     Case: 10-30237 Document: 00511364703 Page: 1 Date Filed: 01/28/2011




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                          January 28, 2011

                                       No. 10-30237                         Lyle W. Cayce
                                                                                 Clerk

BONITA KING, wife of/and; GARY HARTMAN,

                                                   Plaintiffs–Appellees
v.

CASA GRANDE CONDOMINIUM ASSOCIATION, INCORPORATED,

                                                   Defendant–Appellant




                    Appeal from the United States District Court
                       for the Eastern District of Louisiana
                               USDC No. 2:07-CV-73


Before KING, STEWART, and OWEN, Circuit Judges.
PER CURIAM:*
       Condominium owners Bonita King and Gary Hartman sued Casa Grande
Condominium Association, Inc. for failing to pursue a claim on their behalf
under the association’s flood insurance policy for damages resulting from
Hurricane Katrina. Following a bench trial, the district court entered judgment
against the condominium association for the full amount of damages that King
and Hartman sustained in the flood. The association appeals the district court’s



       *
         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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
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calculation of damages. We reverse the judgment of the district court and
remand for recalculation of damages.
                 I. FACTS AND PROCEDURAL HISTORY
      Bonita King and her husband Gary Hartman, Appellees here, were owners
of Unit 0B in Casa Grande Condominiums at 4900 St. Charles Avenue in New
Orleans, Louisiana.     The building is managed by Appellant Casa Grande
Condominium Association, Inc. (“Casa Grande”), a nonprofit company whose
membership consists of Casa Grande Condominiums’ individual unit owners.
      Casa Grande held a flood insurance policy on the building and its units,
issued by Standard Fire Insurance Company (“Standard Fire”) and administered
by Travelers Insurance Company (“Travelers”). The flood policy was issued
under the National Flood Insurance Program (“NFIP”), which Congress
established to provide flood insurance with reasonable terms and conditions to
those in flood-prone areas. Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir. 1998).
Policies issued under the program are subject to terms and conditions
promulgated by the Federal Emergency Management Agency (“FEMA”) and
codified in the Standard Flood Insurance Policy (“SFIP”).        See 44 C.F.R.
§ 61.4(b); id. at Pt. 61, App. A.
      King and Hartman held a separate, secondary flood insurance policy on
Unit 0B, which they purchased from State Farm Fire and Casualty Company
(“State Farm”). The policy, which was also issued under the NFIP, contained a
clause stating that their policy provided building coverage for flood-related
damage in excess of the Standard Fire SFIP issued to Casa Grande. Thus, King
and Hartman were entitled to payments under the State Farm SFIP only after
the primary coverage—Casa Grande’s policy with Standard Fire—was
exhausted.
      In August 2005, Unit 0B, along with the common areas that were also on
the lower level of Casa Grande Condominiums, suffered significant flood-related

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damage as a result of Hurricane Katrina. An insurance claims adjuster provided
by Travelers inspected the building on October 27, 2005, and determined that
the Casa Grande property suffered $46,414.37 in covered building damage,
including $2,324.04 in damage to Unit 0B. The claims adjuster’s estimate
expressly limited the allowable damages to the common areas “as per the NFIP
guidelines for a basement.”
      It was discovered that, although Casa Grande Condominiums was valued
at $2,471,000, due to an alleged clerical error by Casa Grande’s insurance agent,
Casa Grande had obtained only $247,100 in building coverage. Because Casa
Grande had underinsured the property, Travelers imposed an eighty-six percent
co-insurance penalty; Casa Grande was reimbursed only $5,498.01 of its
$46,414.37 claim. Casa Grande gave King and Hartman five percent of its
recovery, or $275.29, representing their share of damages “based on both the
damages to Casa Grande common elements and the damages to . . . Unit #0B.”
Casa Grande subsequently brought suit against Standard Fire and its insurance
agent seeking additional recovery for its flood-related claims, but did not seek
additional recovery for damage to Unit 0B. King and Hartman sought recovery
under their individual State Farm policy and received payment for certain items
under their contents coverage. However, in part because Casa Grande’s claim
had not exhausted the limits of its Standard Fire policy, King and Hartman
could not recover under their secondary State Farm building coverage.
      King and Hartman filed a petition for damages on August 29, 2006,
against Casa Grande, State Farm, Standard Fire, and Metropolitan Property
and Casualty Insurance Company (“Metropolitan”)—who issued a dwelling
policy to King and Hartman for Unit 0B—in the Civil District Court for the
Parish of Orleans, State of Louisiana. After removal to the District Court for the
Eastern District of Louisiana, the district court subsequently dismissed King
and Hartman’s claims against Metropolitan, Standard Fire, and State Farm.

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The suit proceeded to a bench trial on King and Hartman’s remaining claims
against Casa Grande. King and Hartman alleged that Casa Grande acted
negligently in failing to obtain adequate insurance for the property, thus
accruing a co-insurance penalty that reduced the recovery for damage to Unit
0B, and for failing to pursue additional damages from Standard Fire and its
insurance agent on King and Hartman’s behalf.
      On October 5, 2009, following a two-day bench trial, the district court
issued its Findings of Facts and Conclusions of Law pursuant to Federal Rule
of Civil Procedure 52(a).    The district court found that Casa Grande was
negligent in its failure to obtain sufficient insurance and to appropriately handle
a claim for damage to Unit 0B on King and Hartman’s behalf. The district court
reasoned that King and Hartman were entitled to damages because Casa
Grande pursued only its own claims against its insurance agent and Standard
Fire and “took no action on the Plaintiffs’ claim as it operated under the
mistaken assumption that Plaintiffs’ unit was not covered under the Defendant’s
primary policy.” The district court concluded that this error by Casa Grande led
it to underreport the damage to the property and “exclude[] Plaintiffs from the
claim and settlement” with its insurance agent and Standard Fire.
      The district court awarded King and Hartman $47,872.70 in damages,
plus costs and interest at a rate of three per cent. This amount reflected their
claimed damages of $57,636.54 less their travel expenses, which the district
court concluded were not attributable to Casa Grande’s negligence, the
replacement cost of a refrigerator that was insured under a separate policy, and
the $275.29 payment that King and Hartman had received from Casa Grande’s
settlement with Standard Fire. Casa Grande appeals.




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                              II. DISCUSSION
A.    The Damages Award
      On appeal, Casa Grande challenges only the district court’s conclusion that
it was liable for King and Hartman’s full repair costs incurred following
Hurricane Katrina. It argues that the amount awarded by the district court
reimbursed costs to which King and Hartman would not have been entitled
under the terms of the SFIP even if Casa Grande had not incurred a co-
insurance penalty and had diligently pursued King and Hartman’s claim.
According to Casa Grande, Unit 0B is subject only to the limited coverage that
the SFIP affords to basement property, which excludes from coverage many of
King and Hartman’s claimed damages. The SFIP limits coverage for property
located in a basement to clean-up costs and to certain enumerated items such as
drywall and central air conditioners. See 44 C.F.R. Pt. 61, App. A(3) §III(A)(8).
      Casa Grande concedes that, if Unit 0B is not found to be in a basement,
King and Hartman are entitled to their full damage award. It argues, however,
that ample evidence in the record supports a finding that Unit 0B is in a
basement, and therefore the district court erred in holding Casa Grande liable
for not obtaining full coverage for Unit 0B and in awarding the full measure of
King and Hartman’s flood-related repair costs.
      “The standard of review for a bench trial is well established: findings of
fact are reviewed for clear error and legal issues are reviewed de novo.” Water
Craft Mgmt. LLC v. Mercury Marine, 457 F.3d 484, 488 (5th Cir. 2006) (citation
and internal quotation marks omitted). A factual finding is “clearly erroneous”
when “ ‘although there is evidence to support it, the reviewing court on the
entire evidence is left with the definite and firm conviction that a mistake has
been committed.’ ” Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985)
(quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).



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       1.     Burden of proof
       King and Hartman assert that Casa Grande put forth insufficient evidence
at trial to prove that Unit 0B was in a basement as defined by the SFIP so as to
prove the applicability of the SFIP’s basement limitation.1 We recognize that in
typical insurance litigation, the insured bears the initial burden of showing that
its claimed loss falls within a policy’s scope of coverage, at which point the
burden shifts to the insurer to prove that an exclusion to coverage applies. See,
e.g., 17A C OUCH ON I NSURANCE § 254:11–12 (3d ed. 2010). Here, however, the
defendant is Casa Grande, and not the insurance company, and although the
issues at the heart of this appeal turn in part on standard insurance law
principles, King and Hartman’s claims sound in Louisiana negligence law.
       To prevail on a negligence claim under Louisiana law, King and Hartman
were required to establish that
       (1) the defendant had a duty to conform his or her conduct to a
       specific standard of care (the duty element); (2) the defendant failed
       to conform his or her conduct to the appropriate standard (the
       breach of duty element); (3) the defendant’s substandard conduct
       was a cause-in-fact of the plaintiff’s injuries (the cause-in-fact
       element); (4) the defendant’s substandard conduct was a legal cause
       of the plaintiff’s injuries (the scope of liability or scope of protection
       element); and, (5) actual damages (the damages element).
Rando v. Anco Insulations Inc., 16 So. 3d 1065, 1086 (La. 2009) (citation
omitted). King and Hartman bore the burden of proving every element of their
claim by a preponderance of the evidence. Watters v. Dept. of Soc. Servs., 15 So.
3d 1128, 1142 (La. App. 4th Cir. 2009). Accordingly, King and Hartman were
required “to prove the damages [they] suffered as a result of defendant’s fault,
and to support the award, there must be evidence in the record.” Brannan v.


       1
         Relatedly, King and Hartman also contend that Casa Grande waived its argument
that Unit 0B is in a basement by failing to argue it at trial. To the contrary, we find that the
issue was clearly raised in the joint pre-trial order and that Casa Grande raised the issue at
trial.

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Wyeth Labs., Inc., 526 So. 2d 1101, 1106 (La. 1988); see also Miller v. Mahfouz,
563 So. 2d 1223, 1226 (La. App. 1st Cir. 1990) (“A plaintiff bears the burden of
establishing each and every element of damage claimed.”) (citation omitted).
      In this case, Casa Grande’s negligence was a cause of King and Hartman’s
losses only to the extent that those losses were covered by the SFIP and would
have been reimbursed under the Standard Fire policy. Even if Casa Grande had
procured sufficient insurance so as to avoid a penalty and appropriately handled
its claim for the flood damage to Unit 0B, it could have obtained payment from
Standard Fire only up to the amount of coverage allowed by the SFIP for Unit
0B. If a portion of the flood damages to Unit 0B fell outside the scope of the
SFIP’s coverage, King and Hartman would have been unable to recover those
costs irrespective of Casa Grande’s negligence. Therefore, in order for King and
Hartman to prove that, but for Casa Grande’s negligence, they would have been
reimbursed for the full measure of their flood-related damages, they had to
establish that they were entitled to full coverage under the SFIP, implicit in
which is proof that Unit 0B is not subject to any limitations in coverage when
presented with evidence to the contrary.
      2.    Whether Unit 0B was in a “basement” under the SFIP
      Casa Grande argues that the district court erred in finding Casa Grande
liable for the full amount of King and Hartman’s repair costs, contending that
King and Hartman would have been entitled to clean-up and replacement costs
only for certain items under the limited coverage that the SFIP affords to
basements. The district court concluded that Casa Grande’s negligence caused
King and Hartman to receive less than “the appropriate amount for covered
damages to” Unit 0B. However, in imposing a damage award for their full repair
costs, the district court made no factual finding that all of those costs were
covered by the SFIP and would have been reimbursed under the policy but for
Casa Grande’s negligence. Furthermore, the district court did not make an

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explicit finding that Unit 0B was not in a basement within the meaning of the
SFIP. However, to the extent that the district court implicitly found that Unit
0B was not in a basement, such that King and Hartman were entitled to their
full damages rather than the SFIP’s limited basement coverage, that finding is
clearly erroneous.   The great weight of the evidence suggests otherwise.
      Although Louisiana law governs the negligence claim, interpretation of
flood policies issued under the NFIP is governed by federal law and resolved “by
drawing upon standard insurance law principles.” Hanover Bldg. Materials, Inc.
v. Guiffrida, 748 F.2d 1011, 1013 (5th Cir. 1984) (citation and internal quotation
marks omitted). Pursuant to standard insurance law principles, “if the language
of a policy is clear and unambiguous, it should be accorded its natural meaning.”
Id. (citation and internal quotation marks omitted). Furthermore, “[w]here a
term is defined in the policy, the court is bound by the policy definition.” Nelson
v. Becton, 929 F.2d 1287, 1289–90 (8th Cir. 1991) (citation and quotation marks
omitted) (interpreting the definition of “basement” within the SFIP).
      The SFIP clearly and unambiguously defines a “basement” as “[a]ny area
of the building, including any sunken room or sunken portion of a room, having
its floor below ground level (subgrade) on all sides.” 44 C.F.R. Pt. 61, App. A(3)
§ II(B)(5); see also Linder & Assocs. v. Aetna Cas. & Sur. Co., 166 F.3d 547, 550
(3d Cir. 1999) (“Each court considering the SFIP’s basement exclusion has found
its language to be clear and unambiguous.”); Becton, 929 F.2d at 1289 (“The
definition of ‘Basement’ in the policy is straightforward and clear . . .”). Courts
that have applied the SFIP’s basement provision have held that the clear
language of the provision establishes that property at any depth below ground
level on all sides is a basement as defined by the SFIP. See, e.g., Becton, 929
F.3d at 1289 (“The extent to which [properties are] subgrade, whether 6, 8, or 40
inches, is immaterial under the policy. The only question is whether they [are]
subgrade or at ground level.”).

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       The evidence before the district court regarding Unit 0B’s elevation
overwhelmingly suggests that it is subgrade, and therefore in a basement for the
purposes of the SFIP. An elevation certificate of Unit 0B, introduced as an
exhibit at trial, indicates that Unit 0B’s elevation is 2.6 feet, while the lowest
adjacent grade is 4.4 feet. Thus, the certificate shows that Unit 0B’s floor is at
least 1.8 feet lower than the lowest elevation adjacent to the building, and
therefore, below ground level on all sides. See Linder & Assocs., 166 F.3d at 550
(“[I]t is obvious from Becton that the ‘ground level’ referred to in the policy
definition[] is intended to be that area close and adjacent to the lower level
door.”) (citation and internal quotation marks omitted).        That Unit 0B is
subgrade is also supported by testimony at trial. For instance, David Klump, a
contractor who repaired Unit 0B, testified that the unit is “in a basement below
grade.” Another contractor, Kevin Hurtt, testified that he had to walk down
three or four stairs to enter the unit. See Becton, 929 F.2d at 1289 (evidence that
is was necessary to walk up at least one step from lower level of building to the
yard indicated that lower level was subgrade); Linder & Assocs., 166 F.3d at 550
(“If a person must step up when exiting the lower level to the outside, the lower
level is below ground level and, thus, is a basement.”) (citation omitted).
Furthermore, the Travelers insurance claims adjuster expressly determined that
the common areas on the lower level of Casa Grande Condominiums were
subject to the SFIP’s limited basement coverage provisions, and uncontroverted
testimony at trial established that the common areas are contiguous with Unit
0B.
       In response, King and Hartman point only to King’s trial testimony that
she and Hartman obtained and submitted the elevation certificate to State
Farm, which subsequently issued what they believed to be full coverage for Unit
0B. King also testified that State Farm had paid a contents claim following
Hurricane Katrina, and that no basement issues arose in connection with that

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claim. While this testimony constitutes some evidence from which the district
court could have concluded that Unit 0B is not in a basement for purposes of the
SFIP, upon review of the entire evidence, we are “left with the definite and firm
conviction” that such a conclusion is against the preponderance of the evidence.
Anderson, 470 U.S. at 573. In the face of this evidence, King and Hartman—who
bore the burden of proving that they were entitled to full coverage for their flood-
related damages—did not provide sufficient evidence to establish that Unit 0B
was at ground level or above, and not in a basement as defined by the SFIP.
      3.    Calculation of damages
       Given the above, we must reverse and remand so that the district court
may consider which of King and Hartman’ s proven damages would have been
covered by the SFIP had Casa Grande secured adequate coverage and diligently
pursued their claim. It appears that King and Hartman’s claimed damages
include renovation costs that are either not recoverable under the governing
provisions of the SFIP or are not flood-related expenses. To the extent that the
district court awarded damages to reimburse King and Hartman for costs not
covered by the SFIP, it clearly erred; those costs cannot have been the result of
Casa Grande’s negligence.
      However, we do not agree with Casa Grande that King and Hartman are
entitled to only $2,048.75, reflecting the amount of the covered flood-related
damage calculated by the insurance claims adjuster, less the $275.29 already
paid to them as their pro rata portion of the recovery from Casa Grande’s
settlement with Standard Fire.       The claims adjuster’s estimate calculated
damages for flood clean-up and unfinished drywall replacement—items falling
within the narrow categories of recovery allowable under Section III(A)(8) of the
SFIP for basement property. However, King and Hartman presented evidence
that they incurred clean-up and repair costs which may also fall within the
SFIP’s limited basement coverage, and Casa Grande may have been able to

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recover those additional costs had it assiduously pursued a claim on behalf of
King and Hartman. We leave it to the district court on remand to determine
which of King and Hartman’s claimed costs, if any, would have been covered by
the SFIP but for Casa Grande’s negligence.
B.    Appellees’ Motion to Strike
      On appeal, Casa Grande urges us to consider portions of King and
Hartman’s insurance file with State Farm that was submitted by State Farm in
connection with its motion for summary judgment, and to take judicial notice of
portions of certain FEMA publications and regulations. King and Hartman
moved to strike Casa Grande’s record excerpts containing this evidence and
references thereto in Casa Grande’s briefs on the basis that none of this evidence
was offered or used at the bench trial. We note the general principles that “this
court will not enlarge the record on appeal with evidence not before the district
court,” McIntosh v. Partridge, 540 F.3d 315, 327 (5th Cir. 2008) (citation and
internal quotation marks omitted) and that “[w]e are limited in our
consideration to that information properly before the district court at the time
of its decision,” Palasota v. Haggar Clothing Co., 499 F.3d 474, 489 n.12 (5th Cir.
2007). However, none of this material would have altered the outcome of this
case, which we reach solely on the basis of evidence presented at trial.
Therefore, because we do not rely upon any of the challenged record excerpts or
references thereto, King and Hartman’s motion to strike is denied as moot.
                              III. CONCLUSION
      For the foregoing reasons, we REVERSE the judgment of the district court
and REMAND for further proceedings on the issue of damages. Appellees’
motion to strike portions of Appellant’s brief is DENIED as moot.




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