Nunez v. Allstate Insurance

Case: 09-30034 Document: 00511086765 Page: 1 Date Filed: 04/20/2010

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

April 20, 2010

No. 09-30034 Lyle W. Cayce

Clerk

CHET NUNEZ; WENDY NUNEZ

Plaintiffs-Appellants

v.

ALLSTATE INSURANCE COMPANY

Defendant-Appellee

Appeal from the United States District Court

for the Eastern District of Louisiana

Before HIGGINBOTHAM and STEWART, Circuit Judges, and FELDMAN,

District Judge.*

CARL E. STEWART, Circuit Judge:

Chet and Wendy Nunez had flood and all-risk homeowner’s policies with

Allstate Insurance Co. when Hurricane Katrina destroyed their home. They

made a claim under the policies and Allstate disbursed a payment. The Nunezes

claim that Allstate paid them less than they were entitled to under the policies.

The Nunezes were among 28 plaintiffs who filed suit against Allstate in St.

Bernard Parish on September 24, 2007, seeking to recover for Hurricane

Katrina-related damage to their homes. Allstate removed the case, and the

*

District Judge, Eastern District of Louisiana, sitting by designation.

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No. 09-30034

district court ordered the cases severed. The district court later granted

Allstate’s motion for summary judgment. We AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

Prior to Hurricane Katrina, the Nunezes owned and occupied a home at

46 Packenham Avenue in Chalmette, St. Bernard Parish, Louisiana. Allstate

insured the Nunezes’ property through a flood policy and an all-risk homeowners

insurance policy.

The Nunezes evacuated before Hurricane Katrina made landfall in

Louisiana on August 29, 2005. Thus, they were not present during the storm and

did not witness the damage to their home as it occurred. According to the

Nunezes, their home was destroyed by rain, fire, and flood. The Nunezes believe

that their home took at least eight feet of floodwater, reaching their ceilings.

The Nunezes received their flood policy limits of $75,000 for structure

damage and $30,000 for contents. Under the homeowner’s policy, Allstate

additionally paid the Nunezes $19,856.08 for wind-related structural damage to

the house, $1,135.69 for wind damage to other structures, $3,103.72 for wind

damage to personal property, and $4,960 in additional living expenses.1

After the hurricane, the Nunezes moved to Houston and used the money

they received from Allstate to buy a house for $172,000. The Nunezes gutted the

Chalmette house and, much later, elevated it and did work to patch the roof. No

further repair work has been done on the Chalmette property, but the Nunezes

stated in their deposition testimony that they intend to someday repair and

return to the property. Additionally, they received funding from the Road Home

program and, in their application for that grant, attested that they planned to

1

The Nunezes’ homeowners policy limits were: $115,166 for Dwelling Protection,

$11,517 for Other Structures Protection, and $80,617 for the Personal Property Protection -

Reimbursement Provision.

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keep their Chalmette home. On February 9, 2007, the Road Home program

explained to the Nunezes that by verifying their intention to “keep the home,”

they committed themselves to “keep[ing] the damaged home and property [they]

own (rather than selling it)” and “ensuring that the home remains

owner-occupied for a specific period of time.” Further, the Nunezes filed a

successful appeal resisting the Parish’s decision to demolish the home.

B. Procedural History

On September 24, 2007, the Nunezes joined 26 other plaintiffs who filed

suit against Allstate in St. Bernard Parish to recover unpaid Hurricane

Katrina-related damages to their homes. After the case had been removed and

the individual cases severed, the Nunezes filed their First Amended Complaint

on March 18, 2008. The First Amended Complaint alleged that Allstate had only

made partial payment for the damage caused by wind and wind-driven rain, and

therefore still owed additional policy benefits for damage caused by wind. It

further claimed that the Nunezes were entitled to additional recovery for the loss

of the contents of their home and additional living expenses,2 as well as for

statutory penalties pursuant to Louisiana Revised Statutes §§ 22:658 and

22:1220.

The Nunezes furnished their expert report, from Mr. Steve Hitchcock, on

October 8, 2008. Allstate filed motions to exclude the proposed expert testimony

and for summary judgment on November 25, 2008.

In their motion for summary judgment, Allstate argued that the Nunezes

had failed to meet their burden of producing evidence of segregable wind

damages. Allstate further claimed that because the Nunezes did not repair or

2

The Nunezes have waived their claims for loss of contents and additional living

expenses because they failed to adequately brief the issues on appeal. See Procter & Gamble

Co. v. Amway Corp., 376 F.3d 496, 499 n. 1 (5th Cir. 2004) (citing FED . R. APP . P. 29(a)(9)(A)).

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replace their property, their recovery was limited to the actual cash value of the

property. Assuming an actual cash value of $113,914 (the highest estimate)

minus an offset of $94,856.08 for the Nunezes’ recovery under the flood policies,

Allstate claimed that it could not owe more than $19,057.92 for structural

damages—and they had already paid the Nunezes more than that amount.

On December 17, 2008, both Allstate’s motions were granted in an order

stating in full:

Before the Court is Defendant’s Motion for summary Judgment and

Motion to Exclude Proposed Expert Testimony of Plaintiffs’ Expert,

both of which came on for hearing on December 10, 2008, with oral

argument. After consideration of the motions, the briefs from both

sides and the applicable law, the Court GRANTS both motions. See

Bayle v. Allstate (2:08-cv-01319)[3] and Williams v. Allstate

(2:08-cv-00062).[4]

3

See Bayle v. Allstate Ins. Co., No. 08-1319, 2008 WL 5054572 (E.D. La. Nov. 21, 2008).

The facts of Bayle are similar to those of the present case—Hurricane Katrina victims sought

to recover additional money under their Allstate homeowner’s policy. Id. at *1. The Bayle court

granted Allstate’s Motion to Exclude Proposed Expert Testimony of Steve Hitchcock and

granted summary judgment in favor of Allstate. Id. at *3. The court initially noted that the

plaintiffs never repaired their home, therefore they could recover only the actual cash value

of the property. Id. at 1. The court then concluded that because plaintiffs had offered no

evidence to segregate covered from non-covered losses, their claims for additional structural

damages, additional living expenses, and contents claims all failed. Id. at *2. Additionally, the

court summarily held that plaintiffs were not entitled to damages for mental anguish or

emotional distress under the homeowner’s policy. Id.

4

See Williams v. Allstate Ins. Co., No. 08-0062, 2008 WL 5110604 (E.D. La. Nov. 26,

2008). The facts, holdings, and language of the opinion are virtually identical to Bayle. It

appears that the Nunez court relies on Williams for its ruling to strike the testimony of

plaintiff’s expert. The court held, under Federal Rule of Evidence 702, that the plaintiff’s

expert’s opinion (in support of segregating claims) regarding wind damage was unreliable

because it was not based upon sufficient facts or data and was not the product of reliable

principles and methods. Id. at *3.

The court opined:

[The expert] rendered his two reports based solely on his visit to the dwelling

(more than three years after the hurricane and after the damage had been

repaired) and his interview of the dwelling owners (Plaintiffs). . . . There is

simply no other paperwork to corroborate the accuracy of the dwelling owners’

claim as described by them to the “expert”.

Id. After striking the plaintiff’s expert, the court then granted Allstate’s motion for summary

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The Nunezes timely filed a Notice of Appeal.

II. STANDARD OF REVIEW

A summary judgment determination is reviewed de novo, viewing all

evidence in the light most favorable to the non-moving party and drawing all

reasonable inferences in that party’s favor. In re Katrina Canal Breaches Litig.,

495 F.3d 191, 205-06 (5th Cir. 2007). Summary judgment is appropriate when

“the discovery and disclosure materials on file, and any affidavits show that

there is no genuine issue as to any material fact and that the movant is entitled

to a judgment as a matter of law.” F ED. R. C IV. P. 56(c).

The district court’s determination of the admissibility of expert evidence

is reviewed for abuse of discretion. Knight v. Kirby Inland Marine, Inc., 482 F.3d

347, 351 (5th Cir. 2007). A district court abuses its discretion when its ruling is

based on an erroneous view of the law or a clearly erroneous assessment of the

evidence. Id. If the district court abused its discretion, the harmless error

doctrine applies, and the ruling will be reversed only if it affected the substantial

rights of the complaining party. Id.

III. DISCUSSION

Under Louisiana law, an insurance policy is a contract between the parties

and should be interpreted according to the general rules of interpretation of

contracts prescribed in the Louisiana Civil Code. Smith v. Am. Family Life

Assur. Co. of Columbus, 584 F.3d 212, 215 (5th Cir. 2009). An insurance contract

must be construed according to the entirety of its terms and conditions as set

forth in the policy. Id. (citing L A. R EV. S TAT. A NN. § 22:881 (2009)). “The words

of a contract must be given their generally prevailing meaning.” L A. C IV. C ODE

A NN. art. 2047 (2008). When the words of a contract are clear and explicit and

judgement because the plaintiffs had failed to segregate damages. Id.

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lead to no absurd consequences, no further interpretation may be made in search

of the parties’ intent. L A. C IV. C ODE A NN. art. 2046 (2008).

The Nunezes’ homeowners policy provides:

5. How We Pay For A Loss

Under Coverage A—Dwelling Protection, Coverage B—Other

Structures Protection and Coverage C—Personal Property

Protection, payment for covered loss will be by one or more of

the following methods:

...

b) Actual Cash Value. If you do not repair or replace the damaged,

destroyed or stolen property, payment will be on an actual cash

value basis . . . You may make a claim for additional payment

. . . if you repair or replace the damaged, destroyed or stolen

property within 180 days of the actual cash value payment.

c) Building Structure Reimbursement. . . . we will make additional

payment to reimburse you for cost in excess of actual cash value

if you repair, rebuild or replace damaged, destroyed or stolen

covered property within 180 days of the actual cash value

payment. . . .

Building Structure Reimbursement will not exceed the smallest

of the following amounts:

1) the replacement cost of the part(s) of the building structure(s)

for equivalent construction for similar use on the same premises;

2) the amount actually and necessarily spent to repair or replace

the damaged building structure(s) with equivalent construction

for similar use on the same residence premises; or

3) the limit of liability applicable to the building structure(s) as

shown on the Policy Declarations for Coverage

A—Dwelling Protection or Coverage

B—Other Structures Protection,

regardless of the number of building structures and structures

other than building structures involved in the loss.

If you replace the damaged building structure(s) at an address

other than shown on the Policy Declarations through

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construction of a new structure or purchase of an existing

structure, such replacement will not increase the amount

payable under Building Structure Reimbursement described

above. The amount payable under Building Structure

Reimbursement described above does not include the value of

any land associated with the replacement structure(s).

A. Cost of Replacement

The Nunezes assert that they are entitled to recover replacement costs

under their homeowner’s policy because the policy expressly provides for

replacing the damaged building through purchase of an existing structure. They

claim that their purchase of the Houston home replaced the insured property,

and that it is irrelevant that they intend to someday return to their Louisiana

house.5

Allstate claims that the Nunezes did not replace their Chalmette property

because they have gutted it, elevated it, and patched the roof. Although the

Nunezes bought a new home after Hurricane Katrina, Allstate asserts that it is

not a replacement of their damaged property because they accepted Road Home

funds, they intend to someday repair and return to their original home, and they

resisted the Parish’s decision to demolish their home by filing an appeal.

Neither the homeowner’s policy itself, nor Louisiana case law define the

term “replace.” Therefore, “[t]he words of [the] contract must be given their

generally prevailing meaning.” L A. C IV. C ODE A NN. art. 2047. Replace means “to

place again: restore to a former place, position, or condition” or “to take the place

of: serve as a substitute for or successor of.” W EBSTER’S T HIRD N EW

I NTERNATIONAL D ICTIONARY (Merriam-Webster, Inc. 1993). Presently, the

5

Contrary to Allstate’s claim, the Nunezes have not waived this issue. Their response

to Allstate’s motion for summary judgment clearly asserts that they are claiming replacement

costs, and Wendy Nunez’s affidavit attached to the response states that “We spent all the

money that we received from Allstate through our homeowner’s policy towards purchasing our

new home in Houston, for which we paid $172,000.”

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Houston house serves the same function as the Nunezes’ Chalmette house once

did—as their primary residence. However, the Nunezes have attested that they

intend to someday repair and return to the Chalmette house. Therefore,

according to the plain meaning of the term “replace,” the Nunezes’ purchase of

their Houston home does not constitute a substitute or replacement under the

policy. The district court correctly concluded, as a matter of law, that the

Nunezes could not recover under the replacement provision of the homeowner’s

policy.

B. Burden of Proof on Covered v. Excluded Losses

The Nunezes argue that under Louisiana law, the insured must initially

make a prima facie case of coverage, and the insurer then bears the burden of

proving the applicability of an exclusionary clause within a policy by a

preponderance of the evidence. The Nunezes claim that the district court’s

treatment of their case directly conflicts with this court’s holding in Dickerson

v. Lexington Ins. Co., 556 F.3d 290 (5th Cir. 2009).

However, the Nunezes have waived this issue on appeal because they

never raised it before the district court. “An argument not raised before the

district court cannot be asserted for the first time on appeal.” XL Specialty Ins.

Co. v. Kiewit Offshore Servs., Ltd., 513 F.3d 146, 153 (5th Cir. 2008) (citing

Stokes v. Emerson Elec. Co., 217 F.3d 353, 358 n.19 (5th Cir. 2000)).

In their response to Allstate’s motion for summary judgment, the Nunezes

in fact conceded that Allstate met its burden merely by showing that the home

flooded, and that the burden then shifted to them to segregate covered and

excluded damages.6 The Nunezes argue that their concession was appropriate

6

The Nunezes’ response to Allstate’s motion for summary judgment, filed December

5, 2008, states:

It is settled law that the burden of proving an exclusion is on the insurer.

Allstate’s position regarding wind and rain damage is that so long as an

exclusion is shown to be implicated, the burden of proof shifts back to the

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because placing the burden to segregate on the plaintiff was the settled law in

the Eastern District of Louisiana at that time. But in their briefing before this

court, the Nunezes discuss in-depth two Eastern District cases from 2007 that

they assert correctly placed the burden to segregate on the insurer.

The Nunezes also argue that they did not waive the right to appeal

because they stated the correct allocation of proof in their supplemental initial

disclosures, in which they stated that:

. . . it is defendant’s burden to prove that any part of plaintiff’s

damage is caused by a peril excluded by the policy, e.g., flood.

Therefore, at trial, plaintiffs intend to request the Court to reverse

the order of proof and require defendant to prove if an excluded peril

caused any damage to plaintiff’s property. Plaintiffs will then be in

a position to rebut this evidence by showing the specific details of

roof and window damage, the amount of wind driven rain, the

length of time before any flood waters reached plaintiff’s property,

etc.

As a general matter, however, supplemental initial disclosures are not filed with

the court. And in fact, the district court’s docket sheet does not reflect that the

Nunezes’ supplemental initial disclosures were ever filed with the court.

We therefore conclude that the Nunezes waived their right to argue on

appeal that the district court erred with respect to the burden of proof to

segregate covered from excluded losses.7

insured to prove damage caused by a non-excluded peril. This is simple enough

in the context of flood versus wind/rain because it is conceded that there was

flooding. However, vis-a-vis fire, Allstate has not met its burden of proof to show

that the flood was implicated in the fire. Therefore, regarding fire damage, the

burden has not shifted back to Plaintiffs; it has remained with Allstate and it

would be impossible for Allstate to obtain summary judgment on its own burden

of proof since Allstate has not introduced any evidence to do so.

7

The Nunezes’ claims for penalties pursuant to Louisiana Revised Statutes §§ 22:658

and 22:1220 must also fail because they have not established a valid, underlying breach of

contract claim. Clausen v. Fidelity & Deposit Co. of Md., 660 So.2d 83, 85 (La. Ct. App. 1995)

(“a plaintiff attempting to base her theory of recovery against an insurer on these statutes

must first have a valid, underlying, substantive claim upon which insurance coverage is

based.”).

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C. Expert Testimony

Federal Rule of Evidence 702 states as follows:

Testimony by Experts

If scientific, technical, or other specialized knowledge will assist the

trier of fact to understand the evidence or to determine a fact in

issue, a witness qualified as an expert by knowledge, skill,

experience, training, or education, may testify thereto in the form

of an opinion or otherwise, if (1) the testimony is based upon

sufficient facts or data, (2) the testimony is the product of reliable

principles and methods, and (3) the witness has applied the

principles and methods reliably to the facts of the case.

Allstate raises the following grounds for excluding the testimony of Steve

Hitchcock, the Nunezes’ expert witness:

• His education and training as an adjuster consist of a seven day training

course through State Farm and a forty-hour online, self-study course to

obtain an adjuster’s license in Texas.

• He admits to a lack of training in the pricing software employed by

Allstate (Integra) and therefore lacks a reliable basis for his assertion

that Integra understates damage estimates.

• He did not utilize any recognizable methodology in formulating his

opinion that Allstate failed to determine the correct cause of damage and

mishandled the Nunezes’ claims. Rather, his opinions relied on hearsay

and Mr. Nunez’s speculations as to the causes of damage.

Four other judges in the Eastern District of Louisiana have excluded Mr.

Hitchcock’s testimony under Rule 702, upon finding that: (1) he lacks the

requisite qualifications to testify about claims handling; (2) he is unqualified to

opine on Allstate’s pricing, and he bases his opinions on Allstate’s pricing on

unreliable methodology; (3) he bases his claims handling and causation opinions

on flawed methodology; (4) his opinions regarding the cause and extent of the

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Nunezes’ damages are unreliable and speculative; and (5) his replacement cost

estimate does not assist the trier of fact.8

Under Rule 702, the district court did not abuse its discretion by excluding

Mr. Hitchcock’s testimony. Even without the benefit of an explanation as to its

reasoning from the district court, rulings of other judges in the Eastern District

of Louisiana and the facts propounded by Allstate demonstrate that a

determination to exclude Mr. Hitchcock’s testimony as an expert witness under

Rule 702 does not amount to an abuse of discretion.

IV. CONCLUSION

For the foregoing reasons, the exclusion of the Nunezes’ expert is

AFFIRMED, and the grant of summary judgment is AFFIRMED.

8

See Phoenix v. Allstate Ins. Co., No. 07-8546 (E.D. La. Mar. 11, 2009) (Minute Entry)

(Engelhardt, J.) (excluding Hitchcock’s opinions on claims handling, the accuracy of Allstate’s

pricing software, and causation); Bayle, 2008 WL 5054572 (same); Davis v. Am. Sec. Ins. Co.,

No. 07-4158, 2008 WL 5120688 (E.D. La. June 18, 2008) (Lemmon, J.) (precluding Hitchcock

from testifying because he provided an insufficient expert report); see also Lambert v. State

Farm Fire & Cas. Co., 568 F. Supp. 2d 698, 712-13 (E.D. La. 2008) (Africk, J.) (holding that

because Hitchcock “fail[ed] to provide sufficient information . . . that he is qualified to offer

expert testimony concerning the cause of structure damage to Lambert’s property[,] Hitchcock

will not be permitted to testify at trial as to the cause of structure damage detailed in his

report . . .”).

11