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Spector v. USAA Casualty Insurance Co.

United States District Court, E.D. Louisiana

April 3, 2019

MATTHEW SPECTOR
v.
USAA CASUALTY INSURANCE COMPANY, et al.

         SECTION: “G” (1)

          ORDER

          NANNETTE JOLIVETTE BROWN CHIEF JUDGE UNITED STATES DISTRICT COURT

         Pending before the Court is Defendant USAA Casualty Insurance Company and USAA General Indemnity Company's (collectively, “USAA”) Motion to Dismiss.[1] In this litigation, Plaintiff Matthew Spector (“Plaintiff”) alleges that Defendants Sewerage and Water Board of New Orleans (“SWB”), the City of New Orleans, and Wallace C. Drennan, Inc. are liable for flood damage to his home that was allegedly exacerbated by nearby street repairs.[2] Plaintiff also alleges that USAA is liable for improperly adjusting his insurance claim following the flooding event.[3]Having considered the motion, the memoranda in support and in opposition, oral argument, and the applicable law, the Court will grant the motion.

         I. Background

         A. Factual Background

         According to the Petition, Plaintiff owns property in New Orleans and carried flood insurance through USAA.[4] Plaintiff alleges that during August 2017, a rain and wind event caused flooding and significant damage to his property.[5] Plaintiff alleges that before the rain and wind event, the City of New Orleans hired Wallace C. Drennan, Inc. to repair street drainage near his home, and that this work was ongoing during the rain and wind event.[6] Plaintiff alleges that these repairs were performed negligently, and as a result, rain waters from the street pooled onto his property and caused damage to his home.[7]

         Plaintiff also alleges that at the time of the rain and wind event, Plaintiff held a flood insurance policy with USAA.[8] Plaintiff alleges that within days of the rain event, he notified USAA of his losses and filed claims.[9] Plaintiff alleges that USAA sent adjusters to evaluate his losses.[10] Plaintiff then alleges that he provided his insurers with additional documentation of his losses and that USAA refused to re-evaluate his claims.[11] Plaintiff alleges that USAA violated the National Flood Insurance Act, flood insurance regulations, federal common law, and their own rules by negligently, and in bad faith, failing to adjust his claims.[12]

         B. Procedural Background

         Plaintiff filed a Petition in the Civil District Court for the Parish of Orleans, State of Louisiana, on August 3, 2018.[13] Defendant USAA General Indemnity Co. removed the case to this Court on September 20, 2018, asserting that this Court has original jurisdiction over Plaintiff's federal law claims pursuant to 28 U.S.C. § 1331 and supplemental jurisdiction over Plaintiff's state law claims pursuant to 28 U.S.C. § 1367.[14]

         Defendant SWB filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) on November 30, 2018.[15] Plaintiff filed an opposition on December 17, 2018.[16] Upon Plaintiff's request, the Court heard oral argument on January 30, 2019.[17] On February 14, 2019, the Court issued an order denying SWB's Motion to Dismiss without prejudice and granting Plaintiff leave to amend the complaint to address any deficiencies noted by the Court.[18]

         Defendant USAA filed the instant Motion to Dismiss on January 21, 2019.[19] Plaintiff filed an opposition on February 5, 2019.[20] Upon Plaintiff's request, the Court heard oral argument on March 13, 2019.[21]

         On February 28, 2019, after the instant motion was filed, Plaintiff filed an amended complaint to address deficiencies in the original petition as noted in the Court's Order denying Defendant Sewage and Water Board of New Orleans Motion to Dismiss.[22] Plaintiff did not substantially change his factual allegations regarding USAA in the amended complaint.[23]

         II. Parties' Arguments

         A. USAA's Arguments in Support of the Motion to Dismiss

         In the instant Motion to Dismiss, USAA argues that Plaintiff has not stated a claim upon which relief can by granted because all of Plaintiff's claims against USAA concern alleged flood damage and the USAA homeowner's policy at issue excludes coverage for flood damage.[24] USAA points to the section of the policy wherein it states it excludes coverage for water damage, including flooding.[25] USAA claims that the Homeowners Insurance Policy Coverage Disclosure Summary provided to Plaintiff pursuant to Louisiana Revised Statute § 22:1332, provides in part:

Flood damage is not covered, regardless of how caused, when flood is the peril that causes the loss. Flood water includes, but is not limited to, storm surge, waves, tidal water, overflow of a body of water, whether driven by wind or not.[26]

         USAA argues that Plaintiff alleges damage from flooding and specifically alleges that the flooding was the result of inadequate or improper drainage, causing water to pool from below the house.[27] USAA argues that Plaintiff has pleaded no facts alleging that the damage was caused by any peril other than water damage, which is expressly excluded under the policy.[28] Therefore, USAA argues the USAA homeowners insurance policy does not cover the losses incurred by Plaintiff, and Plaintiff has not stated a claim against USAA upon which relief can be granted.[29]

         B. Plaintiff's Arguments in Opposition to the Motion to Dismiss

         In opposition, Plaintiff argues that in the petition, he asserts that he has stated a claim against USAA for breach of contract under the terms of the homeowners policy, negligence, and bad faith adjusting of the claim.[30] Plaintiff argues that with regard to insurance policy coverage and exclusions, the Louisiana Supreme Court provides, “[a]lthough the insured bears the burden of proving a policy of insurance affords coverage for an incident, the insurer bears the burden of proving the applicability of an exclusionary clause within a policy.”[31] Further, Plaintiff argues that “[p]olicy exclusions must be clearly stated. Any ambiguity in an insurance policy's exclusions is construed to afford coverage.”[32]

         Plaintiff argues that three ambiguities exist in the instant case. First, Plaintiff states that the Petition cites “a rain and wind event” caused “flooding and property damage” at Plaintiff's home, which lead to damage due to flooding and moisture from subsequent evaporation.[33] Plaintiff concedes that to the extent any property damage was caused by flooding itself, the homeowner's policy will not apply; however, Plaintiff argues the policy is ambiguous because neither the word “evaporation” nor “moisture” can be found in the policy.[34]

         Second, Plaintiff states that the homeowner's policy does not exclude all water damage, specifically providing coverage in cases of “Water Backup” which includes:

1. Water or water-borne material which flows into the plumbing system of your dwelling or other structures through sewers or drains located off the “residence premises”; or
2. Water which overflows from a sump pump or sump well with a sump pump designed to drain subsurface water from the foundation area even if such overflow results from the mechanical breakdown of the sump pump or a disruption in power. This coverage does not apply to direct physical loss of the sump pump, or related equipment, which is caused by mechanical breakdown.[35]

         Plaintiff argues the policy is ambiguous on this issue because Plaintiff alleged a wind and rain event occurred in tandem with and was exacerbated by water backed up from inadequate and improper drainage as a result of street repairs of sewers or drains located off the residence premises.[36]

         Third, Plaintiff argues that the policy also provides coverage for “collapse” which is at issue in this case.[37] According to Plaintiff, the policy states that “collapse” means “[a] sudden falling or caving in; or…a sudden breaking apart or deformation such that the building or part of a building is in imminent peril of falling or caving in and is not fit for its intended purpose.”[38]Plaintiff also claims that the policy states collapse will be covered if caused by “weight of contents” or “weight of rain which collects on a roof.”[39] Plaintiff claims that the policy applies because as a result of the incident, “the flooring contained in Plaintiff's home broke apart and deformed, may be in imminent peril of falling or caving in, and is not fit for its intended purpose.”[40]

         III. Legal Standard

         A. Legal Standard on a Rule 12(b)(6) Motion to Dismiss

         Federal Rule of Civil Procedure 12(b)(6) provides that an action may be dismissed “for failure to state a claim upon which relief can be granted.”[41] A motion to dismiss for failure to state a claim is “viewed with disfavor and is rarely granted.”[42] “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.'”[43] “Factual allegations must be enough to raise a right to relief above the speculative level.”[44] A claim is facially plausible when the plaintiff has pleaded facts that allow the court to “draw a reasonable inference that the defendant is liable for the misconduct alleged.”[45]

         On a motion to dismiss, asserted claims are liberally construed in favor of the claimant, and all facts pleaded are taken as true.[46] However, although required to accept all “well-pleaded facts” as true, a court is not required to accept legal conclusions as true.[47] “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.”[48]Similarly, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements” will not suffice.[49] The complaint need not contain detailed factual allegations, but it must offer more than mere labels, legal conclusions, or formulaic recitations of the elements of a cause of action.[50] That is, the complaint must offer more than an “unadorned, the defendant-unlawfully-harmed-me accusation.”[51] From the face of the complaint, there must be enough factual matter to raise a reasonable expectation that discovery will reveal evidence as to each element of the asserted claims.[52] If factual allegations are insufficient to raise a right to relief above the speculative level, or if it is apparent from the face of the complaint that there is an “insuperable” bar to relief, the claim must be dismissed.[53]

         B. Legal Standard for Interpreting Insurance Contracts under Louisiana Law

         Under Louisiana law, “an insurance policy is a contract between the parties and should be construed by using the general rules of interpretation of contracts set forth in the Louisiana Civil Code.”[54] “The Louisiana Civil Code provides that ‘[t]he judiciary's role in interpreting insurance contracts is to ascertain the common intent of the parties to the contract' by construing words and phrases ‘using their plain, ordinary and generally prevailing meaning.'”[55] “Interpretation of an insurance contract generally involves a question of law.”[56]

         If the contract is clear and unambiguous and does not have absurd consequences, the court applies the ordinary meaning of the contractual language.[57] If the insurance policy contains ambiguous provisions, the “[a]mbiguity . . . must be resolved by construing the policy as a whole; one policy provision is not to be construed separately at the expense of disregarding other policy provisions.”[58] “An insurance contract, however, should not be interpreted in an unreasonable or strained manner under the guise of contractual interpretation to enlarge or restrict its provisions beyond what is reasonably contemplated by unambiguous terms or achieve an absurd conclusion.”[59] “Courts lack the authority to alter the terms of insurance contracts under the guise of contractual interpretation when the policy's provisions are couched in unambiguous terms.”[60]

         IV. Analysis

         The parties agree that the insurance policy at issue in this litigation can be considered by the Court for purposes of deciding the instant Motion to Dismiss.[61] The Fifth Circuit has held that “[d]ocuments that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to her claim.”[62] The policy is central to Plaintiff's claims because he is claiming that USAA breached the policy, and the policy is referred to in Plaintiff's Petition for Damages; therefore, it may be considered part of the pleadings. At issue here is whether the Plaintiff has properly pled a claim against USAA in this case.

         Further, the Court notes that although an amended complaint was filed in this case while the instant motion was pending, the amended complaint did not substantially change the factual allegations pertaining to USAA, the party that brought the instant Motion to Dismiss.[63] Courts may address the merits of a motion to dismiss even after an amended complaint is filed, but as a general rule, “if applying the pending motion to the amended complaint would cause confusion or detract from the efficient resolution of the issues, then it makes sense to require the defendant to file a new motion specifically addressing the amended complaint.”[64] Here, because the amended complaint makes no new allegations regarding USAA, there is no risk of confusion or inefficiency, therefore, the Court will proceed to address the motion to dismiss and sufficiency of the allegations against USAA as outlined in both the original petition and the amended complaint.

         With regard to insurance policy coverage and exclusions, the Louisiana Supreme Court has stated, “[a]lthough the insured bears the burden of proving a policy of insurance affords coverage for an incident, the insurer bears the burden of proving the applicability of an exclusionary clause within a policy.”[65] “Policy exclusions must be clearly stated. Any ambiguity in an insurance policy's exclusions is construed to afford coverage.”[66]

         Neither party disputes that Plaintiff's property was covered by the USAA homeowners insurance policy. Instead, the parties dispute whether the damage at issue in this case falls under an exclusion to the coverage provided by that policy. USAA asserts that the policy explicitly excluded coverage for “flooding” and that Plaintiff's claims only include factual allegations that his damages resulted from flooding.[67] In response, Plaintiff argues that ambiguities exist because he claims damages related to “moisture” and “evaporation” following the flooding, and the policy covers water damage due to “water backup” and structural damage related to “collapse.”[68] However, at oral argument, Plaintiff's counsel conceded that all damages in this case arose from flooding of Plaintiff's property.

         The policy states that:

Flood damage is not covered, regardless of how caused, when flood is the peril that causes the loss. Flood water includes, but is not limited to, storm surge, waves, tidal water, overflow of a body of water, whether driven by wind or not.[69]

         Further, the policy states:

         1. We do not insure for damage consisting of or caused directly or indirectly by any of the following, regardless of:

(i) The cause of the excluded event or damage ...

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