     Case: 14-51301         Document: 00513359490          Page: 1     Date Filed: 01/28/2016




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT
                                                                                United States Court of Appeals
                                                                                         Fifth Circuit
                                         No. 14-51301                                  FILED
                                                                                January 28, 2016
                                                                                  Lyle W. Cayce
CLAUDIA AYOUB; GERALD C. AYOUB,                                                        Clerk

                 Plaintiffs - Appellants

v.

CHUBB LLOYDS INSURANCE COMPANY OF TEXAS,

                 Defendant - Appellee



                      Appeal from the United States District Court
                           for the Western District of Texas
                                 USDC No. 3:13-CV-58


Before DENNIS and COSTA, Circuit Judges, and ENGELHARDT,* District
Judge.
GREGG COSTA, Circuit Judge: **
       The principal question presented in this dispute over a homeowner’s
insurance policy is whether a section of the policy setting forth a
“reconstruction cost less depreciation” standard for dwelling loss is a coverage
provision, on which the insured has the burden of proof, or a limitation of
liability provision, on which the insurer has the burden. We also have to decide


       * Chief   Judge of the Eastern District of Louisiana, sitting by designation.
       **Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 14-51301     Document: 00513359490     Page: 2   Date Filed: 01/28/2016



                                  No. 14-51301
how insureds can prove market value under Texas law for personal items
which may have no such thing. For the reasons discussed below, we find that
summary judgment in favor of the insurer was not warranted on either issue.
                                        I.
      Claudia and Gerald Ayoub own a home in El Paso. Prior to the loss in
this case, it was worth in the neighborhood of $2 million. The home was
insured under a “Texas Standard Homeowners Policy” issued by Chubb Lloyds
Insurance Company of Texas. Coverage A of the Policy insured the dwelling
for up to $2,511,000. Coverage B insured personal property in the home for up
to $1,506,600. At additional cost, the Ayoubs purchased replacement cost
endorsements for both their dwelling and personal property.
      The Ayoubs’ home was damaged when pipes burst during a severe cold
front. The Ayoubs notified Chubb, which began investigating the claim and
made payments totaling close to $1 million for repairs to the dwelling and
losses to personal property. A disagreement arose between Chubb and the
Ayoubs regarding the full extent of the Ayoubs’ covered loss. The Ayoubs sued
Chubb in Texas state court to force additional payment under the Policy. In
addition to their contract claims, the Ayoubs asserted statutory claims for
unfair claim settlement practices and deceptive trade practices.
      Chubb removed the case to federal court. After discovery, Chubb moved
to exclude the testimony of two of the Ayoubs’ witnesses: David Fix, an expert
on dwelling replacement cost, and Mr. Ayoub. The district court struck as
unreliable Fix’s depreciation opinion, which was based on a figure Fix received
secondhand (from the Ayoubs’ insurance adjuster) and could not justify. The
court refused to strike Mr. Ayoub’s lay opinion “as to the value of his own
property” because the objections raised by Chubb went to “its weight and
credibility” rather than its admissibility.


                                        2
     Case: 14-51301        Document: 00513359490          Page: 3     Date Filed: 01/28/2016



                                        No. 14-51301
       Chubb then moved for summary judgment. The district court granted
summary judgment on the dwelling claim because it found that the Policy
obligated the Ayoubs to establish depreciation, but their only depreciation
evidence had been struck as unreliable. The district court reached a similar
conclusion as to the personal property claim. It found that the Ayoubs bore the
burden of establishing “actual cash value” of the personal property, including
depreciation, and the only evidence—Mr. Ayoub’s lay opinion testimony—
concerned replacement cost.            Finally, the district court granted summary
judgment on the statutory claims because they were “based on the alleged
breach of the insurance contract.” The Ayoubs timely appealed the summary
judgment order. 1
                                              II.
       Summary judgment is appropriate when “there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a).         We review the district court’s grant of summary
judgment de novo, construing all facts and inferences in the light most
favorable to the nonmoving party. See EEOC v. Chevron Phillips Chem. Co.,
570 F.3d 606, 615 (5th Cir. 2009). Because the proper interpretation of an
insurance policy presents a legal question, not a factual one, the district court’s
interpretations of the Policy are also reviewed de novo. See Martco Ltd. P’ship
v. Wellons, Inc., 588 F.3d 864, 878 (5th Cir. 2009).



       1 The Ayoubs also appealed the district court’s orders excluding Fix’s depreciation
testimony. We find that they have forfeited that issue. The Ayoubs included the relevant
orders in their notice of appeal below, and they list the admissibility of Fix’s opinion in their
statement of issues on appeal. But they have not explained how the court’s ruling allegedly
conflicted with the Federal Rules of Evidence, Texas law, or our precedent. Hinting at error
is not enough to garner appellate review. See United States v. Scroggins, 599 F.3d 433, 446–
47 (5th Cir. 2010) (finding issue not “adequately presented” on appeal when the issue was
“mentioned in the questions presented and the summary of the argument, but the body of
the brief [did] not discuss it in any depth”).
                                               3
    Case: 14-51301     Document: 00513359490    Page: 4   Date Filed: 01/28/2016



                                 No. 14-51301
      A.    Dwelling claim
      The first issue is whether the Ayoubs or Chubb bore the burden of
proving depreciation to the dwelling. The policy’s “Verified Replacement Cost
Endorsement” states:




The district court interpreted the last sentence of Item 4(b) as a “precondition
to coverage” which the Ayoubs had to prove.
      Under Texas law, an insured suing for breach of an insurance agreement
bears the initial burden of proving that his loss results from a covered risk.
See Guaranty Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998);
Employers Cas. Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988) disapproved of
for other reasons by State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex.
1996). But if the insurance policy contains exclusions to coverage, it is the
insurer’s burden to prove the exclusion applies. See Guaranty Nat’l, 143 F.3d
at 193.


                                       4
    Case: 14-51301     Document: 00513359490       Page: 5   Date Filed: 01/28/2016



                                   No. 14-51301
      Similar rules govern an insured’s damages. The insured has the burden
of proving the extent of his loss. See Block v. Employers Cas. Co., 723 S.W.2d
173, 178 (Tex. App.—San Antonio 1986), aff’d, 744 S.W.2d 940 (Tex. 1988); see
also 12 Lee R. Russ & Thomas F. Segalla, COUCH ON INSURANCE § 175:92 (3d
ed. 2005) (“In accord with general principles governing the law of damages,
there can be no recovery for items where their existence and value are not
proved. Consequently, the insured bears the burden of proof under a property
insurance policy . . . .” (emphasis added)). And if the insurance policy defines
how loss will be measured, the insured is “relegated” to that measure. Cf. Crisp
v. Security Nat’l Ins. Co., 369 S.W.2d 326, 327–28 (Tex. 1963) (finding that
certain policy language “does not establish a contractual measure of damages
to which the insured must be relegated”); see also U.S. Fire Ins. Co. v. Stricklin,
556 S.W.2d 575, 581–82 (Tex. App.—Dallas 1977, writ ref’d n.r.e.) (finding that
jury instruction explaining “actual cash value” was “misleading” because it did
not obligate the jury to “follow the contractual measure of damages”). But a
contractual limitation of liability—that is, a cap on what the insurer will have
to pay out, independent of the value of the loss—falls upon the insurer to plead
and prove. See Manhattan Fire & Marine Ins. Co. v. Melton, 329 S.W.2d 338,
339–45 (Tex. App.—Texarkana 1959, writ ref’d n.r.e.); see also Imperial Ins.
Co. v. Nat’l Homes Acceptance Corp., 626 S.W.2d 327, 328–30 (Tex. App.—Tyler
1981, writ ref’d n.r.e.) (holding that trial court properly allowed insureds to
recover repair costs despite policy language which limited insurer’s liability to
“actual cash value of the property at the time of loss” in light of insurer’s failure
to “raise the issue of the propriety of the measure of damages until it moved
for an instructed verdict”).
      Underlying these rules is recognition that the value of a loss can be
expressed a number of different ways.           As relevant here, two possible
measurements are market value and repair or replacement cost. 12 COUCH ON
                                         5
    Case: 14-51301     Document: 00513359490      Page: 6   Date Filed: 01/28/2016



                                  No. 14-51301
INSURANCE § 175:24.        Which particular measurement most faithfully
compensates the insured for his actual loss—no more and no less—can be a
“controversial question.” See id. § 175:5; see also Crisp, 369 S.W.2d at 328
(“Indemnity is the basis and foundation of insurance coverage not to exceed the
amount of the policy, the objective being that the insured should neither reap
economic gain nor incur a loss if adequately insured.”). A contractual measure
of damages is one way of settling the controversy in advance. A limitation of
liability can serve the same function, by indicating that the insurer will pay
only the smallest of a number of different possible measurements. See, e.g.,
Imperial Ins., 626 S.W.2d at 329 (stating that liability “shall not exceed” (1)
actual cash value with deduction for depreciation, (2) repair or replacement
costs with material of like kind and quality, or (3) policy limit).
      This is not to say that the absence of a contractual measure of damages
gives the insured absolute freedom to decide how to measure his loss. Texas
law provides some default rules.      In the case of a “partial loss under an
insurance contract insuring a dwelling”—the loss at issue in this case—the
“ordinary measure of damages . . . is the difference between the value of the
property immediately before and immediately after the loss, but within the
amount of the policy.” Imperial Ins. Co., 626 S.W.2d at 329–30; see also Custom
Controls Co. v. Ranger Ins., 652 S.W.2d 449, 452 (Tex. App.—Houston [1st
Dist.] 1983, no writ) (“[T]he common law measure of damages . . . is the market
value immediately before and immediately after the loss.”).
      Whether the last sentence of Item 4(b) of the Verified Replacement Cost
Endorsement sets forth a contractual measure of damages that overrides the
default common law standard or a limitation of liability is not an easy question.
No Texas court has addressed a policy provision that is substantially similar
in its overall structure and language to this one. Chubb’s reading of the
sentence as a measure of damage rather than a cap on coverage makes some
                                        6
    Case: 14-51301     Document: 00513359490      Page: 7    Date Filed: 01/28/2016



                                  No. 14-51301
sense when the sentence is viewed in isolation: “If you have a covered partial
loss to your dwelling or an other structure, and do not begin to repair, replace
or rebuild the lost or damaged property within 180 days from the date of loss,
we will only pay the reconstruction cost less depreciation.” The sentence is
couched in terms of what Chubb will pay, rather than what Chubb’s payment
cannot exceed (although this seems a distinction without a difference when the
sentence contains only one measurement of loss). Also compelling, the Ayoubs
purchased the endorsement for an additional premium, and it is explicitly
titled “replacement cost.” This suggests that the endorsement offers a more
valuable measure of damages, purchased by the Ayoubs for the express
purpose of having recourse to it.       See 12 COUCH ON INSURANCE § 176:56
(“[W]hile a standard policy compensating an insured for the actual cash value
of damaged or destroyed property makes the insured responsible for bearing
the cash difference necessary to replace old property with new property,
replacement cost insurance allows recovery for the actual value of property at
the time of loss, without deduction for deterioration, obsolescence, and similar
depreciation of the property’s value.”).
      We are persuaded, however, that Chubb’s interpretation is not
reasonable in light of the Verified Replacement Cost Endorsement as a whole.
See RSUI Indemnity Co v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015) (“If
only one party’s construction [of the policy language] is reasonable, the policy
is unambiguous and we will adopt that party’s construction.”). In reaching this
conclusion, we heed the Texas Supreme Court’s admonition not to “isolat[e]
from its surroundings or consider[] apart from other provisions a single phrase,
sentence, or section of a contract.” State Farm Life Ins. Co. v. Beaston, 907
S.W.2d 430, 433 (Tex. 1995).
      The first sentence of the endorsement’s dwelling provision (Item 4(b))
begins with limitation language: “Our limit of liability for covered losses . . . .”
                                           7
     Case: 14-51301      Document: 00513359490        Page: 8     Date Filed: 01/28/2016



                                     No. 14-51301
Such language is similar to policy language that has been construed by Texas
courts as limitations of liability. Cf. Crisp, 369 S.W.2d at 328 (stating that
“liability hereunder shall not exceed . . .” (emphasis added)); Imperial Ins. Co.,
626 S.W.2d at 329 (same); Manhattan Fire, 329 S.W.2d at 340 (same). And
Item 4(b) follows another section of the endorsement—Item 4(a), governing
losses to personal property—that is undoubtedly a limitation provision under
Texas case law. 2 Compare Section I – Conditions, Item 4(a) (“Our limit of
liability and payment for covered losses to personal property . . . will not exceed
the smallest of the following: (1) the actual cash value at the time of the loss
determined with proper deduction for depreciation; (2) the cost to repair or
replace the damaged property with material of like kind and quality, with
proper deduction for depreciation; or (3) the specified limit of liability of the
policy.”) with, e.g., Imperial Ins. Co., 626 S.W.2d at 329 (“[L]iability hereunder
shall not exceed the actual cash value of the property at the time of loss,
ascertained with proper deduction for depreciation; nor shall it exceed the
amount it would cost to repair or replace the property with material of like
kind and quality within a reasonable time after the loss, without allowance for
any increased cost of repair or reconstruction . . .; nor shall it exceed the
interest of the insured, or the specific amounts shown under ‘Amount of
Insurance.’”). Indeed, Chubb acknowledged at oral argument that Item 4(a)
and all but the last sentence in Item 4(b) are limits of liability. In light of this,
we are inclined to construe the final sentence of Item 4 consistently with its
other parts.




      2  Item 4(a) of the Verified Replacement Cost Endorsement is superseded by the
Replacement of Personal Property endorsement, discussed in the next section. But it remains
instructive for determining the purpose of the Verified Replacement Cost Endorsement as a
whole.
                                            8
     Case: 14-51301       Document: 00513359490          Page: 9     Date Filed: 01/28/2016



                                       No. 14-51301
       Even if this were not our inclination, Chubb’s interpretation of the final
sentence of Item 4(b) gives the Verified Replacement Cost Endorsement a
perplexing structure. It would be unusual for policy language to first limit the
insurance company’s overall liability and then set a contractual measure of
damages controlling only a subset of potential covered losses (partial losses for
which repairs were not timely commenced). 3 Odder still would be reading the
final sentence in Item 4(b) as placing a burden on the insurer in its first clause,
and a burden on the insured in the next clause (at least absent any express
language setting forth the contrasting burdens). But that is what Chubb’s
reading of the endorsement would require us to do. The “reconstruction cost
less depreciation” language is only implicated if the policyholder does not
“begin to repair, replace or rebuild the lost or damaged property within 180
days . . . .” Although it is undisputed for purposes of this appeal that the
Ayoubs did not commence repairs within 180 days, that fact will be disputed
in a number of cases. It makes no sense to put the onus on the insured to prove
that they did not begin repairs on the dwelling within 180 days in order to have
access to a lesser recovery—a burden they would never seek.
       Chubb’s interpretation of the last sentence of Item 4 as a contractual
measure of damages thus creates more questions than it answers. We conclude
that the better reading of the policy is that all components of Item 4 are limits




       3 Consider the analogy to coverage grants and exclusions described above on page 4.
One would expect a policy to begin by defining what it insures, and then carve-out any
exclusions. See generally 14 TEX. JUR. 3d Contracts § 249 (2015) (“An exception . . . takes out
of a contract that which, but for the exception, would otherwise be included in it. . . .
Ordinarily, exceptions . . . are construed as limitations on the language in the agreement that
precedes them.” (emphasis added)). And the Policy here does exactly that; it starts with the
coverage grants and then establishes exclusions in a separate subsection titled “Exclusions.”
This sequence—from affirmative coverage to negative carve-outs—makes more sense than
the structure of the Verified Replacement Cost Endorsement proposed by Chubb.
                                              9
    Case: 14-51301      Document: 00513359490        Page: 10    Date Filed: 01/28/2016



                                    No. 14-51301
of liability on which Chubb bore the burden of proof. 4 See Italian Cowboy
Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011)
(explaining that the task of courts is to “examine and consider the entire
writing in an effort to harmonize and give effect to all [of its] provisions . . .”
(quoting J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003)).
      B.     Personal property claim
      The Ayoubs also purchased an endorsement entitled “Replacement of
Personal Property.”      The endorsement states that the Ayoubs “may” seek
reimbursement “on a replacement cost basis” for items actually “repair[ed],
restore[d], or replace[d]” within a year of the loss. Otherwise, Chubb will pay
the “actual cash value” of the damaged property.                The full text of the
endorsement is below:




      4 At oral argument before this court, the Ayoubs indicated that they would need to
prove the common law measure of damages at trial: the difference in market value of their
home immediately before and immediately after the loss-causing event. We express no
opinion whether the Ayoubs have the evidence they need to prove that measure of damages.
                                           10
   Case: 14-51301    Document: 00513359490     Page: 11   Date Filed: 01/28/2016



                                No. 14-51301




      As with the Verified Replacement Cost Endorsement, the parties
disagree whether the Replacement of Personal Property endorsement is a
limitation of liability that Chubb needed to invoke and establish, or a measure
of damages that the Ayoubs had to prove.       The Replacement of Personal
Property endorsement is unlike any policy language addressed in Texas case
law that we have seen. And it is inconsistently phrased in terms of Chubb’s
“limit of liability,” what Chubb will or will not pay, and what the Ayoubs may
claim. Its scattershot and somewhat redundant organization makes it much

                                      11
    Case: 14-51301        Document: 00513359490          Page: 12      Date Filed: 01/28/2016



                                        No. 14-51301
harder to categorize than the Verified Replacement Cost Endorsement.
Because we find that summary judgment should not have been granted on this
claim for another reason, as described below, we will assume that the
Replacement of Personal Property endorsement defines a mandatory measure
of damages for personal property not fixed or replaced within a year: “actual
cash value,” with a deduction for depreciation. 5
       It is undisputed that the Ayoubs did not fix or replace most of the
damaged personal property within the one-year deadline. The district court
granted summary judgment on this claim because the Ayoubs’ only evidence of
underpayment was an inventory prepared by Mr. Ayoub reflecting replacement
cost of the affected items (clothing, housewares, and furnishings). The court
found the inventory to be no evidence of “actual cash value of the items lost.”
       The problem with the district court’s conclusion is that “actual cash
value” means “market value,” Mew v. J & C Galleries, Inc., 564 S.W.2d 377,
377 (Tex. 1978), and Texas law acknowledges that personal effects have “no
market value in the ordinary meaning of that term.” Crisp, 369 S.W.2d at 328.
Texas law thus provides considerable leeway for establishing their value. A
variety    of   representative       values     are    probative—including          “market[,]
reproduction or replacement values.”             Id. at 329 (alteration and emphasis
added). “The trier of facts may consider original cost and cost of replacement,
the opinions upon value given by qualified witnesses, the gainful uses to which



       5  The endorsement does not explicitly state that “actual cash value” includes a
deduction for depreciation. But it is the clear intent of the endorsement, which elsewhere
defines “replacement cost” (the alternative to “actual cash value”) as not including “a
deduction for depreciation.” See 12 COUCH ON INSURANCE § 178:5 (“Absent an express policy
provision, the intent of the parties as to whether depreciation was intended to be included
can be derived from consideration of the policy as a whole, as for instance, where the policy,
for a higher premium . . ., expressly excludes depreciation from a calculation of replacement
cost, but is silent as to its deduction from actual cash value, implying that depreciation should
be considered as to the latter valuation[.]”).
                                              12
    Case: 14-51301    Document: 00513359490       Page: 13   Date Filed: 01/28/2016



                                   No. 14-51301
the property has been put as well as any other facts reasonably tending to shed
light upon the subject.” Id. (emphasis added). The overarching inquiry is “the
actual worth or value of the articles to the owner for use in the condition in
which they were at the time of the [loss] excluding any fanciful or sentimental
considerations.” Id. at 328; see also Allstate Ins. Co. v. Chance, 590 S.W.2d
703, 704 (Tex. 1979) (“[T]he rule is that where household goods have no
recognized market value, the trier of fact may consider, in determining the
actual value to the owner at time of loss, the original cost, cost of replacement,
opinions of qualified witnesses, including the owner, the use to which the
property was put, as well as any other reasonably relevant facts.”).
      Given the broad range of evidence that is probative on actual cash value
for personal property like that at issue, Mr. Ayoub’s assessment of replacement
costs was some evidence of actual cash value. Summary judgment should not
have been granted on this basis.
      C.    Statutory claims
      Finally, the district court granted summary judgment on the Ayoubs’
statutory claims because they were “based on the alleged breach of the
insurance contract” that the court had rejected. As explained above, we believe
that summary judgment should not have been granted on the Ayoubs’
contractual claims. Our ruling undercuts the district court’s stated rationale
for granting summary judgment on the Ayoubs’ statutory claims.
      We acknowledge the uphill battle that the Ayoubs face on these claims
even if they ultimately prove that Chubb breached the contract. Under Texas
law, “[e]vidence establishing only a bona fide coverage dispute does not
demonstrate bad faith.” State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d
42, 44 (Tex. 1998). It may well be that, if this case proceeds to trial, the Ayoubs’
evidence shows nothing more than a legitimate dispute over whether Chubb
owed more than the nearly $1 million it has already paid. If so, the district
                                        13
    Case: 14-51301    Document: 00513359490      Page: 14    Date Filed: 01/28/2016



                                  No. 14-51301
court may be justified in summarily disposing of the Ayoubs’ bad faith claims.
See Weiser-Brown Op. Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512,
525–27 (5th Cir. 2015) (affirming district court’s decision to enter judgment as
a matter of law on insured’s bad faith claims during a jury trial which resulted
in verdict for insured on the coverage dispute). But the arguments presented
to us in this appeal have not explained in any detail why Chubb refused further
payment on the claims, much less why its rationale was or was not reasonable.
As such, we believe the prudent course of action is to remand and allow the
district court to address this issue if it arises in the normal course.
                                       III.
      We REVERSE the district court’s grant of summary judgment in favor
of Chubb on the Ayoubs’ dwelling, personal property, and statutory claims and
REMAND for further proceedings.




                                        14
