Full opinion text
MEMORANDUM OPINION JUSTICE, Senior District Judge. On September 22, 2000, General Star Indemnity Company (“General Star”) filed its Motions for Summary Judgment based on allocation, commencement, and the 14-day provision (Doc. Nos.91-93). On October 12, 2000, General Star filed its Motion for Summary Judgment as to Defendants’ extra-contractual counterclaims (Doc. No. 107). On November 3, 2000, Sherry Brooke Revocable Trust, et. al., (“Brookes”) filed their Responses to Plaintiffs Motion for Summary Judgment based on allocation, commencement, the 14-day provision, and as to Defendants’ extra-contractual counter-claims (Doc. Nos. 128-131 and 133). On November 9, 2000, General Star filed replies to all of Brookes’ responses (Doc. No. 136-138). On November 22, 2000, Brookes filed a supplemental response to all of General Star’s replies (Doc. No. 142). On December 18, 2000, Brookes filed further supplemental responses (Doc. No. 146), to which General Star responded on December 28, 2000 (Doc. No. 148). On March 16, 2001 United States Magistrate Judge Pamela A. Mathy issued a report and recommended that each of General Star’s foregoing motions for summary judgment be granted (Doc. No. 149). On April 2, 2001, Brookes filed their Objections to the Report and Recommendations (Doc. No. 151), followed on April 9, 2001 by their Brief in Support of Objections (Doc. No. 156). On April 20, 2001, General Star filed its Response to Defendants’ Objections (Doc. No. 157), to which Brookes replied on April 30, 2001 (Doc. No. 158). The Court has carefully considered these pleadings, the report and recommendations, and the applicable authorities. Factual Summary Brookes are the owners of the Sage West, Eldon Square and Casa Linda Apartment complexes in Corpus Christi, Texas. Brookes owned a commercial property insurance policy, issued by General Star, covering all three complexes. In conjunction with the proposed sale of the three apartment complexes in 1997, a real estate broker hired S.T.T.I. Construction, Inc., to inspect the property. The inspection (which took place in the “early or mid-fall of 1997”) uncovered damage that was attributed by the inspector to possible plumbing leaks. A reinspection occurred in “December or January of 1998,” with two licensed insurance adjusters determining that the damage likely was caused by plumbing leaks. In January of 1998, the general property manager notified Brookes’ insurance agent of “building movement caused by plumbing leaks” at one of the complexes. A General Star adjuster visited the complex in question, and a week later, Brookes filed a notice of loss for all three complexes, which stated that the cause of the damages was “presently unknown.” On July 1, 1998, Brookes filed proofs of loss with General Star for claims under the policy for damages to all three complexes. General Star- rejected the proofs of loss as “insufficient” on July 8, 1998. On October 4, 1999, Brookes received correspondence from General Star, denying their claims. The instant dispute revolves around the question of whether the General Star insurance policy covers the damage to the three apartment complexes caused by the leaking pipes, and whether, apart from its duties under the contract, General Star violated the Texas Deceptive Trade Practices Act (“DTPA”), article 21.21, § 16 of the Texas Insurance Code, and its common law duty of good faith and fair dealing. Standard of Review Absent objection or clear error, the Court may accept the recommendations of a United States Magistrate Judge in whole or in part. 28 U.S.C. § 636(b)(1)(A); F.R.C.P. 72(b). Where a party makes specific and timely objections to the Magistrate Judge’s recommendations, the District Court must review de novo those portions of the Magistrate Judge’s recommendation to which the party objects. Id. Summary Judgment Standard Summary judgment is proper under Rule 56(c) of the Federal Rules of Civil Procedure “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The substantive law underlying the claims in issue identifies which facts are material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Id. When assessing a motion for summary judgment, the court must make all factual inferences in favor of the party opposing the motion. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). DISCUSSION I. General Star’s Motion for Summary Judgment (lk-Day) The General Star insurance policy under which Brookes were covered is an “all risks” policy. It covers all risks associated with the covered property, unless excluded. General Star argues that the damages claimed by Brookes fall within the policy’s exclusion that provides: “We will not pay for loss or damage caused by or resulting from any of the following: ... Continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more.” Section B(2)(f). Brookes contend that they are afforded coverage in a separate promise to pay that is unaffected by the exclusion cited by General Star. To determine the validity of Brookes’ argument, it is helpful to consider the competing provisions in the context of the policy. Section B contains the provisions relevant to the dispute. Section B is laid out as follows: B. Exclusions 1. We will not pay for loss or damage caused directly or indirectly by any of the following.... 2. We will not pay for loss or damage caused by or resulting from any of the following: a. b.... c.... d. (1) Wear and tear; (2) Rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself; But if loss or damage by the “specified causes of loss” or building glass breakage results, we will pay for that resulting loss or damage, e. f. Continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more. Brookes contend that while section B(2)(f) excludes damage to their property from the promise to pay for all risks, section B(2)(d) grants additional coverage beyond the scope of the original all risks policy. They further assert that even if section B(2)(d)(2) would apply to exclude Brookes’ damages, because the foundation movement was indirectly caused by rust, corrosion, or deterioration of the complexes’ pipes, nevertheless since water damage resulted from that rust, corrosion, or deterioration, General Star agreed to pay for the damage caused by the resulting water leak. Brookes therefore insist that section B(2)(d) creates a separate promise to pay, independent of the all risks coverage. The Magistrate Judge found that “[t]he 14-day clause in Brookes’ policy unambiguously excludes from the policy any and all otherwise covered water damage when the loss occurs from ‘[cjontinuous or repeated seepage or leakage of water that occurs over a period of 14 days or more.’ The language and intent are clear.” (Doc. No. 149 at 44-45). Brookes object that the Magistrate Judge “failed to follow persuasive authority from Texas appellate courts and binding authority from the Fifth Circuit Court of Appeals,” namely: Gehl v. State Farm Fire & Cas. Co., 214 F.3d 634 (5th Cir.2000), Sczepanik v. State Farm Fire & Cas. Co., 211 F.3d 256 (5th Cir.2000), Burditt v. West Am. Ins. Co., 86 F.3d 475 (5th Cir.1996), and Balandrán v. Safeco Insurance Co. of America, 972 S.W.2d 738 (Tex.1998) (Doc. No. 151 at 4). In addition, Brookes state that the Magistrate Judge’s interpretation of the 14-day provision is “unconscionable” and impractical (Doc No. 156 at 17). Brookes urge on all the above grounds that the 14-day provision is inapplicable to their claims. In the event, however, that the Court finds the provision applicable, Brookes ask that the provision be construed as a notice provision, meaning that the provision would only exclude “damages resulting from seepage or leakage that is continuous or repeated for fourteen days or more after the leak or damage is discovered.” (Id. at 23). Because this case was brought under the court’s diversity jurisdiction, Texas law shall be applied. See Lynch Properties, Inc. v. Potomac Ins. Co., 140 F.3d 622, 625 (5th Cir.1998). In determining coverage, a court must analyze the insurance contract itself. In construing a contract, a court’s primary concern is to give effect to the intentions of the parties as expressed in the instrument. See Cicciarella v. Arnica Mutual Ins. Co., 66 F.3d 764, 768 (5th Cir.1995). All parts of the document must be construed together, giving effect to the intent of the parties. See Id. When the language of the insurance policy is susceptible of more than one reasonable construction, the courts will apply the construction that favors the insured and permits recovery. See Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex.1987); Yancey v. Floyd West & Co., 755 S.W.2d 914, 918 (Tex.App.-Fort Worth 1988, writ denied). Where the disputed insurance clause involves exceptions or limitations to the policy, construction against the insurer even more stringent than usual is required. See Yancey, 755 S.W.2d at 918. However, the rules regarding construction in favor of the insured apply only in the event of an ambiguity. Id. A court should not strain to find such ambiguity if, in doing so, it defeats the probable intentions of the parties. See Id. “If an insurance policy is worded so that it can be given only one reasonable construction, it will be enforced as written.” Jimenez v. State Farm Lloyds, 968 F.Supp. 330, 332 (W.D.Tex.1997). The Court finds Brookes’ legal and factual arguments unreasonable and unpersuasive. First, Brookes are in error in asserting that the Magistrate Judge failed to apply binding Texas and Fifth Circuit precedent. The Texas Supreme Court held in Balandrán (the principles of which all of the cited cases follow) that the Texas homeowner’s policy exclusion repeal provision “is subject to two reasonable interpretations, and is therefore ambiguous.” 972 S.W.2d at 741. That court then interpreted the contract in favor of the insured. No such ambiguity exists in the commercial property policy before the Court. Considering an identical provision and an almost identical argument made by the insured, this Court recently stated that the only reasonable interpretation of the exclusions in the General Star policy is that damage resulting from rust or corrosion is excluded, except when damage by water damage results. Moreover, in all cases that damage occurs from the leakage or seepage of water over a period of 14 days or more, the damage is not covered — even if that leakage or seepage was caused by rust or corrosion. General Accident Insurance Co. v. Unity/Waterford-Fair Oaks, Ltd. v. General Star Indemnity Co., Civil Action No. SA-97-CA-624 (W.D.TX., Dec. 14, 2000), at 6. This interpretation is as sound now as it was then, and so the Court finds the 14-day provision applicable to Brookes’ claims. Given the plain language of the policy, Brookes’ reading is unreasonable. Furthermore, the Balandrán line of cases is inapposite, as it is concerned with a different sort of provision in a different kind of poliey-the Texas homeowner’s policy. The Court also rejects Brookes’ alternative assertions that the exclusion is a) unconscionable, or b) a mere notice provision. There is nothing unconscionable about requiring due diligence on the part of the insured, or about excluding certain types of damages from the bargain struck between the insured and the insurer. Both are contemplated by this very contract. What is not contemplated is that this exclusion should be treated as a notice provision. The contract states in unmistakable, unambiguous language that the insurer “will not pay for loss or damage caused by or resulting from ... [continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more.” The provision means what it says, and Brookes’ notice interpretation is unreasonable. Brookes direct the Court to no evidence sufficient to give rise to a genuine issue of material fact, given the applicability of the 14-day provision. The Magistrate Judge is correct that such evidence as is available indicates that the leaks in question had gone on for months before repair, and probably more. The Court accepts the Magistrate Judge’s unobjected-to findings with respect to this issue. Because of those findings, as well as the Court’s foregoing review of Brookes’ objections, the Plaintiffs Motion for Summary Judgment (14-day) shall be, and is hereby, GRANTED. II. General Star’s Motion for Summary Judgment as to Brookes’ Extra-contractual Counterclaims Brookes assert counterclaims of bad faith delay, as well as related claims under the Texas Deceptive Trade Practices Act (DTPA) and Section 21.21 of the Texas Insurance Code. Brookes moves the Court to rule against General Star’s motion for summary judgment (extra-contractual claims), regardless of whether the Court finds Brookes’ contractual claims barred. The Magistrate Judge recommended that General Star’s motion be granted as to all of the extra-contractual counterclaims. Brookes object that the Magistrate Judge failed to follow and/or correctly apply binding Fifth Circuit precedent in Harbor Ins. Co. v. Urban Contr. Co., 990 F.2d 195, 202 (5th Cir.1993) and First Texas Sav. Ass’n v. Reliance Ins. Co., 950 F.2d 1171, 1179 (5th Cir.1992), which hold that a proper denial of coverage does not automatically defeat a claim for breach of good faith in handling, processing and investigating the claim. (Doc. No. 151 at 5). Harbor applies to the common law claim, First Texas to the statutory claims. Brookes read both cases appropriately to state that proper denial of a claim does not automatically defeat a claim for breach of the duty of good faith and fair dealing. What Brookes misread is the Magistrate Judge’s report. In order to make out a claim for breach of the duty of good faith and fair dealing, it would be necessary for Brookes to meet the test articulated in Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex.1988), that is: (1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy; and, (2) the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim. Id. at 213. Brookes’ counterclaim simply cannot survive the first part of this test, and Brookes make only a cursory effort at arguing that it should. Brookes attempt to survive summary judgment by resting on mere allegations of bad faith, but point to no summary judgment proof of bad faith. In particular, they point to no summary judgment proof which would give rise to a genuine issue of material fact as to whether or not General Star’s behavior in investigating and denying their claim was, in fact, unreasonable. The “general rule,” to which both parties agree, is that “there can be no claim for bad faith when an insurer has promptly denied a claim that is in fact not covered.” Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex.1995). As previously discussed, Brookes’ claims are not covered by the policy. Brookes hang their extra-contractual claims on a single line of dictum in Stoker, in which the Texas Supreme Court stated that it did not “exclude the possibility that in denying the claim, the insurer may commit some act, so extreme, that would cause injury independent of that claim.” Id. Brookes maintain that this is just such a case, that General Star took so much time to investigate and finally deny Brookes’ claim as to constitute bad faith delay, regardless of the merit Brookes’ claim under the policy. General Star responds that Brookes cite to no Texas authority for the proposition that there even exists a tort of “unreasonable delay,” and that, even if the Court were to conclude that such a tort does exist under Texas law, Brookes have failed to produce sufficient summary judgment proof to give rise to a fact issue of each of the tort elements-particularly causation and damages. As the Magistrate Judge wrote in her report, [t]he “reasonable basis” for the denial of the claims includes the bona fide questions of allocation, commencement, the 14-day exclusion, the coverage of certain property and valuation of the claims — at no point had liability become reasonably clear. The “reasonable basis” for the delay (in the denial of the claims) comes from ongoing investigations conducted by both parties and the extensive nature of the claims on three apartment complexes with a total of 342 units and 80 buildings and a total claimed loss of $27,065,866. (Appendix to defendants’ responses, vol. II, F.) (Doc. No. 149 at 63). Thus, the Magistrate did not find that Brookes’ claim was automatically barred as not covered by the policy. What she found, under the Aranda test, is that Brookes had failed to come forward with sufficient summary judgment proof that General Star had no reasonable basis for denying or delaying payment of benefits under the policy (Doc. No. 149 at 63). In support of their common law claim for bad faith, Brookes point to: a) the fact that Brookes filed their initial claim on January 14, 1988 (Doc. no 156 at 26); b) their claims were not denied until October 4, 1999; and c) their contention that the sum total of General Star’s investigation was a visit from an adjuster in March of 1998, combined with interview undertaken the following January. Id. at 25-26. On these facts, Brookes assert that “[ujnder the circumstances, General Star’s delay in conducting its “investigation” and subsequently denying the claim raises a fact issue for the jury as to whether such denial was ‘prompt’ ...” Id. at 26. In essence, then, all that Brookes have to support their claim of bad faith is the fact that it took a year and nine months for General Star to deny their claims. This allegation is not sufficient to raise a genuine issue of material fact. That Brookes can cite cases that refer obliquely to the possibility that there may be certain egregious circumstances under which a delayed rejection might constitute a violation of the common law duties of good faith and fair dealing (though none of those cases so hold under their own facts) does not mean their own claim should survive summary judgment. Even if the Court were to grant that a) there is such a tort as “bad faith unreasonable delay in denying a claim,” and b) Brookes have provided sufficient summary judgment evidence on that question, Brookes have failed to provide any summary judgment evidence on causation or damages, a circumstance which, effectively, precludes their tort claims. With the exception of the above First Texas argument, Brookes make no objection to the Magistrate Judge’s legal and factual findings as to their statutory claims. The Magistrate Judge’s unobject-ed-to findings with respect to these issues are accepted, as they are with respect to the common law claims. Because of those findings, in addition to the above-outlined review of the Defendants’ objections, Plaintiffs Motion for Summary Judgment as to Defendants’ extra-contractual counterclaims shall be, and is hereby, GRANTED. Conclusion For the foregoing reasons, General Star’s Motion for Summary Judgment (14-Day) and Motion for Summary Judgment (Extra-contractual Counterclaims) shall be, and are hereby, GRANTED. REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE MATHY, United States Magistrate Judge. Pursuant to the order of referral in the above-styled and numbered cause of action to the undersigned United States Magistrate Judge and consistent with the authority vested in United States Magistrate Judges under the provisions of 28 U.S.C. § 636(b)(1)(B) and rule 1(d) of the Local Rules for the Assignment of Duties to United States Magistrates, effective January 1, 1994, in the Western District of Texas, the following report is submitted for your review and consideration. I. JURISDICTION Jurisdiction is based on diversity of citizenship. 28 U.S.C. §§ 1332 and 2201. II. PROCEDURAL HISTORY Plaintiff, General Star Indemnity Company (“General Star” or “plaintiff’) filed its original complaint on October 5, 1999, alleging that defendants Sherry Brooke, John C. Brooke, Larry Woodman Jr., Sherry Brooke Revocable Trust and John C. Brooke Revocable Trust (“Brookes” or “defendants”), the owners of three apartment complexes in Corpus Christi, Texas, had submitted notices of loss claiming that “serious signs of structural damage” were covered by a commercial property policy issued by General Star for the premises for the period of February 7, 1997 to February 7, 1998. General Star sought a declaration that the losses were not covered. On November 19, 1999 and prior to the filing of any answer, General Star filed its first amended complaint and on August 14, 2000 General Star filed its second amended complaint, its “live” pleading in this case. The second amended complaint requests the entry of a declaration that the losses alleged by the insured at the three locations “did not occur within the policy of General Star,” that the losses are not within the terms and provisions of General Star’s policy, and that there is “no coverage under the policy” for the alleged losses. More specifically, General Star alleges that “there is no covered loss that occurred and/or commenced during the policy period” and “even if there was a loss during the policy period, there is no covered loss under the terms and provisions of the policy” and Brookes “have failed to comply with the conditions precedent in the policy.” Brookes filed motions to dismiss, to which General Star responded, and an original answer subject to their motions. The District Court granted defendants Brookes’ motions as to defendants Sherry Brooke Revocable Trust and John C. Brooke Revocable Trust, and denied the motions as to all other parties. On June 7, 2000, Brookes’ filed its first amended answer and original counterclaim. The counterclaim alleged that General Star: (a) violated the Texas Deceptive Trade Practices Act (“DTPA”) by use of a “false, misleading and deceptive” act or practice, breach of an express or implied warranty, unconscionable acts and use of an act or practice in violation of article 21.21 of the Texas Insurance Code; (b) violated article 21.21, § 16 of the Texas Insurance Code by making knowing misrepresentations about coverage, failing to attempt a good faith settlement, failing to provide a prompt explanation of the basis for denial of the claim, denying the claim without a reasonable investigation, compelling Brookes to file a counterclaim, insulating itself from “bad faith liability” by filing this lawsuit and by investigating Brookes’ claims “in a manner calculated to construct a pre-textual basis for denial of those claims;” (c) breached covenants of good faith and fair dealing; (d) committed negligence; (e) acted with malice; and (f) breached its contract of insurance with Brookes. Brookes request actual damages, exemplary damages, court costs, attorneys fees and interest in connection with their counterclaims. General Star’s answer and first amended answer to the counterclaim denied Brookes’ counterclaims and raised affirmative defenses based on its policy of insurance with the Brookes. More specifically, General Star alleged as affirmative defenses that: Brookes have not met all conditions precedent to making a claim under the policy; that the claims did not occur or commence during the relevant policy period; the “limits of insurance,” deductible and coinsurance provisions of the policy limit any recovery; Brookes failed to comply with the duties required under the policy in the event of a loss or damage; the claims are excluded from coverage; the claims are limited by the policy; the claims are not covered or are barred by Brookes’ failure to make prompt repairs; Brookes failed to state a claim under the DTPA because Brookes are not consumers under the DTPA, have not alleged any facts to support the claim of bad faith or for damages or for punitive damages; there can be no cause of action for negligence since the contract determines the duties of the parties; and Brookes’ claims are barred by the “known loss doctrine” or “fortuity doctrine” in that Brookes should have known that the problems existed before the policy began. General Star requests recover of attorneys fees and court costs for defending against groundless claims brought under the DTPA and article 21.21 of the Texas Insurance Code. On or about September 22, 2000, General Star filed three motions for summary judgment, based on “allocation,” “commencement,” and “the fourteen-day clause.” On October 12, 2000, General Star filed a motion for partial summary judgment regarding the Brookes’ extra-contractual claims. In sum, in these four summary judgment or partial summary judgment motions, General Star argues that they are entitled to judgment as a matter of law as a result of the policy clause limiting coverage to loss commencing during the policy period; the absence of evidence upon which a jury could allocate the damage attributed to covered perils; the policy provides that “damage caused by 'the continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more’ is excluded;” there is no genuine issue of material fact that Brookes’ extra-contractual counterclaims should be dismissed because there has been no violation of the contract, General Star had a reasonable basis for denying Brookes’ claims, there was no violation of the DTPA and Texas does not recognize a cause of action for negligent claims handling; and, alternatively, that partial summary judgment should be entered to bar Brookes from recovering for damage to foundations, underground systems or pipes, costs associated with excavating, filling or backfilling and to limit Brookes’ damages to the difference market value of the property on the date of loss and its value on that date if free from the covered damage. Brookes oppose each motion for summary judgment. In brief, Brookes argues that, with respect to the “commencement” motion, that Brookes is entitled to recovery for losses that manifested themselves during the policy period regardless of when the leaks commenced and that there is evidence that the damage occurred during the policy period. With respect to the “allocation” motion, that there is no non-covered damage to segregate because the damage was produced by a “sole” cause. With respect to the “fourteen-day clause” motion, Brookes argues, in sum, that a more specific clause of the policy providing that “[General Star] will pay” for damage from accidental discharge of water controls over the more general “fourteen-day” provision. Brookes opposes summary judgment on its extra-contractual counterclaims, arguing that summary judgment is not appropriate because General Star failed to conduct an adequate investigation constituting bad faith, an exception to the general rule that there must be a contract violation, and because General Star impermissibly delayed in denying Brookes claim. Brookes represents that it withdrew its claim of negligent claims handling and, therefore, General Star’s motion for summary judgment on negligence should be considered moot. Finally, Brookes opposes partial summary judgment, arguing that the policy does not exclude foundation damage or the cost of replacing and accessing plumbing and the policy allows the insured to choose the preferred method of recovery. III. STATEMENT OF FACTS The following facts are not disputed between the parties, except when otherwise noted: General Star issued Brookes a Texas Commercial Property Policy effective February 7, 1997 to February 7,1998, insuring the Sage West, Eldon Square and Casa Linda Apartment complexes in Corpus Christi, Texas. The three apartment complexes are comprised of a total of 342 units and 80 buildings. In conjunction with the proposed sale of the three apartment complexes in 1997, a real estate broker hired S.T.T.I. Construction, Inc. (“STTI”) to inspect the property. The inspection which occurred in “early or mid-fall of 1997” uncovered damage that was attributed by the inspector to possible plumbing leaks. The real estate broker informed defendant John C. Brooke of the findings and referred Brooke to STTI for further assistance. Brooke asked STTI to reinspect the property. A second inspection occurred in either “December of 1997 or January of 1998.” The two licensed insurance adjustors who performed the second inspection determined that the damage likely was caused by plumbing leaks. On January 14, 1998, the general property manager notified the insurance agent from whom the policy was purchased that there may be “building movement caused by plumbing leaks at Casa Linda.” On January 22, 1998, an adjuster for General Star inspected the Casa Linda property. On January 28, 1998, Brookes filed a notice of loss for Sage West, Eldon Square and Casa Linda apartment complexes with General Star; the notice of loss generally described the damage and stated that the cause was “presently unknown.” On March 12, 1998, an employee of STTI and the adjuster for General Star inspected all three properties. According to Brookes, at the conclusion of the inspection, General Star’s adjuster verbally denied Brookes’ claims, however, when STTI issued an acknowledgment of the denial of the claim, General Star’s adjuster responded in writing denying that a verbal denial had been made. On July 1, 1998, Brookes filed proofs of loss with General Star making claims under the policy for $1,383,938.00 on Casa Linda, $1,020,099.00, on Eldon Square, $4,395,560.00 on Sage West. Brookes filed an additional partial proof of loss for $46,822.70 on Sage West. General Star rejected the proofs of loss as “insufficient” on July 8, 1998. On October 4, 1999, Brookes received correspondence which denied their insurance claims. From July 1998 to October 2000, the case remained active and continued communication occurred between the parties to resolve or address the claims. IV. ISSUES PRESENTED 1. Whether General Star’s objections to Per Schneider’s affidavit should be sustained, whether General Star’s motions to strike the affidavits of Per Schneider, Bob Lampkin and Anastacio Martinez should be granted and whether General Star’s objection to the Reliable Reports, Inc. report should be sustained. 2. Whether General Star is entitled to summary judgment as a result of the policy clause limiting coverage to loss or damage commencing during the policy period. 3. Whether there is no genuine issue of material fact that Brookes does not allocate between covered and non-covered damage, entitling General Star to summary judgment. 4. Whether General Star is entitled to summary judgment as a result of the policy clause excluding coverage for continuous or repeated seepage or leakage of water that occurs over a period of fourteen (14) days or more. 5. Whether General Star is entitled to partial summary judgment on its alternative grounds. 6. Whether General Star is entitled to summary judgment as to Brookes’ extra-contractual counterclaims. V. STANDARDS A. Summary Judgment The applicable standard in deciding a motion for summary judgment is set forth in Fed. R. Crv. P. 56, which provides in pertinent part as follows: [T]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Mere allegations of a factual dispute between the parties will not defeat an otherwise proper motion for summary judgment. Rule 56 requires that there be no genuine issue of material fact. A fact is material if it might affect the outcome of the lawsuit under the governing law A dispute about a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Whether plaintiff has raised an issue for trial, based on proving the elements of her prima facie case and presenting a fact issue as to the truth of defendants’ offered reasons, is governed by the sufficiency of the evidence standard. This standard provides that “ ‘[tjhere must be a conflict in substantial evidence to create a jury question.’ ” The movant on a summary judgment motion bears the initial burden of providing the court with a legal basis for its motion and identifying those portions of the record which it alleges demonstrate the absence of a genuine issue of material fact. The burden then shifts to the party opposing the motion to present affirmative evidence in order to defeat a properly supported motion for summary judgment. All evidence and inferences must be drawn in favor of the party opposing summary judgment. However, “ ‘[m]ere conclusory allegations are not competent summary judgment evidence, and they are therefore, insufficient to defeat or support a motion for summary judgment.’ ” Thus, summary judgment motions permit the Court to resolve lawsuits without the necessity of trials if there is no genuine dispute as to any material facts and the moving party is entitled to judgment as a matter of law. B. Texas law regarding the interpretation of an insurance policy In Texas, the interpretation of an insurance policy is governed by the general rules of contract construction. The Court is concerned primarily with giving attention and effect to the intentions of the contracting parties as expressed in the contract. The focus of the Court’s inquiry in determining the meaning of a contract is the objective intention of the parties as evidenced in the contract itself. The question of whether a contract is ambiguous is a question of law that is made by the Court. If the Court determines the contract is unambiguous, the Court, not a jury, is to interpret the legal meaning of the contract’s provisions. If the Court deems a contract to be unambiguous, there plainly is no fact issue regarding the contracting parties’ intent that need be considered by the jury. But, if the contract is susceptible to two or more reasonable interpretations, the contract is ambiguous. If the Court determines the contract is ambiguous and conflicting parol evidence is considered to resolve the ambiguity, the question of the true intent of the parties becomes a fact issue for the jury. Under basic contract construction, the preferred interpretation is one that provides meaning to every provision and does not read any term out of the contract. An endorsement cannot be read apart from the main policy, and the added provisions will supersede the previous policy terms to the extent they are truly in conflict. Although it is preferable to construe a policy to not create surplusage or leave portions of the policy useless or inexplicable, surplusage alone does not create an ambiguity. Parol evidence of the parties’ intent is not admissible to create an ambiguity, but the contract may be read in the light of the surrounding circumstances to determine whether an ambiguity exists. When a contract can be given a definite or certain legal meaning, it is unambiguous. But if, after applying the rules of construction, the contract is subject to more than one reasonable interpretation, it is ambiguous and the interpretation that most favors coverage will be adopted. “Whether a contract is ambiguous is a question of law that must be decided by examining the contract as a whole in light of the circumstances present when the contract was entered.” VI. ARGUMENTS AND CONCLUSIONS OF LAW A. Whether General Star’s objections to Per Schneider’s affidavit should be sustained, whether General Star’s motions to strike the affidavits of Per Schneider, Bob Lampkin and Anastacio Martinez should be granted and whether General Star’s objection to the Reliable Reports, Inc. report should be sustained In its reply briefs in support of its motions for summary judgment on allocation and commencement, General Star has objected to the affidavit of Per Schneider and has moved to strike the affidavits of Per Schneider, Bob Lampkin and Anasta-cio Martinez, arguing that the affidavits “are in direct contradiction to prior deposition testimony.” In further reference to Mr. Schneider’s affidavit, General Star contends that his expert opinions lack an appropriate foundation, arguing that “[f]or the testimony of an expert to be offered in the summary judgment context ... [the expert is required] ... to express the factual support for his opinions, and ‘include materials on which the expert based his opinions as well as an indication of the reasoning process underlying the opinion.’ ” Brookes filed an objection and motion to strike each of General Star’s replies briefs for the reason that the Local Rules do not authorize the filing of replies and, alternatively, request permission to file a “supplemental response” to General Star’s replies. Reply briefs are permissive documents; it has been the practice of the Court to consider reply briefs, if timely filed, but not to await the filing of a reply before ruling. Brookes’ motion to strike should be denied. Brookes’ alternative motion to file a supplemental response should be granted in part and the Court has considered the arguments in the supplemental response that respond to the objections and motions to strike raised in General Star’s replies; in any other respect the motion should be denied and the additional arguments in the supplemental response that are in the nature of a sur-reply have not been considered in preparing this report. General Star’s alternative motion to file a reply to defendants’ response, to the extent the alternative motion is an after-the-fact request for leave to file the reply briefs that Brookes seek to strike, should be granted; in any other respect, the alternative motion to file a reply should be denied. General Star’s motion to file a reply to Brookes’ supplemental response, which tenders the proposed pleading, should be granted in part and denied in part. To the extent that the tendered “reply” does reply to arguments presented in Brookes’ supplemental response on General Star’s objections to evidence and the motions to strike, the motion should be granted and the tendered pleading has been considered; in all other respects, the motion should be denied since there is no showing that the arguments presented in the tendered pleading were not or could not have been presented in an earlier pleading. 1. Affidavits contradict depositions General Star has moved to strike the affidavits of Schneider, Lampkin and Martinez on the issue of commencement on the ground that the “affidavits are in direct contradiction to prior deposition testimony.” With respect to Mr. Schneider’s affidavit, General Star contends that: Per Schneider stated throughout the course of his deposition that he could not render any opinions that the damage commenced prior to August 1999 when the plumbing tests were conducted.... Further, Mr. Schneider state that based upon his inspection and empirical investigation he could only state the damages commenced within 2 months of the plumbing tests being October — November 1999. But, in his affidavit, Mr. Schneider provides expert opinions that, in sum, the damages to the three properties in question were caused by plumbing leaks that commenced within the policy period. General Star objects to Mr. Schneider’s affidavit based on this inconsistency and has moved to strike the affidavits of Schneider, Lampkin and Martinez on this ground. Mr. Schneider’s affidavit acknowledges that “[i]n my deposition, I stated that I had no opinion regarding whether there were plumbing line leaks that caused structural or other damage to the Sage West, Casa Linda, and Eldon Square Apartments in 1997 or 1998.” But, “[biased on my review of this, information [after the time of his deposition] that damage consistent with plumbing line leaks were observed in late 1997 and early 1998, it is my opinion that, in engineering probability, leaks in the underground plumbing systems of the buildings at the Sage West, Casa Linda and Eldon Square Apartments existed in 1997 and 1998.” Mr. Schneider’s affidavit recites that: [i]n all probability according to accepted engineering standards, had plumbing or hydrostatic tests been performed on the Sage West, Casa Linda and Eldon Square Apartments in 1997 and 1998, they would have confirmed plumbing line leaks under the foundations of at least some of the buildings in each of these apartment complexes just as the tests performed in 1999 confirmed plumbing line leaks. Mr. Schneider further states that after his deposition he reviewed the data of James Goldston, P.E., Dr. Ramon Carrasquillo, P.E., and Mr. Andre Garner, P.E., experts retained by General Star, and based on that data and his experience with the effects of plumbing leaks on foundation movement, “it is now my opinion that one hundred percent (100%) of the foundation repairs I have recommended are attributable to the plumbing leaks and approximately seventy percent (70%) of the cosmetic damage are attributable to the plumbing leaks.” Therefore, General Star’s objection to and motion to strike Mr. Schneider’s affidavit on the commencement issue based on inconsistencies between the affidavit and prior deposition testimony should be overruled and denied, respectively. General Star’s objection and motion go to the weight but not the admissibility of Mr. Schneider’s affidavit. General Star’s motion to strike the affidavits of Lampkin and Martinez on the commencement issue provides no specific argument as to how and why those two affidavits contradict with any deposition testimony provided by those two affiants or with Mr. Schneider’s affidavit such that the two affidavits are inadmissible. Therefore, General Star’s motion to strike the affidavits of Lampkin and Martinez on the issue of commencement should be denied. 2. Fed. R. Evid. 702 challenges to Mr. Schneider’s affidavit General. Star also objects to and has moved to strike Mr. Schneider’s affidavit on the issues of commencement and allocation on the ground that it does not provide factual support for certain of his expert opinions, the materials on which each opinion is based and the reasoning process and, alternatively, that the underlying evidence in support of Schneider’s conclusions is insufficient to support his opinions. With respect to commencement, General Star challenges Mr. Schneider’s opinion that the damages to the three complexes in question were caused by underground plumbing leaks that commenced within the policy period. With respect to allocation, General Star challenges Schneider’s opinions that 100 percent of the foundation repairs he recommends and 70 percent of the costs of cosmetic repairs to the buildings were attributable to underground plumbing leaks. a. Daubert and Fed. R. Evid. 702 and 703 The Federal Rules of Evidence permit the use of expert testimony when such testimony will assist the trier of fact to understand the evidence or to determine a fact in issue. A witness may be an expert by virtue of his or her knowledge, skill, experience, training or education. In giving testimony, an expert may rely on three types of facts or data: those perceived directly by the expert before trial, those made known to the expert during the trial and those made known to the expert before trial and based on something other than the expert’s own perceptions. If the evidence relied upon by the expert is inadmissible, then it must be data that is “reasonably relied upon by experts in the particular field.” In addition, a trier of fact must determine whether there are good grounds to rely on this data to draw the conclusion reached by the expert. In Daubert v. Merrell Dow Pharmaceuticals, Inc., the United States Supreme Court set forth a two-pronged test for the admission of scientific expert testimony: is the expert opinion based on the scientific method and is there a “fit” between the expert testimony and the disputed issues in the case. The Supreme Court held that expert scientific testimony must be “ground[ed] in the methods and procedures of science” and based on “more than a subjective belief or unsupported speculation.” The Supreme Court explained that proposed testimony must be supported by appropriate validation, that is, “good grounds,” based upon what is known. To be admissible under the Daubert standard, an expert’s opinion must have a “reliable basis in the knowledge and experience of his discipline.” Daubert set forth a nonexclusive list of factors for the Court to consider in analyzing scientific expert evidence. Accordingly, the Fifth Circuit directed that a court determine that the reasoning and methodology underlying a proffered expert opinion are scientifically valid and that the reasoning and methodology can be applied properly to the facts in issue. In Allen, the Fifth Circuit held that for every conclusion contained in the expert’s proposed testimony, the Court must determine if the methodology leading to that conclusion is sound. In the case of nonscientific expert testimony, the Fifth Circuit has noted that Daubert applies even though each of the factors outlined in Dau-bert for determining the reliability of expert testimony may not be applicable to every such case. Nevertheless, the court must exercise its gatekeeping function to ensure that expert testimony based on experience and training is reliable. The amendments to Fed. R. Evid. 702, effective December 1, 2000, codify Daubert and Kumho Tire Co. by expressly providing that if scientific, technical or specialized knowledge will assist the trier of fact, a qualified witness may testify in the form of an opinion 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. The advisory committee notes state that prong (1) is “quantitative” rather than “qualitative” — the expert must be relying on sufficient facts or data — and prongs (2) and (3) are “qualitative.” In reviewing a Daubert challenge, the Court does not decide credibility, only whether the threshold reliability standards have been satisfied. Daubert standards apply not merely at trial, but also on summary judgment. “For the purposes of summary judgment ... an expert affidavit must include materials on which the expert based his opinion, as well as an indication of the reasoning process underlying the opinion.” b. Application of Daubert Factors and Fed. R. Evid. 702 to Mr. Schneider’s Affidavit In this case, Brookes seek to prove that certain damages to the three apartment complexes were caused by “the accidental discharge of water from within a plumbing system.” More specifically and in sum, Brookes’ theory on damages is that leaks commenced in underground plumbing lines during the policy period, that the leaks caused movement in foundations, that the movement in foundations caused damages to certain buildings within the three apartment complexes, and that the damages may be allocated between those covered losses and other non-covered losses that may have been incurred by the premises in question because, “there is no non-covered damage to segregate.” Through Mr. Schneider’s challenged testimony on the issues of commencement and allocation, Brookes wish to establish that plumbing leaks commenced during the policy period and that a reasoned allocation may be made between covered and non-covered damages. For example, Mr. Schneider states that “it is my opinion that, in engineering probability, leaks in the underground plumbing systems ... existed in 1997 and 1998.” The term “engineering probability” is not defined in the affidavit. Schneider also states that “it is now my opinion that one hundred percent (100 %) of the foundation repairs I have recommended are attributable to the plumbing leaks and approximately seventy percent (70 %) of the cosmetic damage are attributable to plumbing leaks” (presumably the “damages consistent with plumbing line leaks ... observed in late 1997 and early 1998”). Schneider does not explain how he reached these and the other challenged conclusions based on the materials that he reviewed, but only that he did review noted information and that he did reach the conclusions. Mr. Schneider’s summary judgment affidavit does not establish that there were, in fact, plumbing line leaks in the three apartment complexes in 1997 and 1998 only that the evidence observed by others, in his opinion, is consistent with a plumbing line leak “under the foundations of at least some of the buildings in each of these apartment complexes” such that “[i]n all probability” such leaks existed. Mr. Schneider’s affidavit does not identify which foundations of which buildings in these multi-building apartment complexes “in all probability” were damaged by plumbing line leaks; why he formed that opinion in reference to specific evidence; whether and to what extent the damages commenced during the policy period; or, how, for example, he was able to form an opinion that 70 percent of the “cosmetic damages” were caused by plumbing leaks and 30 percent were not. Although Brookes are correct that these objections go to the weight of the evidence, as discussed above, they also go to admissibility. Further Mr. Schneider’s affidavit does not offer a factually supported explanation of to what extent and why he changed opinions in his deposition that improper drainage, normal climactic conditions, drought, rain, flood, vegetation and “anything that would be a source of moisture” combined to cause the “technical failure of the foundations.” Brookes’ argument that because repairs to foundations caused by covered plumbing leaks necessarily will repair in the process damage caused by non-covered losses so that “there is no non-covered damage to segregate,” masks their failure of proof as to causation of specific covered losses in specific covered buildings that commenced in the policy period. Conclusory opinions by designated experts lack the requisite evidentiary reliability mandated by Rule 702 because they fail to set forth a discernable methodology. Neither Daubert nor the Federal Rules of Evidence “requires a district court to admit opinion evidence which is connected to existing data only by the ipse dixit of the expert.” Here, Mr. Schneider’s affidavit does not explain why and how he concluded that specific damages observed by others were consistent with plumbing line leaks. Assuming that personal observations of others and review of the information noted in Mr. Schneider’s affidavit is a sufficient basis on which to form an opinion on causation, the failure of the affidavit to state a methodology or explanation as to how Mr. Schneider formed each opinion precludes the Court from entering the required Daubert findings regarding opinions on commencement and allocation. Schneider’s affidavit, therefore, should not be considered competent summary judgment evidence in response to General Star’s motions for summary judgment on commencement or allocation. This is not to say that Mr. Schneider could not testify at trial, in accordance with the scope of expert witness designations and reports, only that the affidavit may not be considered on summary judgment. But, even if the Court were to agree that Mr. Schneider’s affidavit sufficiently sets forth the bases of his opinions that the damages observed are consistent with plumbing line leaks and that “[i]n all probability according to accepted engineering standards” plumbing tests performed in 1997 and 1998 would have confirmed plumbing leaks, these opinions as to causation offer no evidence as to which plumbing leaks, if any, commenced during the policy period. Without evidence on commencement, Mr. Schneider’s affidavit offers a legally insufficient basis for allocating non-covered and covered damages to these three apartment complexes occurring within the policy period. 3. Other objections to evidence Finally, in the course of summary judgment briefing, Brookes filed a supplemental response to General Star’s motions for summary judgment which, among other things, submitted a corrected affidavit of Mr. Lampkin, provided a summary of repair estimates that were omitted inadvertently from the appendix and submitted, as summary judgment evidence, a report from Reliable Reports, Inc. produced by General Star to Brookes in discovery. General Star filed a reply to the supplemental response which recited that it had no objection to the submission of Mr. Lampkin’s affidavit, the filing of the revised damage estimate or the timeliness of the filing of the report from Reliable Reports, Inc., but did “object to the admissibility, relevance ... and the conclusion defendants suggest should be drawn from that document.” General Star argues: “In summary, this report provides no evidence at all on any matter at issue in the pending summary judgment.” Brookes have tendered the Reliable Report, Inc. report to show, in sum, that the premises in question were inspected on or about February 19, 1997 and that no preexisting damages were noted as of that date. The Court cannot agree that an inspection of the premises undertaken near the time of the commencement of the policy is irrelevant to issues relevant to commencement. Therefore, the objections to the Reliable Report, Inc. report are overruled. B. Whether General Star is entitled to summary judgment as a result of the policy clause limiting coverage to loss or damage commencing during the policy period General Star’s motion for summary judgment (commencement) argues that judgment as a matter of law should be entered in its favor based on the policy provision that states: “[ujnder this coverage part .... [w]e cover loss or damage commencing .... [djuring the policy period shown in the declarations.” The declarations provide that the policy was in effect beginning February 7, 1997, and ending February 8, 1998. In sum, General Star argues that because “there is no evidence of a covered loss occurring within the policy period,” it is entitled to summary judgment. In support of its motion for summary judgment on commencement, General Star argues that “Brookes have not set forth any evidence that a loss commenced during the policy period .... [t]he evidence conclusively shows that there [were] substantial foundation problems for many years before the policy was in effect.” General Star presents evidence of damages that predated the policy period through: the deposition testimony of Anastacio Martinez, an electrical, appliance and air conditioning repair maintenance worker employed at the Sage West Apartments for 20 years, the deposition testimony of Larry Moya, a make-ready (painter) maintenance worker employed at the Sage West Apartments, and the deposition testimony of Robert Maxhimer, property manager of the Sage West, Casa Linda and Eldon Square Apartments beginning in 1997. Mr. Martinez testified to the existence of damage at the Sage West, Eldon Square and Casa Linda Apartments before 1997, including plumbing problems, cracks in walls, window frames separating from the brick, sloping floors and a sinking building. Mr. Moya testified that since 1997 the exterior cracks in the walls of the Sage West Apartments have been “about the same” and, at the approximate time of his 2000 deposition, and he “sometimes” tapes and floats (fixes cracks) before painting apartments. Mr. Maxhimer testified that cracks in walls existed at the Sage West, Casa Linda and Eldon Square Apartments at the time he became the property manager in 1997, and he responded affirmatively to the inquiry of whether the Eldon Square Apartments were “experiencing cracking and some other signs of movement,” in 1997. Because “it is undisputed that no test or other data were submitted to General Star which evidence a loss that commenced in the policy period,” General Star argues that it is entitled to summary judgment on commencement. Brookes oppose summary judgment on commencement, initially arguing that Robbins v. Maryland, stands for the proposition that, regardless of when a loss commenced, under Texas law “an insured may recover under a policy of insurance for a loss occurring prior to issuance of the policy; provided that neither the insured nor the insurer knew of the loss when the contract was made.” But, Robbins stands for a more limited proposition— that is, “a contract of property insurance may, if the parties so intend, effectively protect against a loss occurring prior to issuance of the policy provided neither the applicant nor the insurer knew of the loss when the contract was made.” In this case, the intent of the parties unambiguously expressed in the words of the policy was to exclude losses which did not occur “[d]uring the policy period shown in the declarations.” Next, Brookes argue that “there is ample summary judgment evidence that losses occurred during the policy period, there is a factual dispute as to whether the losses commenced during the policy period,” and “because neither Brookes nor General Star were aware of damages caused by plumbing leaks when the policy was issued, Brookes are entitled to recover for losses due to plumbing leaks which might have begun, but were not manifested before the policy period.” Brookes also rely on the deposition testimony of Martinez, Moya and Maxhimer, pointing out that none of them are experts in foundations or plumbing. The observations of Martinez, Moya and Maxhimer as to damages to parts of the three apartment complexes in question does not speak to when the damages began. If a loss did not “commence” during the General Star’s policy period, General Star is not liable under its policy of insurance. Brookes has evidence of damages to portions of the three apartment complexes in question, but, as discussed in this report, has offered no evidence demonstrating when losses commenced. Attempting to demonstrate that leaks commenced during the policy period, Brookes point to plumbing repairs that were conducted on January 22,1998 at two buildings within the Casa Linda Apartments which General Star’s agent, an adjuster, witnessed. Brookes argues that this confirmed existence of leaks at the Casa Linda Apartments during the policy period is evidence that leaks commenced during the policy period, or at least raises a question of fact as to commencement. According to the report dated January 23, 1998 prepared by an adjuster for General Star, a kitchen sink was not draining properly in unit 33-# 3 in the Casa Linda complex. A “professional plumber ... snaked the line and brought up mud.” The plumber then “tunneled under the building to locate the source of the stoppage, finding the case iron sewer system to be in a badly deteriorated state.” According to the report, the property manager indicated that other plumbing problems had occurred with this sink previously, and in those instances, attempts to clear the blockage had similarly brought up mud. However, in those instances, snaking the line was sufficient to clear the blockage. Repairs concurrently were being completed in unit 33-# 1, Apartment # 7 of the Casa Linda Apartments