Sheppard v. Travelers Lloyds of Texas Ins. Co. (Tex.App.- Houston [14th Dist.]
Oct. 15, 2009)(Boyce) (summary judgment in favor of Insurance Company in connection with claims
for breach of contract and
violations of the Texas Insurance Code affirmed)(breach of contract and
statutory insurance code claim denial cause of action time-barred,
contractual shortening of
limitations period)
AFFIRMED: Opinion by
Justice Boyce   
Before Justices Anderson and Boyce    
14-08-00248-CV   Anthony Sheppard v. Travelers Lloyds of Texas Insurance Company    
Appeal from 125th District Court of Harris County
Trial Court Judge:
John A. Coselli

M E M O R A N D U M  O P I N I O N

Anthony Sheppard appeals from a summary judgment in favor of Travelers Lloyds of Texas
Insurance Company in connection with Sheppard's claims for breach of contract and violations of
the Texas Insurance Code.  We affirm.

Background

Sheppard contracted with Travelers to insure a dwelling located at 306 West Cowan Drive pursuant
to a Texas homeowners HO-B policy.  The policy period began on October 6, 2000 and expired on
October 6, 2001.

Water entered 306 West Cowan when Tropical Storm Allison brought heavy rains to Houston
between June 5 and June 9, 2001.  Sheppard submitted a claim for structure and contents damage
to Travelers on June 11, 2001.  The parties dispute the degree to which water entry at 306 West
Cowan during Tropical Storm Allison was attributable to wind-driven rain or to surface flooding.  
The policy covers physical loss to the dwelling caused by wind-driven rain; the policy does not
cover physical loss caused by flooding.

Independent adjuster Shawn York inspected 306 West Cowan on July 4, 2001 at Travelers's
request.  York orally informed Sheppard at the inspection's outset that contents damage would not
be covered.  Following the inspection, York told Sheppard his estimated payment would be
$4,890.60 after reductions due to depreciation and Sheppard's deductible.  York instructed
Sheppard to contact Travelers if he had any additional information to report that might affect his
claim.  On July 22, 2001, Travelers sent a $4,890.60 check to Sheppard and closed its claim file.

Sheppard did not communicate with Travelers during the next 20 months.  On May 9, 2003,
Travelers received correspondence from Sheppard's attorney styled as a notice of loss and letter
of representation relating to Sheppard's claim for damage to 306 West Cowan.  Sheppard's
attorney sent another letter to Travelers dated May 22, 2003, in which the attorney stated that 306
West Cowan “has severe water damage and serious toxic mold infestation that was caused by a
covered loss and recently discovered.”  The letter continues, “Further, our investigation reveals
that this type of damage is covered by Mr. Sheppard's homeowners policy and . . . occurred during
the period of coverage."  Travelers responded in a June 23, 2003 letter to Sheppard's attorney
stating that Travelers would investigate Sheppard's claim “subject to a complete reservation of its
rights" under the policy.

Travelers sent Sheppard's attorney another letter dated May 25, 2004 that repeated Travelers's
full reservation of rights under the policy.  Among other provisions, Travelers highlighted the
policy's provision regarding the time frame for filing suit.  This paragraph states as follows: “No suit
or action can be brought unless the policy provisions have been complied with.  Action brought
against [Travelers] must be started within two years and one day after the cause of action
accrues."  The May 25, 2004 letter stated that “more than two years and one day have passed
since any potential cause of action may have accrued . . . ."

After investigating Sheppard's claim, Travelers sent Sheppard's attorney a letter dated March 8,
2005 denying Sheppard's claim.  Travelers repeated its full reservation of rights from the 2003 and
2004 letters, and again quoted the policy's paragraph regarding the time limit for filing suit.  
Travelers stated three reasons for denying Sheppard's claim under the policy: (1) its determination
that flooding from surface water, an excluded peril, caused the damage in question; (2) Sheppard's
failure to repair the premises within 365 days of the loss event; and (3) Sheppard's failure to bring
an action within two years and one day from the date of the alleged underpayment.

Travelers received no further correspondence from Sheppard or his attorney until Sheppard filed
suit against Travelers on November 17, 2006.  Sheppard's original petition  alleged that Travelers
(1) breached the policy by “failing to fully pay covered claims;" and (2) violated the Insurance Code
by failing “to fully and promptly investigate, settle and pay the covered claims."  See Tex. Ins. Code
Ann. §§541.060, 542.058 (Vernon 2009).  Sheppard sought damages and attorney's fees.

Travelers filed a traditional motion for summary judgment under Texas Rule of Civil Procedure 166a
(c) on November 2, 2007 asserting that it was entitled to judgment as a matter of law because (1)
Sheppard failed to file suit within two years and one day from the date on which his causes of
action accrued; and (2) Sheppard's claim for mold damage is excluded under the policy.  Sheppard
filed a summary judgment response on November 19, 2007.  The trial court signed an order
granting Travelers's motion for summary judgment on December 21, 2007 without stating which
ground it relied upon.

Sheppard filed a motion for new trial on January 22, 2008.  Travelers responded on February 14,
2008.  The trial court signed an order denying Sheppard's motion for new trial on March 4, 2008.  
Sheppard timely appeals the trial court's order signed on December 21, 2007 granting summary
judgment in favor of Travelers.

Standard of Review

We review the trial court's grant of summary judgment de novo.  Joe v. Two Thirty Nine Joint
Venture, 145 S.W.3d 150, 156 (Tex. 2004).  A traditional summary judgment may be granted if the
motion and summary judgment evidence establish there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law.  Tex. R. Civ. P. 166a(c).  Summary
judgment for a defendant is proper when the defendant negates at least one element of each of
the plaintiff's theories of recovery, or pleads and conclusively establishes each element of an
affirmative defense.  Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997).

Analysis

By establishing a reasonable time within which suit must be filed, limitations periods protect against
stale claims and diminish the prospect that a case's resolution will be impaired by loss of evidence,
death or disappearance of witnesses, fading memories, or disappearance of documents.  Murray v.
San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex. 1990).  Contract actions typically are
governed by a four-year statute of limitations.  Tex. Civ. Prac. & Rem. Code Ann. § 16.004 (Vernon
2002).  However, an insurer may limit through contractual provisions the time for filing suit; such
provisions are valid and enforceable.  Bazile v. Aetna Cas. & Sur. Co., 784 S.W.2d 73, 74 (Tex.
App.-Houston [14th Dist.] 1989, writ dism'd).  Contractual limitation provisions in an insurance policy
may not create a limitations period shorter than two years.  Tex. Civ. Prac. & Rem. Code Ann. §
16.070 (Vernon 2008).

The Travelers policy at issue here sets the limitations period at two years and one day.  See also
Tex. Ins. Code Ann. § 541.162 (Vernon 2009) (establishing two-year limitations period for claims
under Chapter 541 of the Insurance Code).  

A.      When Did Sheppard's Causes of Action Accrue?

Determining when a cause of action accrues typically is a question of law.  Provident Life &
Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003).[1]  “As a general rule, a cause of
action accrues and the statute of limitations begins to run when facts come into existence that
authorize a party to seek a judicial remedy."  Id. (citing Johnson & Higgins of Tex., Inc. v. Kenneco
Energy, Inc., 962 S.W.2d 507, 514 (Tex. 1998), and Murray, 800 S.W.2d at 828).  “In most cases, a
cause of action accrues when a wrongful act causes a legal injury, regardless of when the plaintiff
learns of that injury or if all resulting damages have yet to occur."  Knott, 128 S.W.3d at 221 (citing
S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996)).

Accrual may be deferred if the cause of action (1) is not discovered as a result of fraud or
fraudulent concealment; or (2) is “inherently undiscoverable."  Kuzniar v. State Farm Lloyds, 52 S.
W.3d 759, 760 (Tex. App.-San Antonio 2001, pet. denied) (en banc).  Sheppard did not plead
these bases for deferring accrual of his cause of actions; did not assert them in his summary
judgment response; and does not assert them on appeal.  Therefore, Travelers was not required to
negate these bases for deferring accrual in the trial court and they do not affect the analysis on
appeal.  See, e.g, Via Net v. TIG Ins. Co., 211 S.W.3d 310, 313 (Tex. 2006).

The question remains: When did Sheppard's causes of action accrue?  Travelers contends that
Sheppard's causes of action accrued in July 2001 when (1) an independent adjuster hired by
Travelers orally told him there was no coverage for his contents claim, and (2) Travelers closed its
file after sending Sheppard a check for $4,890.60 on his structural claim.  Sheppard contends that
his causes of action accrued on March 8, 2005, when Travelers sent a denial letter after re-
opening his file in May 2003 to investigate his claims in response to correspondence from
Sheppard's attorney.  Based on the November 2006 filing date of Sheppard's suit, his causes of
action are viable if they accrued in March 2005 and barred by limitations if they accrued in July
2001.

It is undisputed that Travelers did not send written notification to Sheppard in July 2001 explaining
its determination regarding his claim and the reasons for its decision.  See Tex. Ins. Code Ann.
§542.056 (Vernon 2009).  This circumstance does not determine the accrual date of Sheppard's
claims.  The absence of a written notice in July 2001 containing the reasons for rejecting his claim
may or may not be a statutory violation.  Accrual under the legal injury rule is a separate issue.  
See Kuzniar, 52 S.W.3d at 760 (“[T]he failure to comply with a statutory duty has nothing to do with,
and fails to vitiate, the Kuzniars' own responsibility to exercise diligence in pursuing their claim.").

The Texas Supreme Court Ahas suggested that when 'there is no outright denial of [an insurance] .
. . claim, the exact date of accrual of a cause of action . . . should be a question of fact to be
determined on a case-by-case basis.'" Knott, 128 S.W.3d at 222 (quoting Murray, 800 S.W.2d at
828 n.2).  Application of this suggestion[2] depends heavily on the particular context of a particular
claim.

This point is illustrated by Kuzniar, an intermediate appellate decision discussed in Knott.  See
Knott, 128 S.W.3d at 222 (quoting Kuzniar, 52 S.W.3d at 760).  Nowhere in Knott does the
supreme court reject or question the analysis in Kuzniar.

Kuzniar holds that the date upon which an insurer closes its claim file may be relied upon in
appropriate circumstances as “an objectively verifiable event that unambiguously demonstrate[s
the insurer's] intent not to pay the claim" and starts the limitations clock.  Kuzniar, 52 S.W.3d at
760.  The file closing date establishes accrual “'even if the fact of injury [was] not discovered until
later.'"  Id. (quoting S.V., 933 S.W.2d at 4).

The San Antonio Court of Appeals applied this precept in Kuzniar, in which the insureds filed a
claim with State Farm in August 1992 arising from a plumbing leak in their home.  Id.  State Farm
opened a claim file and sent an adjuster to investigate; in turn, the adjuster asked the insureds to
hire a plumber to investigate the leak.  Id.  State Farm closed its claims file in January 1993 after
receiving no further communication from the insureds.  Id.  The insureds sued in August 1996
alleging that State Farm wrongfully failed to pay their claim.  Id.  The trial court granted summary
judgment in favor of State Farm on limitations, and the court of appeals affirmed.  Id.

In so doing, the court of appeals concluded that “[t]he legal injury in this case occurred when State
Farm unreasonably failed to pay the Kuzniars' claim, which at the very latest was when the claim file
was closed on January 13, 1993."  Id.  The court also concluded that footnote 2 of Murray did not
foreclose summary judgment on limitations because it 'refers to a scenario where the insurance
company 'strings an insured along without denying or paying a claim.'" Kuzniar, 52 S.W.3d at 761
(quoting Murray, 800 S.W.2d at 828 n.2).  “If the Kuzniars had alleged State Farm acted
fraudulently in connection with its denial of the claim, then perhaps a fact issue would exist
concerning when the cause of action accrued."  Id.  “However, as we have noted, the Kuzniars
made no such claim."  Id.  “And there is nothing in this record, even after indulging all inferences
and doubts in favor of the Kuzniars, to suggest State Farm was wrongfully stringing along the
Kuzniars."  Id.  “Indeed, the parties did not even communicate with each other after 1992."  Id.

Kuzniar's analysis applies with equal force here.  The date on which Travelers closed its claims file
establishes “an objectively verifiable event that unambiguously demonstrated [the insurer's] intent
not to pay the claim . . . ."  Id. at 760.[3]

As in Kuzniar, there is no contention or record support here for an assertion that Travelers was
“stringing [Sheppard] along" after 2001.  Independent adjuster York orally informed Sheppard on
July 4, 2001 that any damage to the contents of the house would not be covered.  Sheppard stated
under oath that York told him the contents were “completely off the table."  Sheppard further
testified that York told him on July 4, 2001 that contents “were not covered."

After inspecting the house, York told Sheppard that his estimated recovery on his claim would total
$4,890.60 after reductions for depreciation and Sheppard's deductible.  York also instructed
Sheppard to contact Travelers if he had any new information that might affect his claim.  Travelers
then sent Sheppard a check for $4,890.60 on July 22, 2001.  Travelers had no further contact with
Sheppard for at least 20 months thereafter.  Cf. Ehrig v. Germania Farm Mut. Ins. Assoc., 84 S.W.
3d 320, 323-24 (Tex. App.-Corpus Christi 2002, pet. denied) (fact issue existed regarding accrual
based on adjuster's May 1996 oral notification of claim denial due to insurer's conduct immediately
after oral denial, which included sending an engineering report on foundation to the insured;
discussing engineering report with the insured; and sending forms to insured identifying conflicting
dates of claim denial in July 1996 and May 1997).

Sheppard contends Travelers committed wrongful acts that caused legal injury to him by failing to
“fully pay covered claims" and “fully and promptly investigate, settle and pay the covered claims."  
Sheppard testified that Travelers's July 2001 payment of $4,890.60 for structural damage “seemed
unduly low," and that it “became obvious that that wasn't going to be enough" to repair the damage
to 306 West Cowan.  Sheppard testified that he knew in 2001 that repairs to the house would cost
more than $20,000, and that York had taken any contents claim “completely off the table."  Under
these circumstances, the asserted wrongful acts that caused Sheppard's asserted legal injury
occurred in 2001 and his causes of action accrued at that time.  See Knott, 128 S.W.3d at 221.

B.      Did Travelers' Later Correspondence Affect the Accrual Date?

Having determined that Sheppard's causes of action accrued in 2001, we next address whether
Travelers's subsequent conduct affected accrual.

Sheppard contends that “[w]here an insurer[] . . . reinvestigates a claim, the limitations period
commences at the time of the latest denial, and not the initial denial of benefits."  According to
Sheppard, this means that “the limitations period commences on the date Travelers denied the
second claim - March 8, 2005."

Sheppard's argument parallels one this court already has rejected.  See Pace v. Travelers Lloyds
of Tex. Ins. Co., 162 S.W.3d 632, 634-35 (Tex. App.-Houston [14th Dist.] 2005, no pet.).  The
plaintiff in Pace received a letter from the insurer dated April 26, 2000 denying his claims.  Id. at
633.  This letter also stated that the plaintiff should contact the insurer with any new information
that might affect the coverage decision.  Id. at 634.

Following receipt of this letter, the plaintiff provided the insurer with an engineer's report regarding
his claim.  Id.  The insurer then sent the plaintiff a letter dated September 24, 2001 indicating that it
had re-opened his claim file and conducted further investigation based on the report provided by
the plaintiff.  Id.  The insurer stated in this letter that its findings remained unchanged and its denial
of the plaintiff's claim stood.  Id.  The plaintiff filed suit on January 8, 2003, and the trial court
granted summary judgment on limitations.  Id. at 633.

The plaintiff in Pace contended that a fact issue existed as to accrual based on the invitation to
contact the insurer with new information, and the insurer's decision to revisit his claim.  Id. at 634-
35.  In addressing the plaintiff's primary argument, we highlighted the following language from the
insurer's 2000 letter: “After careful consideration of all information available to us, we have
determined that the damage to your property is not afforded coverage under the insurance policy."  
The letter also stated, “[W]e will be unable to make payment . . . ."  Id. at 634.  This language
communicated an unequivocal decision to deny coverage.  Id.  We also noted that an insurer need
not use the word “deny" or other “magic words" to express its denial of a claim if that denial is
otherwise obvious.  Id. at 634 n.1 (citing Knott, 128 S.W.3d at 222-23).

In addition, this court noted that an invitation to provide additional information does not negate a
prior denial.  Id. at 634.  Nor is a prior denial negated by the possibility that the insurer may revisit
the claim or change its decision.  Id.  We refused to adopt such a position because doing so would
put insurers to an untenable choice between (1) refusing requests for reconsideration outright and
risking suit for bad faith insurance practices; or (2) considering requests and restarting the
limitations period.  Id. at 634-35.

The plaintiff in Pace also contended that revisiting his original claim created a “new" claim that was
not denied until the insurer notified him of the results of its renewed investigation.  Id. at 635.  The
plaintiff asserted that his cause of action based on denial of this “new" claim did not accrue until
September 24, 2001.  Id.  The plaintiff relied for support upon Pena v. State Farm Lloyds, 980 S.W.
2d 949 (Tex. App.-Corpus Christi 1998, no pet.).  See id.

Sheppard cites Pena for its statement that “claims for additional payments may begin the statute of
limitations running anew."  Pena, 980 S.W.3d at 954.  In Pace, this court distinguished Pena based
on (1) the ongoing and continuous nature of the peril giving rise to the plaintiff's claims in Pena;
and (2) a subsequent partial payment following the original denial.  Pace, 162 S.W.3d at 635 (citing
Pena, 980 S.W.3d at 635).  Pace also focused on this key distinction: “[T]o whatever extent the
[original] . . . decision was reconsidered by Travelers based on the additional information, there is
no evidence that the [original] decision was ever expressly or impliedly withdrawn or changed, such
as by making payment or otherwise taking action inconsistent with that decision."  Id.  “Without
evidence of either a claim for additional damages or a withdrawing or changing of the [original] . . .
decision, as in Pena, Pace has provided us no basis to conclude that the rationale of that case has
any application here."  Id.

Like the insured in Pace, Sheppard misplaces his reliance on Pena.  Travelers communicated its
resolution of Sheppard's claims and closed its file in July 2001.  See Kuzniar, 52 S.W.3d at 760.  
Sheppard proffered no evidence that Travelers later (1) withdrew or changed its initial denial; or (2)
made further payments beyond the initial $4,890.60 check issued in July 2001, the asserted
inadequacy of which underpins Sheppard's contractual and statutory causes of action.  Therefore,
Travelers's subsequent actions in response to Sheppard's inquiry some 20 months after denial did
not affect Sheppard's already-accrued causes of action.  Those causes of action accrued in 2001
and were barred by limitations when Sheppard filed suit in 2006.

We overrule Sheppard's issue regarding the propriety of the trial court's grant of Travelers's
summary judgment motion.[4]

Conclusion

We affirm the trial court's summary judgment.

/s/      
William J. Boyce

Justice

Panel consists of Justices Anderson and Boyce. (Former Justice Guzman not participating.)      

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[1]  For this reason, we reject Sheppard's contention that the policy's reference to when "the cause of action
accrues" is ambiguous.

[2]  At least two courts of appeals have concluded that the quoted language from footnote 2 of Murray is dicta.  See
Kuzniar, 52 S.W.3d at 761 (“[T]he court candidly admits the legal point it was making in the footnote was dictum and
had nothing to do with the case . . . .  The footnote cannot, therefore, be relied on as if it were the holding of the
court."); see also Ehrig v. Germania Farm Mut. Ins. Assoc., 84 S.W.3d 320, 325 (Tex. App.-Corpus Christi 2002, pet.
denied) (“the statement in Murray is dicta").  As discussed in the text, footnote 2 does not foreclose summary
judgment in this case even assuming that this portion of Murray carries weight.

[3]  Sheppard contends on appeal that the record does not establish July 22, 2001 as the date on which Travelers
closed its claims file.  According to Sheppard, (1) this date appears only in the business record affidavit signed by
Diana Romano-Johnson as records custodian and used by Travelers to establish the admissibility of Travelers's
claims file; (2) this date does not appear in the business records themselves; and (3) Texas Rule of Evidence 903
(10) does not contemplate that a business records affidavit will prove more than compliance with the standards
governing admission of hearsay evidence.  We reject this contention because Sheppard's first premise is
incorrect.  Travelers's claims file includes a document stating:  “File Status: Closed 07/22/01."  Sheppard does not
challenge the admissibility of this portion of the claims file; does  not contend that the claims file itself is
inadmissible; and does not contend that the recitations in Romano-Johnson's affidavit fail to satisfy the business
records exception to the hearsay rule.  Therefore, we conclude that undisputed evidence establishes July 22, 2001
as the date on which Travelers closed its file on Sheppard's claim.

4           Because we conclude that summary judgment was granted properly based on the expiration of the Policy's
limitations period, we need not address Travelers's assertion that summary judgment was proper because
Sheppard sought recovery for damages the policy did not cover.