     Case: 12-40692   Document: 00512499511   Page: 1   Date Filed: 01/14/2014




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

                                                                   FILED
                                                               January 14, 2014
                         Nos. 12-40692 & 12-40702
                                                                 Lyle W. Cayce
                                                                      Clerk
LAWYERS TITLE INSURANCE CORPORATION,

                                         Plaintiff–Appellee
v.

DOUBLETREE PARTNERS, L.P.,

                                         Defendant–Appellant

--------------------------------------------------

LAWYERS TITLE INSURANCE CORPORATION,

                                         Plaintiff-Appellee
v.

DOUBLETREE PARTNERS, L.P.,

                                         Defendant

v.

CHRISTOPHER A. KALIS; JAMES EDWIN MARTIN,

                                         Appellants



                Appeals from the United States District Court
                      for the Eastern District of Texas


Before WIENER, DENNIS, and OWEN, Circuit Judges.
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                               Nos. 12-40692 & 12-40702

PRISCILLA R. OWEN, Circuit Judge:
       These two consolidated appeals arise from a title insurance coverage
dispute between the insured, Doubletree Partners, L.P. (Doubletree), and its
insurance company, Lawyers Title Insurance Corporation (Lawyers Title).
Doubletree appeals the magistrate judge’s grant of Lawyers Title’s motion for
summary judgment and denial of its cross-motion for summary judgment on
Doubletree’s breach of contract claims and extracontractual claims. Doubletree’s
attorneys, Christopher A. Kalis and James Edwin Martin, appeal the magistrate
judge’s award of attorneys’ fees to Lawyers Title under 28 U.S.C. § 1927. We
affirm in part and reverse in part the magistrate judge’s order on the motions
for summary judgment, and we reverse the magistrate judge’s award of
attorneys’ fees to Lawyers Title.
                                               I
       The facts are for the most part undisputed. Doubletree is a limited
partnership formed by real estate developer Fred Placke. Doubletree purchased
a thirty-six-acre tract in Highland Village, Texas, with the intent to develop it
into a luxury retirement community for seniors. The plan for the development
included approximately eighteen multi-story buildings, each with multiple units,
a community center, and other amenities.
       In April 2006, Doubletree closed on its purchase of the property with the
seller, Duncan Duvall, for $3.45 million. Doubletree and Duvall escrowed the
sales contracts for the property with Lawyers Title.1 In connection with the
purchase, Doubletree acquired a title insurance policy from Lawyers Title. In


       1
          More precisely, Doubletree and Duvall escrowed the sales contract for the property
with Land America–American Title Company (American Title), who acted at all times as the
title insurance agent for Lawyers Title. American Title was authorized to solicit, issue, and
countersign title insurance policies on Lawyers Title’s behalf and in its name. In this opinion,
we will refer to Lawyers Title in all instances, including those in which American Title was
acting on behalf of Lawyers Title.

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                           Nos. 12-40692 & 12-40702

addition, Lawyers Title offered to provide Doubletree “a more complete title
insurance policy” that would insure “against loss because of discrepancies or
conflicts in boundary lines, encroachments or protrusions, or overlapping of
improvements, excluding from the coverage specific matters disclosed by the
survey,” if Doubletree obtained a survey of the property and paid an additional
premium. Doubletree decided to purchase this more complete policy, and the
parties have referred to the additional coverage Doubletree purchased as “survey
coverage.”
      Located on Lake Lewisville, the property at issue is encumbered by a
number of easements and restrictions, including the flowage easement, which
is at the heart of this dispute. Granted in 1955, the flowage easement gives the
United States the right to flood, overflow, and submerge areas of the property
that lie below 537 feet in elevation. The easement also prohibits construction of
any structures below that elevation without the written consent of the United
States.
      Lawyers Title issued several title commitments to Doubletree and its
agents before issuing the title insurance policy itself. The final title commitment
lists several encumbrances as exceptions from coverage, including the flowage
easement, and also reflects Doubletree’s purchase of survey coverage. The
exceptions listed in the final title commitment are also referenced in the sales
contract, the vesting deed, and the leaseback agreement Doubletree signed at
the closing of the sale.
      Before closing, Doubletree retained a professional surveyor, Mark Paine,
to conduct a pre-closing survey. This original March 2006 survey indicated the
approximate location of the flowage easement held by the United States,
showing that it covered a relatively small portion of the property’s southern
edge. In conducting the survey, Paine relied on flood insurance rate maps.
However, Paine did not measure elevations with respect to the flowage

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                          Nos. 12-40692 & 12-40702

easement, and he did not consult a publicly available contour map from the City
of Highland Village.
      Based on the original survey, Lawyers Title issued Doubletree’s title
insurance policy and provided the policy to Doubletree on April 18, 2006. Due
to a software printing error, the original policy failed to include many of the
encumbrances listed as exceptions, including the flowage easement. The original
policy also failed to include the agreed-upon survey coverage. Several months
later, in October 2006, Doubletree submitted a lost policy request. In response,
Lawyers Title sent a copy of the policy that was identical to the original policy
in all respects, including in its omission of the flowage easement exception and
the survey coverage.
      Meanwhile, Doubletree began its plans to develop the property.           It
retained an architectural firm to assist in the design and planning of the
development on the property. Paine’s company, G&A Consultants, assisted the
architectural firm with engineering work. Both companies relied on the original
survey to conduct their work. In an effort to comply with the restrictions on
building within the flowage easement, the development plan reserved the area
shown on the original survey as being covered by the flowage easement for
landscaping and other green space.
      As part of the development planning process, Doubletree sought a zoning
change to accommodate the senior retirement community by submitting a zoning
change application to the City of Highland Village. Not long after submitting
the application, however, Doubletree discovered a serious error in the survey
that halted development of the property: The survey substantially
underrepresented the area of the property that was subject to the flowage




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                               Nos. 12-40692 & 12-40702

easement.2 The significantly larger no-building zone covered by the flowage
easement meant Doubletree would be unable to proceed with its plan to build
several of the residential structures it intended to build on the lakeside portion
of the property. Because of the impact of the error on its development plans,
Doubletree withdrew its zoning application.
       Doubletree then filed a complaint against Paine with the Texas Board of
Professional Land Surveying. The Board ultimately determined that Paine did
not violate any professional standards while conducting the survey. However,
the Board noted that the location of the flowage easement to the United States
was “substantially different from” the location of the easement shown on the
documents on which Paine relied in drawing the survey map. The Board
explained that the “best practice” is to identify the documents relied upon by the
surveyor, which Paine did not do, and that the survey “could be considered
confusing” for that reason. Despite this, the Board concluded the procedure
Paine used “appear[ed] to be adequate” and, “[i]n lieu of further actions” by the
Board, offered Paine the opportunity to sign an assurance of voluntary
compliance with the Board’s rules in the future.
       In March 2008, Doubletree filed a title insurance claim with Lawyers Title.
Doubletree alleged the existence of the flowage easement on the property caused
$850,025 in damage from the diminution of the property’s value for its intended
purpose. The claim did not rely on the error in the survey but instead relied on
the original policy, which did not contain an exception for the flowage easement

       2
        In a footnote in its opinion, the district court noted, “Doubletree has not proven that
there was an actual error in the survey in the depiction of the Flowage Easement.” However,
Lawyers Title effectively concedes there was some degree of error in the survey, since it
provides a map showing the difference between the flowage easement as depicted on the
survey and the flowage easement as field-measured. There is thus no genuine dispute as to
whether the location of the flowage easement as shown on the survey was incorrect to some
extent.

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                           Nos. 12-40692 & 12-40702

and did not include a provision for survey coverage. In response, Lawyers Title
denied the claim, explaining that, based on the title commitments, the flowage
easement was meant to come within an exclusion to coverage under the policy.
      In May 2008, Doubletree resubmitted the claim to Lawyers Title, again
relying on the fact that the title policy contained no exception relating to the
flowage easement, and insisting that the title commitment containing that
exception was no longer in force. Lawyers Title again denied the claim, but this
time it provided a corrected policy with the denial. The corrected policy included
the flowage easement exception as reflected in the final title commitment, as
well as the standard survey exception as amended to reflect the purchase of
survey coverage.
      By the time Lawyers Title sent its second letter denying Doubletree’s
claim, Doubletree had been unable to go forward with its development as
planned and was eventually unable to meet its loan obligations on the property.
The property was subjected to foreclosure proceedings and sold at a public
auction to the Trust for Public Land, a conservation organization, in June 2009.
      In July 2008, Lawyers Title filed suit against Doubletree in the United
States District Court for the Eastern District of Texas, seeking a declaration of
the parties’ rights and obligations and reformation of the original policy.
Lawyers Title also sought attorneys’ fees. Doubletree counterclaimed for breach
of contract, breach of the duty of good faith and fair dealing, violations of the
Texas Insurance Code and the Texas Deceptive Trade Practices Consumer
Protection Act (DTPA), common law and statutory fraud, and negligent
misrepresentation, seeking declaratory relief and damages.           The parties
consented to proceed for all purposes before a magistrate judge.
      Following discovery, the parties filed cross-motions for summary
judgment. The magistrate judge granted Lawyers Title’s motion for summary

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                           Nos. 12-40692 & 12-40702

judgment and denied Doubletree’s cross-motion for summary judgment. The
magistrate judge’s opinion reformed the title insurance policy to reflect the
corrected policy issued by Lawyers Title. The magistrate judge further held that
exclusion 3(a), which appeared in both the corrected policy and original policy
issued by Lawyers Title, barred Doubletree’s claim. According to the court,
under exclusion 3(a), Doubletree “suffered, assumed or agreed to” the flowage
easement as an encumbrance on title by accepting the final title commitment,
the vesting deed, and the leaseback agreement, each of which referenced the
easement. In addition, the magistrate judge held that, even under the corrected
policy, the survey coverage purchased by Doubletree did not cover the survey
error in identifying the easement; the type of title insurance Doubletree
suggested it purchased is not available in Texas; and the exception for the
flowage easement excluded the entire flowage easement from coverage in any
event. For all of these reasons, the magistrate judge held that Doubletree could
not recover on its breach of contract claim based on the title insurance policies.
      In the same opinion, the magistrate judge held that Doubletree could not
recover on its extracontractual claims. By separate order, the magistrate judge
awarded Lawyers Title $55,310 in attorneys’ fees against Doubletree’s attorneys,
Kalis and Martin, for their allegedly unreasonable and vexatious pursuit of
Doubletree’s extracontractual claims, pursuant to 28 U.S.C. § 1927. Doubletree
appeals the decision on the summary judgment motions, and Kalis and Martin
appeal the attorneys’ fees award.
                                        II
      We first address the standards of review and choice-of-law rules governing
this dispute. We review the grant or denial of a motion for summary judgment




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                                    Nos. 12-40692 & 12-40702

de novo, applying the same standard as the district court.3 Summary judgment
is appropriate “if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.”4
“When assessing whether a dispute to any material fact exists, we consider all
of the evidence in the record but refrain from making credibility determinations
or weighing the evidence.”5 We also “consider all evidence in a light most
favorable to the non-moving party and draw all reasonable inferences in favor
of the non-moving party.”6
       Under Texas choice-of-law rules, Texas substantive law governs the breach
of contract claims and extracontractual claims here.7 “To determine state law,
federal courts sitting in diversity look to the final decisions of the state’s highest
court.”8 If there is no final decision by the state’s highest court on the issue, “it
is the duty of the federal court to determine, in its best judgment, how the
highest court of the state would resolve the issue if presented with the same




       3
           Trinity Universal Ins. Co. v. Emp’rs Mut. Cas. Co., 592 F.3d 687, 690 (5th Cir. 2010).
       4
           FED. R. CIV. P. 56(a).
       5
        Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398-99 (5th
Cir. 2008).
       6
       Frakes v. Crete Carrier Corp., 579 F.3d 426, 429-30 (5th Cir. 2009) (internal quotation
marks and citation omitted).
       7
         See, e.g., Sonat Exploration Co. v. Cudd Pressure Control, Inc., 271 S.W.3d 228, 233
(Tex. 2008); Gutierrez v. Collins, 583 S.W.2d 312, 318-19 (Tex. 1979); see also Klaxon Co. v.
Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941); Erie R.R. v. Tompkins, 304 U.S. 64, 78-80
(1938); Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 260 (5th Cir.
2003).
       8
           Canal Indem. Co., 352 F.3d at 260.

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                                 Nos. 12-40692 & 12-40702

case.”9 Ultimately, if state law does not provide a ready answer, a court making
an “Erie guess” will apply state methodology in resolving the issue.10
       Finally, in considering an award of attorneys’ fees under 28 U.S.C. § 1927,
we review for an abuse of discretion.11 “A district court abuses its discretion if
it awards sanctions based on an erroneous view of the law or on a clearly
erroneous assessment of the evidence.”12
                                               III
       Lawyers Title argues that the district court correctly reformed the policy.
It contends that the parties had a prior agreement regarding both the flowage
easement exception and the amended standard survey exception but that a
computer software error resulted in a mistake in reducing the agreement to
writing. For these reasons, Lawyers Title argues that, under the doctrine of
mutual mistake, the policy was properly reformed.
       Although Doubletree argues on appeal that the policy should not be
reformed, it provides virtually no factual analysis of this issue and cites no
relevant authority in support of its position.13 In its briefing, Doubletree simply
contends that reformation of a contract in favor of an insurer after an insured
makes a claim, such that the policy precludes coverage, is unfair and contrary
to public policy. It further argues that the summary judgment evidence did not



       9
           Id.
       10
            Id.
       11
            Cambridge Toxicology Grp., Inc. v. Exnicios, 495 F.3d 169, 180 (5th Cir. 2007).
       12
            Id. (internal quotation marks and citation omitted).
       13
           Doubletree only cites Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663 (Tex. 1987),
which holds that ambiguous insurance policies are to be interpreted in favor of the insured,
id. at 666, and Erie R.R. v. Tompkins, 304 U.S. 64 (1938).

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                                 Nos. 12-40692 & 12-40702

establish that it made a mistake or engaged in any inequitable conduct
warranting reformation.
        Because it did not cite any supporting authority for its argument and did
not develop the factual issues involved, Doubletree failed to brief the reformation
issue adequately. As a result, it has waived this issue.14 However, even if we
were to consider the merits, we would conclude that the magistrate judge
properly reformed the policy to reflect the corrected policy.
       “The underlying objective of reformation is to correct a mutual mistake
made in preparing a written instrument, so that the instrument truly reflects
the original agreement of the parties.”15 To reform a written contract, the party
seeking reformation must satisfy a two-part test: (1) an original agreement
exists between the parties, and (2) a mutual mistake occurred, made after the
original agreement, in reducing the agreement to writing.16 “A mistake by only
one party to an agreement, not known to or induced by acts of the other party,
is not grounds for finding a mutual mistake.”17 However, a “[u]nilateral mistake
by one party, and knowledge of that mistake by the other party, is equivalent to
mutual mistake.”18


       14
           N.W. Enters. Inc. v. City of Houston, 352 F.3d 162, 183 n.24 (5th Cir. 2003) (“A
litigant’s failure to provide legal or factual analysis results in waiver.”); see also United States
v. Demmitt, 706 F.3d 665, 670 (5th Cir. 2013) (“As Demmitt has cited no authority in support
of her contentions as to the [issue she raises], we hold this argument waived.”) (citing FED. R.
APP. P. 28(a)(9) (“The appellant’s brief must contain . . . citations to the authorities[.]”)).
       15
          Givens v. Ward, 272 S.W.3d 63, 67 (Tex. App.—Waco 2008, no pet.) (emphasis
omitted) (quoting Cherokee Water Co. v. Forderhause, 741 S.W.2d 377, 379 (Tex. 1987)).
       16
            Id.
       17
         St. Paul Lloyd’s Ins. Co. v. Huang, 808 S.W.2d 524, 527 (Tex. App.—Houston [14th
Dist.] 1991, no writ) (citing Johnson v. Snell, 504 S.W.2d 397, 399 (Tex. 1973)).
       18
            Davis v. Grammer, 750 S.W.2d 766, 768 (Tex. 1988).

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                           Nos. 12-40692 & 12-40702

      Here, the summary judgment evidence shows that an original agreement
did exist between Doubletree and Lawyers Title. The final title commitment
reflects agreement on the terms of the title insurance policy. That agreement
included both an exception for the flowage easement and the survey coverage
purchased by Doubletree. Further, the summary judgment evidence shows that
Doubletree paid an additional premium to amend the survey clause to obtain
survey coverage.     Based on this evidence, the first part of the contract
reformation test is satisfied.
      The summary judgment evidence also reflects that Lawyers Title made a
unilateral mistake in reducing the agreement to a final writing, and that
Doubletree had knowledge of the mistake. As Lawyers Title explained, a
software error resulted in the printing of the policy without including either the
flowage easement exception or the survey coverage. Doubletree clearly had
knowledge of this mistake since it paid a premium for survey coverage and
received the final title commitment reflecting the coverage, but later received a
policy from Lawyers Title that differed materially from the agreed-upon terms
in the final title commitment. Indeed, the two title insurance claims Doubletree
submitted to Lawyers Title were based on the original, flawed policy, and those
claims noted that the policy it received lacked the flowage easement exception.
Therefore, there is no question that Doubletree knew of the unilateral mistake
by Lawyers Title in reducing the agreement to writing. Because a unilateral
mistake by one party and knowledge of that mistake by the other party is
equivalent to mutual mistake, the second part of the contract reformation test
is also satisfied.
      We hold that the magistrate judge correctly reformed the policy. The
remainder of our analysis is based on the policy as thus reformed.



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                                 Nos. 12-40692 & 12-40702

                                               IV
       As to whether the reformed policy covered survey errors in identifying the
location of the flowage easement, for the reasons set forth below, we hold that
it did.      We therefore reverse the magistrate judge’s summary judgment
dismissing Doubletree’s breach of contract claim.
       Three provisions of the reformed policy are relevant to determining
whether the survey error is covered, and therefore whether Lawyers Title
breached the contract by failing to indemnify Doubletree for the error: (1) the
survey coverage clause, (2) the flowage easement exception, and (3) the policy’s
exclusion 3(a). The parties disagree over the meaning and applicability of these
provisions.
                                                A
       We begin with Texas’s breach of contract and title insurance law. In
Texas, “[t]he elements of a claim for breach of contract are: (1) a valid contract
between the plaintiff and the defendant, (2) performance or tender of
performance by the plaintiff, (3) breach by the defendant, and (4) damage to the
plaintiff as a result of the breach.”19
       Under Texas law, insurance policies are construed according to ordinary
contract principles.20 “The interpretation of an insurance policy is a question of
law” for the court to determine.21 “In construing a written contract, the primary
concern of the court is to ascertain the true intentions of the parties as expressed



       19
      E.g., Ostrovitz & Gwinn, LLC v. First Specialty Ins. Co., 393 S.W.3d 379, 387 (Tex.
App.—Dallas 2012, no pet.).
       20
            Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).
       21
          N.Y. Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir. 1996) (citing Coker
v. Coker, 650 S.W.2d 391, 393-94 (Tex. 1983)).

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                                 Nos. 12-40692 & 12-40702

in the instrument.”22 All of the provisions of the policy must be considered with
reference to the whole instrument, so that no single provision alone is given
controlling effect.23
       Whether a contract is ambiguous is also a question of law.24                      “An
ambiguity exists only if the contract language is susceptible to two or more
reasonable interpretations.”25 A contract is not ambiguous simply because the
parties present conflicting interpretations.26 If policy language can be given a
definite or certain legal meaning, it is not ambiguous, and we will construe it as
a matter of law without admitting evidence for the purpose of creating an
ambiguity.27 However, when the language of an insurance policy “is susceptible
of more than one construction, [it] should be construed strictly against the
insurer and liberally in favor of the insured.”28 Furthermore, when the language
in question “involves an exception or limitation on [the insurer’s] liability under
the policy, an even more stringent construction is required.”29 Accordingly, when
an insurance contract is subject to “more than one reasonable interpretation, we



       22
            Coker, 650 S.W.2d at 393.
       23
            Id.
       24
         Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003) (citing
Kelley–Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998)).
       25
            Id. (citing Kelley–Coppedge, Inc., 980 S.W.2d at 465).
       26
            Id.
       27
            Id. (citing Kelley–Coppedge, Inc., 980 S.W.2d at 464).
       28
         Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex. 1987). The Barnett rule is
sometimes referred to as the “contra-insurer rule.” E.g., Jefferson Block 24 Oil & Gas, L.L.C.
v. Aspen Ins. UK Ltd., 652 F.3d 584, 598 (5th Cir. 2011).
       29
            Barnett, 723 S.W.2d at 666.

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must resolve the uncertainty by adopting the construction that most favors the
insured.”30
       When the disputed provision is an exclusion, the insurer has the burden
of establishing that the exclusion applies.31 If an exclusion is ambiguous, “we
must adopt the construction of an exclusionary clause urged by the insured as
long as that construction is not itself unreasonable, even if the construction
urged by the insurer appears to be more reasonable or a more accurate reflection
of the parties[’] intent.”32
       As the Texas Supreme Court indicated in Shaver v. National Title &
Abstract Co.,33 easements are a type of defect covered by title insurance policies
in Texas, unless a valid exception or exclusion applies.34 Shaver held that a title
insurance policy guaranteeing “good and indefeasible title” to the property
purchased covered a gas pipeline easement across the property.35 Texas courts
of appeals have likewise recognized that title insurance policies cover
easements.36


       30
         Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552,
555 (Tex. 1991) (citations omitted).
       31
            Guar. Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998).
       32
            Barnett, 723 S.W.2d at 666 (internal quotation marks and citations omitted).
       33
        361 S.W.2d 867 (Tex. 1962), overruled on other grounds by S. Title Guar. Co. v.
Prendergast, 494 S.W.2d 154, 158 (Tex. 1973).
       34
            Shaver, 361 S.W.2d at 868-70.
       35
            Id.
       36
          E.g., San Jacinto Title Guar. Co. v. Lemmon, 417 S.W.2d 429, 430-32 (Tex.
App.—Eastland 1967, writ ref’d n.r.e.) (holding that a water line easement running across the
property was covered by the title insurance policy, and observing that “[o]rdinarily a provision
for insurance against loss generally, except for certain designated risks, includes loss from
every cause not expressly excepted”).

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                                Nos. 12-40692 & 12-40702

       As to survey coverage, the magistrate judge erred in concluding that it is
not permitted under Texas law. Texas law requires title insurers to use policy
provisions approved by the Texas Department of Insurance.37 The standard title
insurance form contains the standard survey exclusion identical to the one set
forth in the original policy.38 However, the Texas Department of Insurance
explicitly allows title insurance companies to provide survey coverage by
amending the standard survey exclusion.39 In that event, the Texas Department
of Insurance requires the standard survey clause to be modified to exclude only
“shortages in area.”40
                                               B



       37
         See TEX. INS. CODE ANN. § 2703.051 (West 2014) (“A title insurance policy . . . to
insure an owner of real property must include certain provisions, the form and content of
which shall be prescribed by the commissioner, in accordance with this subchapter.”).
       38
         See TEX. DEP’T OF INS., BASIC MANUAL OF TITLE INSURANCE, Section II, Form T-1,
Schedule B, Item 2 (2013), available at http://www.tdi.texas.gov/title/titlem2b.html#FormT-1
(excluding coverage for “[a]ny discrepancies, conflicts, or shortages in area or boundary lines,
or any encroachments or protrusions, or any overlapping of improvements”).
       39
            See TEX. DEP’T OF INS., BASIC MANUAL OF TITLE INSURANCE, Section IV, P-2,
Amendment of Exception to Areas and Boundaries (2014), available at
http://www.tdi.texas.gov/title/titlem4a.html#P-2 (“[W]hen the Insured desires to have amended
the exception as to area and boundaries, (i.e. Item 2 of Schedule B) to delete all save ‘shortages
in area’, a title insurance company may accept an existing real property survey and not require
a new survey when providing area and boundary coverage . . . .”); see also id. at P-8, Issuance
of Policies Prior to Completion of Improvements, available at
http://www.tdi.texas.gov/title/titlem4b.html (“[I]f a satisfactory survey made after the
completion of improvements is furnished to the Company, survey coverage may be provided
as set out in Rules R-16 and P-2, using the promulgated Endorsement form and containing the
applicable promulgated language.”); CHARLES J. JACOBUS & BILLIE J. ELLIS, JR., TEXAS TITLE
INSURANCE § 6:27 (2d ed. 2012) (“The title company may provide affirmative insurance against
encroachments and other survey matter if, and only if, the company amends its area and
boundary exception pursuant to Procedural Rule P-2 . . . .”).
       40
         See TEX. DEP’T OF INS., BASIC MANUAL OF TITLE INSURANCE, Section IV, P-2,
Amendment of Exception to Areas and Boundaries (2014), available at
http://www.tdi.texas.gov/title/titlem4a.html#P-2.

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                            Nos. 12-40692 & 12-40702

      As to whether the survey coverage clause in the corrected policy provides
coverage for the survey error in locating the flowage easement, we hold that both
parties’ interpretations of the clause are reasonable. As a result, we must adopt
Doubletree’s interpretation.
      The survey coverage in the corrected policy that Doubletree purchased
states in Schedule B:
      This policy does not insure against loss or damage . . . that arise by
      reason of . . . the following matters: . . .
            2. Shortages in area.

Before Doubletree paid the survey coverage premium, the title commitments
contained the standard survey exception, excluding from coverage “[a]ny
discrepancies, conflicts, or shortages in area or boundary lines, or any
encroachments or protrusions, or any overlapping of improvements.” But in
exchange for paying an additional premium and obtaining a survey, this
standard survey exception was amended to exclude only shortages in area.
      Lawyers Title argues that survey coverage does not cover all alleged
defects in the survey, but only errors in identifying the boundaries of the
property and any encroachments affecting those boundaries. More specifically,
Lawyers Title argues that the larger scope of the flowage easement is not
covered because it is not a “boundary line” or “encroachment” within the
meaning of the language deleted from the standard survey exception. It also
argues that the exception for the flowage easement precludes coverage of the
flowage easement, regardless of the actual size or location of the easement.
      Doubletree argues that the survey coverage it purchased covers all errors
in the survey, including the error in describing the location of the flowage
easement. Doubletree further contends that even if coverage is ambiguous, we



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                              Nos. 12-40692 & 12-40702

must interpret the policy in favor of coverage, pursuant to the Barnett contra-
insurer rule.
       Both parties have proffered reasonable interpretations of the survey
exception clause. Lawyers Title understandably believes that changing the
survey coverage clause from reading “[a]ny discrepancies, conflicts, or shortages
in area or boundary lines, or any encroachments or protrusions, or any
overlapping of improvements” to reading only “[s]hortages in area” did not affect
the coverage of the flowage easement at all. This is true because the flowage
easement lies wholly within the boundaries of the property and does not affect
those boundaries. Therefore, the flowage easement could not constitute a
discrepancy or conflict in boundary lines, or a protrusion, or an overlapping of
improvements, since these terms—discrepancy or conflict in boundary line,
protrusion, or an overlapping of improvements—all concern the outer edges of
the property. The only term removed from the survey coverage clause that may
encompass an easement wholly within the property is “encroachments.” But a
few Texas cases have suggested that the term “encroachments” in the standard
survey exception refers only to impediments at the boundary lines of the
property.41 In light of these cases, it is reasonable for Lawyers Title to believe

       41
         See Rockhold v. Fidelity Nat’l Title Ins. Co., No. 04-98-00504-CV, 1999 WL 239053,
at *1-3 (Tex. App.—San Antonio Apr. 21, 1999, no pet.) (not designated for publication)
(holding that the standard survey exception encompassed an easement—a neighbor’s
driveway—that crossed the boundaries of the insured property because the particular
easement constituted an “encroachment” or a “boundary discrepancy” by “disrupt[ing] the
boundary lines between the two properties,” but warning that not “every easement constitutes
a boundary discrepancy, encroachment or protrusion,” thereby suggesting that
“encroachments” only refers to easements affecting the boundaries of the property); Cook
Consultants, Inc. v. Larsen, 677 S.W.2d 718, 720 (Tex. App.—Dallas 1984, writ granted), aff’d
in relevant part, 690 S.W.2d 567 (Tex. 1985) (suggesting that “encroachments” has a similar
meaning to the terms discrepancy, protrusion, and boundary); Hous. Title Guar. Co. v.
Fontenot, 339 S.W.2d 347, 349-50 (Tex. Civ. App.—Houston 1960, writ ref’d n.r.e.) (suggesting
that “encroachments” and “protrusions” have similar meanings and both refer to physical
encumbrances at the boundaries of the property).

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                                Nos. 12-40692 & 12-40702

that the standard survey exception never affected the flowage easement since
the flowage easement itself did not affect the boundaries of the property.
       Lawyers Title’s reading is supported by the fact that nothing in the title
insurance policy affirmatively insured the accuracy of all aspects of the survey,
such as the location of the flowage easement.42 In other cases, insurers have
gone so far as to explicitly insure the location of easements shown on a survey,43
but such language is absent here. One reasonable interpretation of the corrected
policy, then, is that the amendments to the standard survey exception did not
affirmatively insure the location of the easement as shown on the survey.
       On the other hand, however, Doubletree reasonably reads “encroachments”
in the standard survey exception to include the flowage easement.                            If
“encroachments” includes the flowage easement, then removing “encroachments”
from the standard survey exception would mean the flowage easement was no
longer excepted from coverage, unless otherwise provided in the policy. In fact,
Black’s Law Dictionary defines “encroachment” broadly as “[a]n infringement of
another’s rights.”44       In light of this broad definition, it is reasonable for
Doubletree to believe that the flowage easement—as an encroachment—was now
excepted only to the extent it was shown on the survey.




       42
         See BARLOW BURKE, LAW OF TITLE INSURANCE § 9.03 (2014) (recognizing that “[a]n
exception is not the opposite of coverage and so eliminating [the standard survey exception]
does not automatically provide coverage” for all aspects of the survey and noting that “[i]f an
insured wants to obtain coverage for matters involving a survey, a separate endorsement is
advisable”).
       43
       Shea Homes, LLC v. Old Republic Nat’l Title Ins. Co., No. 3:05cv005, 2007 U.S. Dist.
LEXIS 81965, at *8-9 (W.D.N.C. Nov. 5, 2007) (interpreting a policy providing that “[t]he
Company insures . . . that the easement is located as shown on the survey referenced above”).
       44
            BLACK’S LAW DICTIONARY 607 (9th ed. 2009).

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                              Nos. 12-40692 & 12-40702

       As the policy is ambiguous and is subject to at least two interpretations,
we may consider “extraneous evidence to determine the true meaning of the
instrument.”45 One piece of extraneous evidence relied on by Doubletree is
Lawyers Title’s letter offering to provide Doubletree more complete title
insurance coverage by amending the standard survey exception. In that letter,
Lawyers Title stated,
       In the interest of providing you with a more complete title insurance
       policy, if a qualifying survey has been required by your lender, we
       will collect the appropriate premium from you . . . and amend your
       title insurance policy to insure you against loss because of
       discrepancies or conflicts in boundary lines, encroachments or
       protrusions, or overlapping of improvements, excluding from the
       coverage specific matters disclosed by the survey.

This language certainly suggests that additional and meaningful survey
coverage could be obtained by paying the premium, and that such coverage
would exclude the listed encumbrances only to the extent shown on the survey.
Reading this letter together with the title insurance policy, Doubletree
reasonably believed it was purchasing survey coverage for any defects in title not
correctly shown on the survey.
       Because the approximate location of the flowage easement was in fact
depicted on the survey, Doubletree had even more reason to believe that
coverage of the flowage easement would be excluded only to the extent disclosed
on the survey. As the New Jersey Supreme Court has explained,
       The purpose of the survey exception is to exclude coverage when the
       insured fails to provide the insurer with a survey. From a search of
       relevant public records, a title company cannot ascertain the risks
       that an accurate survey would disclose. It is for this reason that the
       title company puts that risk on the insured, who can control it either

       45
         Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333-34
(Tex. 2011) (internal quotation marks and citation omitted).

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                                Nos. 12-40692 & 12-40702

       by obtaining a survey or arranging for the elimination of the survey
       exception. Thus, the very purpose of a survey exception is to exclude
       from coverage errors that would be revealed not by a search of
       public records, but by an accurate survey.46

Either removal of the survey exception or amendments to that exception could
therefore shift certain survey-related risks from the insured to the insurer.47 As
Doubletree obtained a survey, paid for an amended policy altering the standard
survey exception, and received a survey disclosing the location of the flowage
easement, it was reasonable for Doubletree to believe that the flowage easement
was excluded only to the extent shown on the survey.
       Additionally, neither the letter offering the more complete coverage nor
the corrected policy itself clarifies that the “more complete title insurance policy”
would not cover errors in identifying encumbrances shown on the survey that did
not affect the boundaries of the property. In fact, one New Jersey court has
considered and rejected Lawyers Title’s position that survey coverage only
insures the boundaries of the property and not encumbrances within the
property.48 Thus, one reasonable reading of the survey coverage here would be



       46
        Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 562 A.2d 208, 217 (N.J. 1989)
(emphasis added, internal citation omitted).
       47
         See BARLOW BURKE, LAW OF TITLE INSURANCE § 9.03 (2014) (discussing removal of
the standard survey exception and separate endorsements available to provide more coverage
for matters involving a survey, but warning that “[a]n exception is not the opposite of coverage
and so eliminating it does not automatically provide coverage”).
       48
           See Enright v. Lubow, 493 A.2d 1288, 1294-95 (N.J. Super. Ct. App. Div. 1985)
(rejecting the insurer’s argument that “the title insurance policy only insures the boundary of
the survey but does not insure locations within the survey itself” and holding that the policy
covered survey errors in identifying encumbrances within the property, stating, “the
reasonable expectation of the insureds [was] that the purpose of requiring a survey is not only
to locate the outbound lines of the survey but also to insure its accuracy in the location of those
conditions which are shown within the boundaries of the survey”).

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                                Nos. 12-40692 & 12-40702

that it covers not just encumbrances on the boundaries of the property, but also
encumbrances lying wholly within the property.
      This reading of the policy is also consistent with two Texas cases, as well
as another New Jersey case. Each of these three cases holds that title defects
are covered when the defect is not revealed due to a survey error and when
language in the policy suggests there would be coverage for such errors. For
example, in Dallas Title & Guaranty Co. v. Valdes,49 a survey correctly reflected
the boundary lines of a property but failed to reveal that nine-tenths of the lot
had been conveyed to the State for use as a highway.50 The policy at issue
contained a survey exception for “[a]ny [discrepancies], conflicts, or shortages in
area or boundary lines, or any encroachments, or any overlapping of
improvements which a correct survey would show.”51 The Valdes court held that
the defect in title, which was not shown on the survey, was covered because the
parties intended to insure the lot as it appeared in the public records.52 In
reaching this result, the court also relied on the contra-insurer rule that “[t]he
terms of the policy are to be construed liberally in favor of the insured.”53
      Another Texas case, Lawyers Title Insurance Corp. v. McKee,54 reached the
same result, holding that the title defect—a discrepancy in the boundary of the
property—was covered because the policy contained an exception for
encumbrances that a correct survey would show and the defect was not revealed

      49
           445 S.W.2d 26 (Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.).
      50
           Valdes, 445 S.W.2d at 27, 29-30.
      51
           Id. at 27 (emphasis added).
      52
           Id. at 30.
      53
           Id.
      54
           354 S.W.2d 401 (Tex. Civ. App.—Fort Worth 1962, no writ).

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                                Nos. 12-40692 & 12-40702

on a survey of the property.55 A third case, MacBean v. St. Paul Title Insurance
Corp.,56 from New Jersey, involved a policy with an exception for encumbrances
that a correct survey would show, but an addendum to the policy eliminated the
exception, identified a specific survey, and stated that the survey “shows clear.”57
The court held that a defect in the survey, viz., failing to reveal that an abutting
road actually lay on private property rather than public property, was covered
by the policy’s addendum since the addendum was ambiguous and therefore had
to be interpreted in favor of the insured.58
      In sum, each of these cases holds that survey errors are covered when the
insured obtains a survey and believes, based on language in the policy, that
there would be coverage for errors not shown on the survey. Likewise here,
Doubletree obtained a survey and believed it would be covered for survey errors
not shown on the survey, given its purchase of additional survey coverage and
the amendment to the standard survey exception. These cases further support
the reasonableness of Doubletree’s reading of the reformed policy as covering the
survey’s erroneous identification of the flowage easement.
      Because the survey coverage clause in the corrected policy is susceptible
of more than one reasonable interpretation, Texas law mandates that we adopt
Doubletree’s interpretation since Doubletree is the insured and its interpretation
is reasonable.59         Under Doubletree’s reasonable interpretation, the survey


      55
           McKee, 354 S.W.2d at 404-05.
      56
           405 A.2d 405 (N.J. Super. Ct. App. Div. 1979).
      57
           MacBean, 405 A.2d at 407.
      58
           Id. at 409.
      59
         See Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d
552, 555 (Tex. 1991).

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                           Nos. 12-40692 & 12-40702

coverage clause covered survey errors in identifying the location of the flowage
easement. Thus, the magistrate judge erred in holding as a matter of law that
the survey coverage clause does not provide such coverage.
                                         C
      Lawyers Title argues that the flowage easement exception precludes
coverage for the survey error in this case. We again hold that both parties’
interpretations of the clause are reasonable and conclude that, as a result, we
must adopt Doubletree’s interpretation.
      The reformed policy contains an exception referencing the flowage
easement, and reads as follows:
      This policy does not insure against loss or damage . . . that arise by
      reason of . . . the following matters: . . .
            6. The following matters and all terms of the documents
            creating or offering evidence of the matters[:] . . .
                    f. Flowage easement awarded to The United States of
                    America in Condemnation Proceedings in U.S. District
                    Court for the Eastern District of Texas, . . . a certified
                    copy of which has been filed on January 10, 1956,
                    recorded in Volume 418, page 372, Real Property
                    Records, Denton County, Texas, and shown on survey
                    dated March 22, 2006 by Mark Paine, RPLS #5078.

The title commitments before survey coverage was purchased by Doubletree
included the same provision, except that the words “and shown on survey dated
March 22, 2006 by Mark Paine, RPLS #5078” were not included. This language
was added to the final amended policy after survey coverage was purchased.
      Lawyers Title offers two alternative interpretations of the flowage
easement exception. At oral argument, Lawyers Title’s counsel said that the
addition of the “and shown on survey” language to the exception is simply a
notation to indicate that the surveyor identified the easement as affecting the
property. Such addition does not affect the substance of the exception, Lawyers

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                           Nos. 12-40692 & 12-40702

Title’s counsel contended. In its briefing, Lawyers Title alternatively argues
that the district court was correct in concluding that the “and shown on survey”
language actually expands the scope of the flowage easement exception,
precluding coverage for the flowage easement as it exists in the real property
records and as it is described in any other documents, like the survey.
      Doubletree argues that the addition of the “and shown on survey”
language to the flowage easement exception limits the exception to cover the
easement only to the extent the easement is shown in the real property records
and on the survey. Thus, any error in identifying the location of the easement
in the survey would not be excepted from coverage.
      We hold that Doubletree’s interpretation and one of Lawyers Title’s
interpretations are reasonable. On the one hand, Lawyers Title’s view that the
“and shown on survey” language does not substantively alter the exception, but
simply indicates that the survey was identified as affecting the property, is
understandable.      This additional language was also added to seven other
exceptions involving easements of record, while a different phrase—“as shown
on survey”—was added to one of the other exceptions regarding “[f]ences off
property lines [and a] deck over property line.” Given this difference, it is
plausible that the “as shown on survey” phrase indicates that the fences and
deck exception only covered the fence and deck to the extent shown on the
survey, while the “and shown on survey” language simply indicates that the
flowage easement actually affects the property. It is therefore reasonable to read
the amended survey exception as continuing to except from coverage the entire
flowage easement, despite its appearance on the survey.
      On the other hand, Doubletree’s interpretation, under which the title
insurance policy covers the survey error in identifying the location of the flowage
easement, is reasonable as well. Under Doubletree’s reading, the addition of the

                                        24
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                                Nos. 12-40692 & 12-40702

phrase “and shown on survey” to the flowage easement exception modifies that
exception in a substantive way.             This accords with the rule of contract
construction requiring courts to give effect to every term of a contract so that
none will be rendered meaningless.60 It is also consistent with the commonsense
notion that changes made to a policy after more coverage is purchased are
reasonably interpreted to amount to a substantive increase in coverage. It is
reasonable to read the amended language to mean that the flowage easement
referenced in the real property records was accurately shown in the survey and
was excepted only to that extent.
       Finally, Lawyers Title’s second interpretation of the “and shown on
survey” language as expanding the exception and thereby reducing coverage
under the policy is unreasonable.            If the parties intended to expand the
exception, the word “or” would have been used to except from coverage the
easement as described in the real property records or as shown in the survey.
We therefore hold that this interpretation is not supported by the plain language
of the policy. Even if this interpretation could somehow be held reasonable, it
is certainly no more reasonable than the two other interpretations discussed
above. At most, it is another reasonable interpretation by Lawyers Title.
       Just as the survey coverage clause was susceptible of multiple reasonable
interpretations, so too is the flowage easement exception. Therefore, we again
must adopt Doubletree’s interpretation since Doubletree is the insured and its
interpretation is reasonable.61             According to Doubletree’s reasonable
interpretation, the flowage easement exception covers errors in identifying the



       60
          See Alpert v. Riley, 274 S.W.3d 277, 288 (Tex. App.—Houston [1st Dist.] 2008, pet.
denied) (citing Kelley–Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998)).
       61
            See Nat’l Union, 811 S.W.2d at 555.

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                                 Nos. 12-40692 & 12-40702

location of the flowage easement, so it was error to interpret the policy as
excluding such coverage as a matter of law.
                                                D
       The third and final provision of the corrected policy we must consider is
exclusion 3(a), which the magistrate judge held precluded coverage of the
undisclosed magnitude of the flowage easement. We conclude that the exclusion
does not bar Doubletree’s claims.
       The reformed policy contains a standard list of coverage exclusions. That
portion of the policy provides:
       The following matters are expressly excluded from the coverage of
       this policy and the Company will not pay loss or damage, costs,
       attorneys’ fees or expenses which arise by reason of: . . .
       3. Defects, liens, encumbrances, adverse claims or other matters:
             (a) created, suffered, assumed or agreed to by the insured
             claimant[.]

       Lawyers Title argues that the district court was correct in concluding that
Doubletree “suffered, assumed, or agreed” to the flowage easement as a defect
in title under exclusion 3(a). Lawyers Title contends that Doubletree did so by
virtue of three documents. First, in the sales contract, Doubletree agreed to
purchase the property with the easement listed as a title defect.62 Second,
Doubletree accepted a deed stating that title was being conveyed “subject to” the
flowage easement. Third, in the final title commitment, the flowage easement



       62
           The sales contract does not explicitly reference the flowage easement; instead, it
only says that a title insurance policy will be furnished by seller to buyer and describes that
policy. It provides that the title insurance policy is “subject to . . . the following exceptions as
may be approved by Buyer” and then lists several encumbrances, including “restrictive
covenants affecting the Property.” The sales contract also refers to the title commitment.
Thus, the sales contract only refers to the flowage easement indirectly, in the sense that it
describes the title policy and the title commitment, which both include the flowage easement
as an exception using the “and shown on survey” language.

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                                Nos. 12-40692 & 12-40702

was specifically identified as an exception. In addition, the district court held
that Doubletree suffered, assumed, and agreed to the flowage easement under
the terms of Doubletree and Duvall’s leaseback agreement, which lists the
flowage easement as a restrictive covenant and permitted encumbrance.
       Doubletree argues that it could not have suffered, assumed, or agreed to
the flowage easement as a title defect because it did not know the actual location
and size of the recorded easement. Doubletree also maintains that the language
of the deed—that it took the property “subject to” to the easement—does not
establish that it suffered, assumed, or agreed to the flowage easement as a defect
in title. Finally, Doubletree notes that the deed and other closing documents
referred to the flowage easement as it was shown in the real property records
and on the survey. Thus, even if it did assume the flowage easement as a defect
in title, it only assumed it to the extent it was shown in the real property records
and the survey.
       In interpreting exclusion 3(a), which is a standard exclusion in policies
across the country, courts agree that “‘suffered’ is synonymous with the word
‘permit’ and implies the power to prohibit or prevent the lien which has not been
exercised although the insured has full knowledge of what is to be done with the
intention that it be done.”63 The term “assume” in exclusion 3(a) “requires
knowledge of the specific title defect assumed.”64 Courts have held that the
insured party “does not assume an assessment against property ‘merely because




       63
         Ariz. Title Ins. & Trust Co. v. Smith, 519 P.2d 860, 863 (Ariz. Ct. App. 1974) (citing
Hansen v. W. Title Ins. Co., 33 Cal. Rptr. 668, 671 (Cal. Dist. Ct. App. 1963) and First Nat’l
Bank & Trust Co. v. N.Y. Title Ins. Co., 12 N.Y.S.2d 703, 709 (N.Y. Special Term 1939)); see
also Am. Sav. & Loan Ass’n v. Lawyers Title Ins. Corp., 793 F.2d 780, 784 (6th Cir. 1986).
       64
            Am. Sav. & Loan Ass’n, 793 F.2d at 784.

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                                     Nos. 12-40692 & 12-40702

he agreed to take the property ‘subject to’ any assessments.’”65 The last of the
three terms at issue here—“agreed to”—“carries connotations of ‘contracted,’
requiring full knowledge by the insured of the extent and amount of the claim
against the insured’s title.”66 All of the terms require some degree of intent to
acquire the property with defects in its title.67 As the Eighth Circuit has
summarized, under exclusion 3(a),

          the insurer can escape liability only if it is established that the
          defect, lien or encumbrance resulted from some intentional
          misconduct or inequitable dealings by the insured or the insured
          either expressly or impliedly assumed or agreed to the defects or
          encumbrances in the course of purchasing the property involved.
          The courts have not permitted the insurer to avoid liability if the
          insured was innocent of any conduct causing the loss or was simply
          negligent in bringing about the loss.68

          Based on these standards, Doubletree did not suffer, assume, or agree to
the undisclosed magnitude of the flowage easement for three main reasons.
First, all four documents at issue include the “and shown on survey” language
that the corrected policy contains. Because the survey failed to disclose the full
extent of the easement, Doubletree did not suffer, assume, or agree to the full
extent of the easement as a defect in title.
          Second, Doubletree did not suffer, assume, or agree to the undisclosed
magnitude of the flowage easement because it did not have the requisite intent
to do so. As noted, all three of these terms require some degree of intent by the

          65
               Id. (quoting Smith, 519 P.2d at 863).
          66
               Id.
          67
               Id.
          68
               Brown v. St. Paul Title Ins. Co., 634 F.2d 1103, 1107-08 n.8 (8th Cir. 1980) (collecting
cases).

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                               Nos. 12-40692 & 12-40702

insured to acquire the property with the defect in its title.69 Here, if Doubletree
intended to acquire the property with the flowage easement as a title defect, it
only intended to do so to the extent that the easement was shown on the survey.
This is evident from Doubletree’s development plans, which accounted for the
flowage easement, but only to the extent shown on the survey. There is simply
no summary judgment evidence to prove Doubletree had any intent to acquire the
property with the full scope of the flowage easement as a title defect. Because
Lawyers Title has failed to show that Doubletree intended to acquire the property
with the full magnitude of the flowage easement, it has failed to show that
Doubletree suffered, assumed, or agreed to the easement.
      Third, in addition to intent, the term “suffered, assumed, and agreed to”
requires knowledge of the extent of the title defect. More concretely, the term
“agreed to” requires “full knowledge by the insured of the extent and amount of
the claim against the insured’s title.”70 An insured only “assumes” the defect if
it has “knowledge of the specific title defect assumed.”71 Although Doubletree
was aware that a flowage easement affected the property, it did not know the
extent of the flowage easement. Doubletree had some knowledge of the flowage
easement as a defect in title, but certainly not full knowledge of the extent of that
defect. An insured does not suffer, assume, or agree to an encumbrance under
this exclusion when it lacks knowledge of the true scope of the encumbrance. In
fact, Doubletree’s lack of knowledge of the extent of the easement distinguishes
this case from a Texas court of appeals case in which the insured had full
knowledge of the encumbrance—a promissory note secured by a lien on the


      69
           Am. Sav. & Loan Ass’n, 793 F.2d at 784.
      70
           Id.
      71
           Id.

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                               Nos. 12-40692 & 12-40702

property—since he himself executed the note, and thereby “created, suffered,
assumed, or agreed to” the encumbrance under exclusion 3(a).72 Even if exclusion
3(a) were ambiguous as to whether “suffered, assumed, or agreed to” requires
knowledge of just the existence of the easement or knowledge of the existence and
extent of the easement, we must adopt Doubletree’s reasonable interpretation of
the exclusion.
       Most importantly, exclusion 3(a) would completely nullify the survey
coverage if interpreted as Lawyers Title suggests. The magistrate judge was
incorrect in concluding that the exclusion barred Doubletree’s claim here.
                                              E
       Lawyers Title has raised several other issues with regard to Doubletree’s
breach of contract claim. Because the magistrate judge interpreted the reformed
policy as not covering Doubletree’s claims, the magistrate judge did not reach
these other issues raised by Lawyers Title.                These issues could preclude
rendering summary judgment for Doubletree on its breach of contract claim
despite our interpretation of the reformed policy as covering Doubletree’s claims.
       For instance, Lawyers Title argues that coverage under the policy
terminated when the property was sold at foreclosure. Although Doubletree filed
claims with Lawyers Title before foreclosure, it did not assert claims based on the
corrected policy’s survey coverage until after foreclosure. Therefore, Lawyers
Title asserts, it cannot be liable for breach of contract based on the survey
coverage. Lawyers Title also contends that it properly denied Doubletree’s


       72
         Duncan v. First Am. Title Ins. Co., No. C14-93-00171-CV, 1994 WL 2010, at *1, *4-5
(Tex. App.—Houston [14th Dist.] 1994, no writ) (not designated for publication) (holding that,
because a warranty deed expressly stated that it was made “subject to” liens on the property
and the insured himself executed the promissory note secured by a lien on the property, the
insured and an entity for which he was the president and authorized agent “created, suffered,
assumed, or agreed to” the note as an encumbrance on title).

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                                Nos. 12-40692 & 12-40702

original claims under the policy, since those claims were based on the original
policy and Doubletree never submitted claims based on the corrected policy and
the survey coverage that it included. According to Lawyers Title, Doubletree’s
failure to ever present a claim based on the corrected policy until this litigation
was a failure to provide adequate notice of claim and proof of loss under the
policy. Finally, Lawyers Title argues that Doubletree has failed to offer any
evidence of a compensable loss under the policy that resulted solely from the
flowage easement, and not the flood plain, which also affects the property.
      The magistrate judge did not decide these issues. We therefore reject the
magistrate judge’s interpretation of the reformed policy and remand for
consideration of these issues.
                                              V
      Doubletree also appeals the magistrate judge’s grant of summary judgment
in favor of Lawyers Title on Doubletree’s common law bad faith claims, its
statutory bad faith claims under the Texas Insurance Code, and its claims under
the Texas DTPA.73 We affirm the grant of summary judgment as to these
extracontractual claims.
      Doubletree first contends that the magistrate judge erred in granting
summary judgment to Lawyers Title on Doubletree’s claim of common law breach
of the duty of good faith and fair dealing. In the insurance context, the common
law duty of good faith and fair dealing “arises from the special relationship”
between the insurer and the insured.74 “[A] breach of the duty of good faith and
fair dealing will give rise to a cause of action in tort that is separate from any




      73
           TEX. BUS. & COM. CODE ANN. §§ 17.41-63 (West 2014).
      74
           Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 283 (Tex. 1994).

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                                 Nos. 12-40692 & 12-40702

cause of action for breach of the underlying insurance contract.”75 However, “the
threshold of bad faith is reached only when the breach of contract is accompanied
by an independent tort.”76 “A cause of action is stated when the insured alleges
that the insurer had no reasonable basis for the denial or delay in payment of a
claim and that the insurer knew or should have known of that fact.”77
Accordingly, the evidence pointing to bad faith “must relate to the tort issue of
no reasonable basis for denial or delay in payment of a claim, not just to the
contract issue of coverage.”78
      The magistrate judge noted that “in order to recover for breach of the duty
of good faith and fair dealing, Doubletree [first had to] establish that Lawyers
Title breached the contract.” Because the magistrate judge held that the policy
did not cover Doubletree’s claim, he concluded that Doubletree had not
established such a breach and held that “Lawyers Title clearly had a reasonable
basis for [its] denial.”
      Although we disagree with the magistrate judge’s conclusion that Lawyers
Title did not breach the contract as a matter of law, we nevertheless affirm the
grant of summary judgment as to the breach of good faith and fair dealing claim
because Doubletree did not offer evidence that creates a genuine dispute of fact
as to whether there was a “reasonable basis for the denial of coverage.” As we
have already noted, both Lawyers Title and Doubletree have offered reasonable



      75
           Viles v. Sec. Nat’l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990).
      76
           Union Bankers, 889 S.W.2d at 283.
      77
           Id.
      78
           Lyons v. Millers Cas. Ins. Co. of Tex., 866 S.W.2d 597, 600 (Tex. 1993).

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                               Nos. 12-40692 & 12-40702

interpretations of the reformed policy.             Although we adopt Doubletree’s
interpretation under the well-known contra-insurer rule, Lawyers Title’s
interpretation of the reformed policy, under which Doubletree’s claim is not
covered, is also reasonable. Lawyers Title thus had a reasonable basis for its
denial of coverage.
      Additionally, Doubletree’s initial claims were based on the policy as
originally issued—that is, the claims relied on the fact that the exception for the
flowage easement was not in the original policy. Doubletree never submitted a
claim under the corrected policy nor did it assert at the claims stage that the
incorrect survey provided a basis for coverage. In fact, Doubletree did not assert
its survey theory of coverage until after the commencement of this litigation.
Given our conclusion that reformation of the policy was appropriate in these
circumstances, Lawyers Title’s reliance on the flowage easement exception as a
basis for denying coverage of Doubletree’s initial claim was neither incorrect nor
in bad faith. Doubletree thus did not offer sufficient evidence that Lawyers Title
“had no reasonable basis for the denial or delay in payment of a claim” or that
Lawyers Title “knew or should have known of that fact.”79
      Doubletree also contends that Lawyers Title violated its statutory duty of
good faith under Texas Insurance Code § 541.060(a)(2) because it “made no effort
to settle the Title Loss Claim.” Section 541.060 provides, in relevant part, that
      (a) It is an unfair method of competition or an unfair or deceptive act
      or practice in the business of insurance to engage in the following
      unfair settlement practices with respect to a claim by an insured or
      beneficiary: . . .



      79
           Union Bankers, 889 S.W.2d at 283.

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                                 Nos. 12-40692 & 12-40702

                (2) failing to attempt in good faith to effectuate a prompt, fair,
                and equitable settlement of:
                        (A) a claim with respect to which the insurer’s liability has
                        become reasonably clear[.]80
       Doubletree asserts similar claims under the DTPA, alleging, inter alia, that
Lawyers Title’s denial of coverage was unconscionable and that Lawyers Title
failed to settle in good faith, failed to provide an adequate explanation for the
denial, failed to conduct a reasonable investigation, rewrote the policy after
Doubletree made a claim, and made certain “disingenuous” arguments during the
course of this litigation.
       We have previously noted that “Texas courts have clearly ruled that . . .
extra-contractual tort claims [under the DTPA and the Insurance Code] require
the same predicate for recovery as bad faith causes of action in Texas.”81
Accordingly, “an insurer will not be faced with a tort suit for challenging a claim
of coverage if there was any reasonable basis for denial of that coverage.”82 As we
have already discussed, Lawyers Title had a reasonable basis for denying
Doubletree’s claim.          Doubletree’s claims under the DTPA and the Texas
Insurance Code thus fail for the same reasons as its common law bad faith claim.
                                               VI
       In a consolidated appeal, Doubletree’s attorneys, Kalis and Martin,
challenge the magistrate judge’s award of attorneys’ fees to Lawyers Title under

       80
            TEX. INS. CODE ANN. § 541.060 (West 2014).
       81
          Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 460 (5th Cir. 1997)
(citing Emmert v. Progressive Cnty. Mut. Ins. Co., 882 S.W.2d 32, 36 (Tex. App.—Tyler 1994,
writ denied) and State Farm Lloyds, Inc. v. Polasek, 847 S.W.2d 279, 282 n.2 (Tex. App.—San
Antonio 1992, writ denied)).
       82
            Id. (citing Emmert, 882 S.W.2d at 36).

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                          Nos. 12-40692 & 12-40702

28 U.S.C. § 1927. The magistrate judge granted in part Lawyers Title’s motion
for attorneys’ fees and ordered Kalis and Martin to pay $55,310.00 to Lawyers
Title. The magistrate judge imposed the sanctions based on the lawyers’ pursuit
of Doubletree’s extracontractual claims. We hold that the magistrate judge
abused his discretion in awarding fees to Lawyers Title.
      Lawyers Title argues the award of fees was appropriate because Kalis and
Martin persistently pursued meritless extracontractual claims, which were
unsupported by the facts or law. Pursuit of these claims, Lawyers Title argues,
multiplied the proceedings and distracted it and the court from the breach of
contract issue.   Lawyers Title further contends that Doubletree’s counsels’
conduct in pursuit of its claims—including inadequate citations of authority in
briefing and persistent assertions of baseless arguments—also supports an award
of attorneys’ fees.
      Kalis and Martin argue that, for several reasons, the fee award was
inappropriate here. First, Kalis and Martin note that, when they first entered
their appearance in this lawsuit filed by Lawyers Title in the Eastern District of
Texas, Doubletree had already filed a separate state court action alleging the
extracontractual claims against Lawyers Title. At that time, Doubletree was
represented by different counsel in its state court lawsuit. After entering their
appearance, Kalis and Martin believed the state court extracontractual claims
might be compulsory counterclaims in the federal court lawsuit and would be
waived if not asserted under Federal Rule of Civil Procedure 13(a). Kalis and
Martin offered to enter into a non-waiver agreement with Lawyers Title to toll
the extracontractual claims and thereby avoid having to litigate them until the
policy coverage question was decided. Lawyers Title rejected the offer. At that


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                                Nos. 12-40692 & 12-40702

point, fearing they would commit legal malpractice if the extracontractual claims
were not pursued in federal litigation, Kalis and Martin filed the extracontractual
claims in federal court. Based on this series of events, Kalis and Martin argue
that their conduct was not unreasonable or vexatious, but rather a good-faith
effort to avoid waiving Doubletree’s extracontractual claims.
       Kalis and Martin also argue that, even if the court concludes that the
extracontractual claims lack merit, Lawyers Title has not shown that their
conduct in pursuing the claims rose to the level of bad faith, improper motive, or
reckless disregard, as required for a fee award under § 1927. Further, Kalis and
Martin contend, their references to Lawyers Title’s “time traveling policy” and
their allegations that Lawyers Title went back in time to rewrite its insurance
policy do not warrant a fee award.
       As mentioned, we review an award of sanctions under § 1927 for abuse of
discretion.83 Section 1927 provides:
       Any attorney or other person admitted to conduct cases in any court
       of the United States or any Territory thereof who so multiplies the
       proceedings in any case unreasonably and vexatiously may be
       required by the court to satisfy personally the excess costs, expenses,
       and attorneys’ fees reasonably incurred because of such conduct.84
An award of attorneys’ fees under § 1927 requires “evidence of bad faith,
improper motive, or reckless disregard of the duty owed to the court.”85 In

       83
          See Cambridge Toxicology Grp., Inc. v. Exnicios, 495 F.3d 169, 180 (5th Cir. 2007) (“A
district court abuses its discretion if it awards sanctions based on an erroneous view of the law
or on a clearly erroneous assessment of the evidence.”) (internal quotation marks and citation
omitted).
       84
            28 U.S.C. § 1927.
       85
          Cambridge Toxicology, 495 F.3d at 180 (quoting Procter & Gamble Co. v. Amway
Corp., 280 F.3d 519, 525 (5th Cir. 2002)).

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                                 Nos. 12-40692 & 12-40702

awarding fees under this provision, “[t]he district court must make detailed
factual findings.”86 Specifically, the court is required to “(1) identify sanctionable
conduct and distinguish it from the reasons for deciding the case on the merits,
(2) link the sanctionable conduct to the size of the sanctions, and (3) differentiate
between sanctions awarded under different statutes.”87 Further, punishment
under § 1927 is “sparingly applied.”88 This court has held that sanctions under
§ 1927 are “punitive in nature and require clear and convincing evidence” that
sanctions are justified.89 “An unsuccessful claim is not necessarily actionable.”90
Section 1927 sanctions should be employed “only in instances evidencing a
serious and standard disregard for the orderly process of justice,” lest “the
legitimate zeal of an attorney in representing [a] client [be] dampened.”91
       Here, the magistrate judge abused his discretion in awarding fees to
Lawyers Title. First, there is no clear and convincing evidence that Kalis and
Martin’s conduct in filing and litigating the extracontractual claims was a result
of bad faith, improper motive, or reckless disregard of the duty owed the court.
The evidence instead shows that Kalis and Martin acted in good faith in pursuing
the extracontractual claims because they sincerely believed that those claims

       86
            Id.
       87
            Id. at 180-81 (quoting Procter & Gamble Co., 280 F.3d at 526).
       88
          Meadowbriar Home for Children, Inc. v. Gunn, 81 F.3d 521, 535 (5th Cir. 1996)
(internal quotation marks and citation omitted).
       89
        Bryant v. Military Dep’t of Miss., 597 F.3d 678, 694 (5th Cir. 2010) (internal quotation
marks and citation omitted).
       90
            See Hogue v. Royse City, Tex., 939 F.2d 1249, 1256 (5th Cir. 1991).
       91
          FDIC v. Conner, 20 F.3d 1376, 1384 (5th Cir. 1994) (internal quotation marks and
citations omitted).

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                            Nos. 12-40692 & 12-40702

would be waived if not asserted in federal court. Indeed, they even tried to put
the extracontractual claims “on hold” pending resolution of the breach of contract
issue, but Lawyers Title’s attorneys rejected this offer. Lawyers Title has not
contradicted this evidence of good faith by showing at least a reckless disregard
of the duty owed the court by Kalis and Martin. At most, it has shown that
Doubletree’s extracontractual claims lack merit, which is not a sufficient basis
for awarding sanctions.
      Second, the reasons given by the magistrate judge for awarding sanctions
do not support his award. The magistrate judge noted that the extracontractual
claims had no basis in fact, emphasizing that Doubletree “could not identify a
single misrepresentation made by” Lawyers Title. For one thing, whether the
claims pursued had a “basis in fact” is not the applicable standard in reviewing
a sanctions award: The standard is whether the claims were pursued in bad faith,
for improper motive, or in reckless disregard of the duty owed the court. As
discussed, that standard has not been satisfied. In addition, although Doubletree
originally brought fraud and negligent misrepresentation claims, the majority of
Doubletree’s    claims     were   not   that   Lawyers      Title   made   express
misrepresentations, but that Lawyers Title had no reasonable basis for denying
coverage, failed to settle in good faith, failed to provide an adequate explanation
of denial, and other similar claims. Therefore, even if Doubletree never identified
a misrepresentation by Lawyers Title, it still might recover on many of its
extracontractual claims.
      The magistrate judge also based his award on the fact that Kalis and
Martin alleged that Lawyers Title had the ability to “time travel,” repeatedly
accused Lawyers Title of going back in time to rewrite its insurance policy, and


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                          Nos. 12-40692 & 12-40702

questioned witnesses regarding their ability to “time travel.” Although this was
inappropriate rhetoric, alone it does not rise to the level of bad faith, improper
motive, or reckless disregard for the duty owed the court.
      In conclusion, the magistrate judge abused his discretion in awarding fees,
and we thus reverse the fee award to Lawyers Title.
                                *       *       *
      For the foregoing reasons, the magistrate judge’s order granting Lawyers
Title’s motion for summary judgment and denying Doubletree’s motion for
summary judgment is AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED for further proceedings consistent with this opinion, and the
magistrate judge’s order awarding attorneys’ fees to Lawyers Title is
REVERSED.




                                       39
