.

Jerry Kimmitt, Sheshe T. Evans, and Karen A. Conticello represented Underwriters before the Fifth Circuit.