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Smith v. Travelers Casualty Insurance Company of America

United States Court of Appeals, Fifth Circuit

July 26, 2019

LILLIAN SMITH, Plaintiff - Appellant
v.
TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA, Defendant-Appellee

          Appeal from the United States District Court for the Southern District of Texas

          Before OWEN, SOUTHWICK, and HIGGINSON, Circuit Judges.

          STEPHEN A. HIGGINSON, CIRCUIT JUDGE.

         Lillian Smith sued her insurer, Travelers, for contractual and statutory violations arising from the denial of her commercial property insurance claim. Travelers asserted a limitations defense. While Smith concedes that Travelers sent her an unambiguous denial letter, she insists that her causes of action did not accrue until months later because Travelers agreed, upon her request, to re-investigate the property damage. Smith also urges that Travelers waived its limitations defense by failing to raise it until litigation had been underway for two years. The district court granted summary judgment for Travelers. We affirm.

         I. Factual Background

         Plaintiff-Appellant Lillian Smith ("Smith") had a contract with Defendant-Appellee Travelers Casualty Insurance Company ("Travelers") for commercial property insurance. According to Smith, a lightning strike caused damage to the foundation and air conditioning unit on her property on August 27, 2013. On September 5, 2013, she submitted a claim to Travelers. Travelers acknowledged receipt of the claim two days later, in a letter sent to Smith.

         Throughout September and October, Travelers retained engineers to inspect the damage and determine its cause. Travelers regularly kept Smith apprised of the investigation. During this time, Smith hired her own engineering consultant, with whom Travelers kept in regular contact as well.

         Smith's consultant took the position that the damage could only have been caused by lightning. Travelers's consultants disagreed; electrical engineers concluded that the AC unit damage was attributable to "wear and tear" and structural engineers traced the foundational cracking to "compacting and shifting soils," both of which were excluded from coverage under the policy. Smith refused to accept those findings. She accused the engineers of being "only hired to do work for the insurance companies" and warned that she would "see [Travelers] in court."

         On November 13, 2013, Travelers sent a letter to Smith stating, "Base[d] on the policy language . . ., the findings of the inspection, and the expert reports received, we will be unable to provide coverage for your claim as the damages sustained are excluded in the policy[.]"The letter explained that Travelers had "conducted a [lightning] strike report to determine if there were any strikes in the area" and found that the "closest recorded strike was over 3 miles away." The letter also reported that Travelers's consultant engineers had determined that the property damage was caused by "wear and tear/breakdown" and "shifting and earth movement," which were both excluded from coverage under the policy. The parties agree that this letter communicated the denial of Smith's claim.

         Nine months passed during which Travelers made no payments to, and heard nothing from, Smith with regard to the policy. On August 11, 2014, Smith's counsel sent Travelers a letter, which stated that it served as "notice of [Smith's] claim" and an opportunity "to resolve this matter without litigation." The letter explained that Smith had hired another engineer who had examined the property in December 2013[1] and determined (like her first engineer did) that the damage was caused by a lightning strike. Attached to the letter was Smith's second engineer's report, dated April 24, 2014.

         The August 2014 letter from Smith's counsel alleged that Travelers had committed various contractual and statutory violations-for example, that Travelers had "failed to in good faith attempt to bring about a prompt, fair, and equitable settlement of a claim once its liability became reasonably clear" and failed to "provide Ms. Smith with an explanation as to why coverage was denied." The letter also accused Travelers of "refus[ing] to pay a claim without conducting a reasonable investigation." In closing, the letter advised that Smith preferred to resolve the matter "without filing suit," and stated a settlement demand. "If this sum is not paid within 60 days of receipt of this notice," the letter warned, "suit will be filed against you."

         Counsel for Travelers responded to the letter on October 13, 2014. Because this response is central to the issue on appeal, we quote its relevant content in full:

Your letter fails to provide Travelers with proper notice of a claim under the referenced statutes. The letter sets forth only conclusory allegations of underpayment and does not provide adequate details of any claimed violation of the Insurance Code or DTPA. It does not identify any covered damages that are claimed to have been underpaid, the amounts by which any such damages are claimed to have been underpaid, or any factual basis for your demand . . . .
While your letter does not contain any additional or different information which would cause Travelers to change its position in this matter, if you will provide me some dates that the property is available for inspection, we will hire a third engineer to conduct an investigation as to the cause of claimed damage at the property in an attempt to resolve this matter amicable [sic]. However, please be advised that Travelers continues to reserve all its rights, specifically including, but not limited to its contractual right of appraisal in the event that the parties are unable to reach agreement regarding the "amount of loss" should the claimed damage be found to be a result from a covered cause of loss.

         On April 9, 2015, Travelers emailed Smith a copy of its third engineer's report, which supported Travelers's original position that the property damage was not caused by lightning. The email advised that Travelers's counsel would "have a more formal response letter" sent to Smith soon. None was ever sent.

         Upon receipt of the third engineer's report, Smith's counsel sent an email to Smith that said, "Please review and respond as it looks like we are worlds apart."

         II. Procedural History

         On January 25, 2016, Smith filed suit against Travelers in Texas state court, alleging breach of contract as well as multiple causes of action under the Texas Deceptive Trade Practices Consumer Protection Act ("DTPA") and the Texas Insurance Code. In May, Travelers filed a state court answer generally denying the allegations. The same month, Travelers filed a notice of removal.

         Two months later, the federal district court entered a Docket Control Order that included deadlines for discovery, expert reports, non-dispositive motion filing, the joint pretrial order, and docket call. On the Docket Control Order form, the word "None" was written next to a space indicating a deadline for motions to amend pleadings.

         Six months passed. In February 2017, the parties submitted a joint motion to continue all Docket Control Order deadlines, which the court granted.

         On June 15, 2017, Travelers filed its first federal court answer, which asserted various affirmative defenses. The "Second Defense" was entitled "Policy Provisions Limit or Preclude Coverage." That defense stated, in relevant part:

Some or all of Plaintiff's claims are excluded or limited by applicable policy terms, conditions, and exclusions contained in the Policy. The insurance policy issued by Travelers contains exclusions, provisions, conditions, and endorsements that preclude or limit coverage, in whole or in part, including, but not limited to, the following:
4. Legal Action Against Us
No one may bring a legal action against us under this Coverage Form unless:
[. . .]
b. The action is brought within 2 years and one day from the date the cause of action first accrues on the date of the initial breach of our contractual duties as alleged in the action.

         Over the next five months, the parties submitted two more joint motions for continuance, both of which were granted. In late January 2018, counsel for Travelers sent Smith's counsel an email stating:

I would like to clean up pleadings. Will you agree to me doing so? I think I need your consent under the rules so I do not have to file a Motion to Leave. If not, I can file the Motion to Leave, just thought this would be easier.

         Smith's counsel responded, "Yes, I agree." On February 7, Travelers filed its Second Amended Answer, which specified that the amendment was "consistent with Plaintiff's written consent."[2] The Second Amended Answer included the same Second Defense as the first answer did, and added the following defense:

TENTH DEFENSE
Statute of Limitations
Pursuant to Fed.R.Civ.P. 8, Travelers pleads the affirmative defense of statute of limitations barring Plaintiff's claims and suit pursuant to Tex. Bus. & Com. Code §17.565 and/or §15.50(c) and (d), and Tex. Insur. Code §541.162, and Tex. Civ. Prac. & Rem. Code §16.003(a), and the Policy's contractual limitations for any alleged breach of contract action as ...

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