                                                          United States Court of Appeals
                                                                   Fifth Circuit
                                                                F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                                                                March 29, 2007
                         FOR THE FIFTH CIRCUIT
                         _____________________              Charles R. Fulbruge III
                                                                    Clerk
                              No. 05-20592
                         _____________________


ARCHIE WATSON and
CYNTHIA WATSON

                                                 Plaintiffs-Appellants,

versus

ALLSTATE TEXAS LLOYD’S

                                                   Defendant-Appellee.


                     ----------------------
          Appeal from the United States District Court
               for the Southern District of Texas
                         (4:03-CV-5805)
                     ----------------------

Before GARWOOD, WIENER, and PRADO, Circuit Judges.

PER CURIAM*:

     Plaintiffs-Appellants     Archie   and   Cynthia    Watson      (“the

Watsons”) sued Appellee Allstate Texas Lloyds Insurance Company

(“Allstate”) for breach of contract and other claims arising from

Allstate’s denial of coverage for two claims made by the Watsons

under their property insurance policy (“the Policy”). Both parties

eventually moved for summary judgment.    The district court granted

Allstate’s motion and denied the Watsons’, who timely filed their

notice of appeal.

     *
       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this opinion should not be published and is not precedent except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.
                          I.    FACTS & PROCEEDINGS

      A house belonging to the Watsons is at the center of this

insurance dispute.    They occupied it until July 1999, then used it

as   rental   property.         Their   first    tenant,     Antwanette    Weaver,

occupied the house until June 2000.                  Weaver testified in her

deposition that, during her occupancy, water leaked through the

ceiling tiles during hard rains.                She also testified that she

complained about these leaks to Mr. Watson on more than one

occasion.     Mr. Watson testified that he investigated Weaver’s

reports but never found a leak or anything to indicate a leaking

roof.

      The Watsons did notice roof damage following Tropical Storm

Allison, however, and they filed a claim for that in June 2001.

Allstate investigated the Watsons’ post-hurricane claim and paid

them for (1) water damage to the interior of the house resulting

from the leaking roof and (2) the cost of emergency mitigation

repairs that Watson claimed to have made to the roof.                 Allstate’s

inspector denied the Watsons’ claim for roof damage, however, after

determining that the damage had been caused by a “non-covered

Peril.”     In a letter denying the claim, Allstate referenced two

excluded perils, namely “(1) wear and tear, deterioration or loss

caused by any quality in property that causes it to damage or

destroy itself.”     and       “(2)   rust,   rot,   mold,    or   other   fungi.”




                                         2
Allstate’s final denial letter was dated October 9, 2001.                  The

Watsons made no further repairs to the roof.

      In August 2002, Mr. Watson discovered a leaking pipe behind a

bathroom wall and reported that damage to Allstate.           Allstate sent

an adjuster and eventually paid the Watsons for the damage caused

by   that   leak.   While   Allstate’s    adjuster     was    in   the   house

inspecting that claim, part of a hallway ceiling collapsed.                The

adjuster went into the attic and determined that the roof was again

leaking.     The roof damage claim was reopened at the Watsons’

request.     Allstate again denied the Watsons’ roof damage claim

after determining that any worsening of the roof’s condition was

attributable to the Watsons’ failure to repair the roof following

Allstate’s denial of their 2001 roof damage claim.

      In November 2002, Mr. Watson reported various instances of

mold damage in the house.         After its adjuster inspected the

property, Allstate retained a mold assessment company, Hometest, to

survey the damage and locate possible moisture sources.             Hometest

identified several possible causes for the mold damage in the

house, including (1) an active roof leak, (2) a plumbing leak under

the slab, (3) condensation from voids in the air conditioning

ductwork, (4) an active plumbing leak in a bathroom wall, and (5)

a previously repaired plumbing leak in the kitchen.

      Allstate then retained a leak detection and plumbing service

company to    identify   and   assess   the   extent   of    any   under-slab

plumbing leaks.     The company detected four such leaks.           Allstate

                                    3
paid the Watsons to repair the leaking pipes under the slab, but

withheld any payment for water and mold damage pending the findings

of an engineering firm retained to determine more definitively the

causes of that damage. The engineering firm determined that all of

the mold and water damage to the house resulted from (1) in-wall

plumbing leaks, (2) roof leaks, or (3) condensation resulting from

the lack of a properly functioning moisture barrier under the slab.

The firm excluded the under-slab plumbing leaks (as distinguished

from condensation) as a cause of the interior damage.

     Allstate notified the Watsons that their claim for mold and

water damage purported to result from the under-slab leaks had been

denied, because (1) the engineering report had ruled out the

subsurface leaks as a cause, and (2) none of the other potential

causes was a covered peril under the Policy.        Allstate again

referred to the Policy’s exclusion for damages caused by “(1) wear

and tear, deterioration or loss caused by any quality in property,

(2) rust, rot, mold, or other fungi [or] dampness of atmosphere,

extremes of temperature.”   The Watsons turned off water service to

the property, but made no repairs.

     In October 2003, the Watsons filed suit in state court, and

Allstate removed the case to the district court.   Allstate filed a

motion for summary judgment, and the Watsons countered with their

own motion for partial summary judgment in response to which

Allstate filed a cross-motion for summary judgment.   In resolving

these motions, the district court decided that summary judgment in

                                 4
favor of Allstate was warranted because (1) the Watsons failed to

provide Allstate the contractually required “prompt notice” of the

roof damage, (2)their action to recover for damage caused by roof

leaks was time-barred, (3) they could not sustain their legal

burden of showing that the Policy covered any of the mold or water

damage that they claimed was caused by the under-slab plumbing

leaks, and (4) dismissal of the Watsons’ breach of contract claim

effectively disposed of their non-contractual claims as well.

                              II.      ANALYSIS

A.   Standard of Review

     We review the district court's grant of summary judgment de

novo, and will affirm if, viewing the evidence in the light most

favorable to the Watsons, the record reflects that no genuine issue

of material fact exists and Allstate is entitled to judgment as a

matter of law.1       Summary judgment is appropriate if a party who

bears the burden of proof “fails to make a showing sufficient to

establish the existence of an element essential to that party's

case.”2     For   a   defendant   to    obtain    summary   judgment   on   an

affirmative defense, it must establish each of the defense's




     1
         Fiess v. State Farm Lloyds, 392 F.3d 802, 807 (5th Cir.
2004).
     2
         Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

                                        5
essential elements beyond genuine dispute.3            Summary judgment

evidence must “rise to a level exceeding mere speculation.”4

B.   Discussion

     1.     Mold Damage vs. Water Damage

     Allstate    suggests   that   the   Texas   Supreme   Court’s   recent

opinion in Fiess v. State Farm Lloyds5 “is dispositive of the

claims asserted by the Watsons in the [instant] suit.”          In Fiess,

the Texas Supreme Court answered the following question certified

to it by this court:

     Does the ensuing loss provision contained in Section
     I-Exclusions, part 1(f) of the Homeowners Form B (HO-B)
     insurance policy as prescribed by the Texas Department of
     Insurance effective July 8, 1992 (Revised January 1,
     1996), when read in conjunction with the remainder of the
     policy, provide coverage for mold contamination caused by
     water damage that is otherwise covered under the policy?6

The Texas Supreme Court ruled that the ensuing loss provision of

that form policy does not provide coverage for mold contamination

resulting from water damage otherwise covered under the policy.

     In this appeal, the Watsons concede that if we should remand

their case to the district court, they will not be able to recover

the costs of remediating the mold contamination that resulted from



     3
       Bank of Louisiana v. Aetna U.S. Healthcare Inc., 468 F.3d
237, 241 (5th Cir. 2006).
     4
         Fiess, 392 F.3d at 808 (citation omitted).
     5
         202 S.W.3d 744 (Tex. 2006).
     6
         Fiess, 392 F.3d at 811-12.

                                    6
water damage caused by the roof or plumbing leaks at issue in this

case. They maintain, however, that they would still be entitled to

recover for the water damage itself.       To this extent, the Watsons

are correct.

     Allstate characterizes all of the physical damage at issue in

this case as “mold damages,” and the record does reflect that mold

remediation    comprises   a   significant,   if   not   the   predominant,

portion of the repair costs that the Watsons face.             It is beyond

dispute, however, that Allstate denied coverage for both the mold

and the water damage associated with the roof and under-slab leaks.

For this reason, the Texas Supreme Court’s decision in Fiess would

affect only the quantum of the Watsons’ recovery in the district

court if they are successful on appeal, and does not dispose of

their action entirely as Allstate contends.

     2.   Breach of Contract

          a.     Generally

     In diversity cases such as this one, we apply state law rules

of contractual construction.       Therefore, Texas's rules of contract

interpretation control.7       Insurance policies are contracts and, as

such, are controlled by rules that are applicable to contracts

generally.8    In Texas, the elements of a breach of contract claim


     7
       See Hamilton v. Segue Software Inc., 232 F.3d 473, 477
(5th Cir. 2000); Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).
     8
       Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex.
1987); Amica Mut. Ins. Co. v. Moak, 55 F.3d 1093, 1095 (5th Cir.

                                     7
are: (1) the existence of a valid contract; (2) performance or

tendered performance by one party; (3) nonperformance of the

contract by the other party; and (4) damages incurred as a result.9

If one party to a contract commits a material breach, the other

party may be discharged or excused from any obligation to perform.10

“In determining the materiality of a breach, courts will consider,

among other things, the extent to which the nonbreaching party will

be   deprived     of    the    benefit   that    it   could    have     reasonably

anticipated from full performance.”11

             b.      The Roof Damage Claim(s)

      The district court determined that the Watsons’ breach of

contract action, as it relates to Allstate’s denial of the Watsons’

June 2001      and    August   2002   claims    for   roof    damage,   warranted

dismissal on two grounds, viz., the Watsons failure to (1) provide

Allstate “prompt notice” of their roof damage, and (2) file suit

within the contractual limitations period.             In granting Allstate’s

cross-motion for summary judgment, the district court devoted most

of its discussion to the question of prompt notice and only briefly

addressed limitations.         The parties fully briefed the limitations



1995).
      9
       Acceptance Ins. Co. v. Lifecare Corp., 89 S.W.3d 773, 782
(Tex. App.—Corpus Christi 2002, no pet.).
      10
           Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 692 (Tex.
1994).
      11
           Id. at 693.

                                         8
issue in their summary judgment pleadings, but the district court

only noted conclusionally that “[the Watsons] cannot argue here

that [their roof claim] was wrongfully denied because, pursuant to

[their] policy, any action brought against [Allstate] must be

brought within two years and one day after the action accrues.”

The court then observed in a footnote that “[the Watsons] wind/hail

claim was denied on October 9, 2001 and [they] brought this case on

December 23, 2003.”

     We review the district court’s grant of summary judgment de

novo, and may rest our ruling “on any basis raised below and

supported by the record.”12         The record makes clear that the

Watsons’ breach of contract action, as it relates to their roof

damage claim, is time-barred.

     The Policy contained the following limitations provision:

     No suit or action can be brought unless the policy
     provisions have been complied with.     Action brought
     against us must be started within two years and one day
     after the cause of action accrues.13

Texas     courts   routinely   enforce   such   provisions   in   insurance

policies.14    It is well-settled that “[l]imitations begin to run on



     12
       Grenier v. Medical Engineering Corp., 243 F.3d 200, 207
(5th Cir. 2001).
     13
          Emphasis added.
     14
       See, e.g, Mangine v. State Farm Lloyds, 73 S.W.3d 467,
470-71 (Tex. App.—Dallas 2002, pet. denied); Kuzniar v. State
Farm Lloyds, 52 S.W.3d 759, 760 (Tex. App.—San Antonio 2001, pet.
denied); Pena v. State Farm Lloyds, 980 S.W.2d 949, 953 (Tex.
App.—Corpus Christi 1998, no pet.).

                                     9
an insurance policy when the loss is denied.”15               In this case,

Allstate sent two denial letters to the Watsons, one on July 12,

2001 and another on October 9, 2001.             Thus, the running of the

contractual limitations period was triggered no later than October

9, 2001.      As the instant suit was filed in state court on October

29,   2003,    the   Watsons’   breach     of   contract   claim,   based   on

Allstate’s denial of their initial roof damage claim, is obviously

time-barred.

      In their response to Allstate’s cross-motion for summary

judgment,16 however, the Watsons insisted that their action could

not be time-barred, because it did not accrue until Allstate denied

the Watsons’ second roof claim in February 2003.               The Watsons’

contention is founded on their erroneous belief that their second

roof claim was a new claim, and not an attempt to reinstate their

original roof damage claim.       That conclusion, in turn, is based on

the fallacious contention that Allstate denied the first roof

damage claim because it found no damage.           Not so: The record makes

clear that, in July 2001, Allstate did in fact find roof damage; it

merely denied coverage when it determined that this damage resulted

from other than covered perils.          The record also makes clear that


      15
           Pena, 980 S.W.2d at 953.
      16
       The Watsons fail to brief the limitations issue on
appeal, but as the district court’s treatment of the issue was so
brief, we will not treat their limitations argument as waived,
but instead address the contentions they made in their summary
judgment pleadings.

                                      10
the Watsons made no repairs to their roof after their first claim

was denied, despite reports from tenants that leaks continued.

Finally, the record makes clear that Allstate denied the Watsons’

2002 roof damage claim because it determined that the damage was

caused by the Watsons’ failure either to (1) repair the roof or (2)

timely notify Allstate of any putative new damage after their first

claim was denied in 2001.

     In sum, Allstate determined in 2001 that the Watsons’ roof

damage and its leaks were caused by conditions for which the Policy

provided no coverage.    The Watsons’ damaged roof went unrepaired

and continued to worsen until the ceiling partially collapsed in

2002.     No other cause intervened that would provide the Watsons’

coverage under the Policy.   Consequently, instead of having opened

a “new” claim in August 2002, the Watsons simply reinstated their

previously denied roof damage claim, which Allstate again denied.

Such a reinstatement does not re-start the limitations period for

a breach of contract action.17   As the Watsons’ breach of contract

     17
        See Pena, 980 S.W.2d 949 (Tex. App. 1998); Pace v.
Travelers Lloyds of Texas Ins. Co., 162 S.W.3d 632 (Tex.
App.—Houston 2005, no pet.). In Pena, the court held that “claims
for additional payments may begin the statute of limitations
running anew.” 980 S.W.2d at 954. The limitations period was only
reset, however, by the insurer’s reconsideration of and partial
payment for the earlier denied claim. Id. Even though Allstate
honored its contractual duty to investigate the Watsons’ second
roof claim, the instant case more closely resembles Pace, in
which the court held that a policy’s limitation period is not
reset when “there is no evidence that [a denial decision] was
ever expressly or impliedly withdrawn or changed, such as by
making payment or otherwise taking action inconsistent with that
decision.”

                                 11
action based on Allstate’s denial of their roof damage claim was

filed after the contractual limitations period had expired, it is

time-barred.

            c.      Claim for Under-Slab Leaks

     The district court also granted Allstate’s motion for summary

judgment on      the     Watsons’   breach   of   contract   action    based   on

Allstate’s denial of coverage for damage assertedly caused by

under-slab plumbing leaks.          The court concluded that, based on the

pertinent summary judgment evidence, the Watsons could not show

that the damage was of a kind covered by the Policy.

     Under Texas law, an insured has the burden of showing that

damage to its property is covered by an insurance policy.18               If the

insured     bears    his    burden,   the    insurer   has    the     burden   of

establishing that the cause of the damage is excluded under the

policy.19   And, if the insurer is successful, the insured again has

the burden of showing that (1) the exclusion was improper or (2) an

exception to the exclusion applies.20

                    i.     Proof of Covered Loss

     The Watsons correctly note that, because their property policy

was an “all perils” policy, they met their initial burden in this



     18
          Fiess v. State Farm Lloyds, 392 F.3d 802, 807 (5th Cir.
2004).
     19
          Id.
     20
          Id.

                                       12
case simply by showing that their property suffered physical

damage.   The Policy specifies that coverage exists for “all risks

of physical loss to the property . . . unless the loss is excluded

in General Exclusions.”

                  ii.   Proof of Applicable Exclusion

     In denying the Watsons’ mold and water damage claim, Allstate

referenced the Policy’s general exclusion for loss caused by:

            (1)   Wear and tear, deterioration or loss by
                  any quality in property,

            (2)   Rust, rot, mold or other fungi, or

            (3)   Dampness of    atmosphere,    extremes   of
                  temperature.

Allstate contends that the applicability of this exclusion is

conclusively established by the report of the engineering firm that

it retained to determine the causes of the damage to the Watsons’

property.   In that report, the engineers determined that the water

and mold damage were likely “the result of long-term conditions,

such as past roof leaks, lack of a properly functioning moisture

barrier beneath the slab . . . surface water intrusion, and poor

air conditioning operation/maintenance.”       Notably, damage from any

of these likely causes is not covered under the Policy.            The

engineers also concluded that “current below-slab sanitary leaks

can be excluded as a source of moisture causing damage to the

subject wood floor.”




                                   13
                iii. Genuine Fact Issue

     The district court determined that, as the Watsons neither

undermined the veracity or the quality of the engineering report

nor produced an expert opinion of their own, there was no genuine

fact issue as to whether Allstate properly denied coverage.                The

Watsons contend nonetheless that, in making this determination, the

district court improperly disregarded the conclusions reached by

Hometest, the mold assessment company that initially inspected the

property for Allstate.        Hometest had speculated that under-slab

leaks caused some of the damage in the house.          The Watsons insist

that Hometest’s report creates a fact issue sufficient to defeat

Allstate’s summary judgment motion.

     The   district   court    acknowledged    that   facially   Hometest’s

report appears to state that the under-slab plumbing leaks damaged

particular rooms in the Watsons’ house; but the court ultimately

determined, based on testimony from the report’s author, Ernest

Pankonien,   that   “the   intent   of   the   [Hometest]   report   was    to

recommend to [Allstate] that they hire an expert to determine the

cause of the damage.” Specifically, the district court highlighted

     Pankonien’s testimony that,based on the [] limited visual
     inspection and the sampling that was conducted [by
     Hometest], individuals and/or qualified firms with more
     experience and qualifications in structural and leak and
     cause origin determination analysis should be retained in
     order to more fully delineate what caused the mold and
     what needs to be done to correct the sources of moisture
     intrusion.




                                    14
The district court concluded that, in light of this testimony, the

Hometest report did not contradict the conclusion reached by the

engineering firm that the under-slab leaks did not cause interior

damage.     Consequently, the court found the summary judgment record

devoid of any evidence creating a genuine fact issue as to the

applicability of the Policy’s exclusion of coverage for the damage

allegedly caused by the under-slab leaks.

     We recognize that “the grant of a motion for summary judgment

is often inappropriate where the evidence bearing on crucial issues

of   fact    is    in    the   form    of     expert     opinion       testimony.”21

Nevertheless, when a party opposing summary judgment fails to

present evidence        sufficient     to    make   an   issue   of    an   expert's

conclusions —— such as contrary opinion evidence or evidence

tending to undermine the expert’s credibility or qualifications ——

and when “the trier of fact would not be at liberty to disregard

arbitrarily       the   unequivocal,     uncontradicted,         and    unimpeached

testimony of an expert witness,” expert testimony may form the

basis of summary judgment.22

     We agree with the district court that Pankonien’s testimony

makes clear that the Hometest report did not purport to establish

with any certainty the actual causes of the water and mold damage


     21
       See Webster v Offshore Food Service, Inc., 434 F.2d 1191,
1193 (5th Cir. 1970).
     22
          Id. at 1193-94.


                                        15
to the Watsons’ property.            Consequently, that report cannot be

viewed as contradicting the conclusions of the engineering firm.

Moreover, the trier of fact in this case would not be “at liberty

to disregard arbitrarily” the report of a licensed structural

engineering firm specializing in detecting the causes of water and

mold damage.         Of course, had Pankonien defended his report’s

findings more vigorously, this case could have presented the kind

of “battle of the experts” that typically renders summary judgment

presumptively inappropriate.

       In light of Pankonien’s testimony, however, no such “battle”

took place in this case.           The district court was presented with

only    (1)    the    Watsons’     speculation   ——     not   implausible    but

unsupported —— that the under-slab leaks caused interior mold and

water damage, and (2) a specific expert opinion excluding the

subsurface leaks as a cause of that damage.             We are satisfied that

the    court    did    not   err     in    concluding    that,   under      these

circumstances, no genuine issue of material fact existed as to

whether the Watsons’ damage is excluded from coverage.




       3.     Non-contractual Claims

       In addition to breach of contract, the Watsons also sued

Allstate for (1) breach of duty of good faith and fair dealing, (2)

violation of the Texas Insurance Code, and (3) violation of the



                                          16
Texas Deceptive Trade Practices Act.    In rejecting all three, the

district court reasoned that, because each of these non-contractual

claims relies on a finding that the insurer has acted in bad faith,

they fail.   The Watsons are unable to show bad faith on the part of

Allstate without making the predicate showing that it breached the

insurance contract, and this the Watsons were unable to accomplish.

Not only is the district court’s reasoning on this issue sound,23

but in addition, the Watsons have waived any challenge to this

aspect of the district court’s ruling by their failure to raise the

issue on appeal.24




                          III.   CONCLUSION

     For the foregoing reasons, the district court’s grant of

Allstate’s motion and cross-motion for summary judgment on all of

the Watsons’ claims, and the court’s denial of the Watsons’ summary

judgment motion, are, in all respects,

AFFIRMED.

     23
       See Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341
(Tex. 1995)(“As a general rule there can be no claim for bad
faith when an insurer has promptly denied a claim that is in fact
not covered.”); Liberty Nat. Fire Ins. Co. v. Akin, 927 S.W.2d
627, 629 (Tex. 1996)(“[I]n most circumstances, an insured may not
prevail on a bad faith claim without first showing that the
insurer breached the contract.”).
     24
       See Fed. R. App. P. 28(a)(9)(A); Robinson v. Guarantee
Trust Life Ins. Co., 389 F.3d 475, 481 n. 3 (5th Cir. 2004)
(“Failure adequately to brief an issue on appeal constitutes
waiver of that argument.”).

                                  17
18
