Kelley Street Associates, LLC v. United Fire and Casualty Company

ACCEPTED 14-14-00755-CV FOURTEENTH COURT OF APPEALS HOUSTON, TEXAS 4/3/2015 10:49:47 PM CHRISTOPHER PRINE CLERK

In The Court of Appeals FILED IN 14th COURT OF APPEALS For The HOUSTON, TEXAS 4/3/2015 10:49:47 PM Fourteenth District of Texas CHRISTOPHER A. PRINE _____________________________ Clerk

14-14-00755-CV __________________________

KELLEY STREET ASSOCIATES, LLC Appellant, V.

UNITED FIRE AND CASUALTY COMPANY

Appellee. _______________________________________________________

On Appeal from the 295th District Court, Harris County, Texas Cause No 2013-36796-A Honorable Caroline E. Baker _______________________________________________________

BRIEF FOR APPELLEE

George W. Vie III gvie@millsshirley.com Mills Shirley L.L.P. 2228 Mechanic Street, Suite 400 Galveston, Texas 77550 (713) 571-4232 Fax (713) 893-6095

Attorneys for Appellee

APPELLEE REQUESTS ORAL ARGUMENT

CORRECTED IDENTITY OF PARTIES AND COUNSEL

APPELLANT:

Kelley Street Associates, LLC APPELLANT’S ATTORNEY:

H. Miles Cohn Michelle V. Frier Crain, Caton & James, P.C. 1401 McKinney St., 17th Floor Houston, Texas 77010 Telephone (713) 752-8668 Facsimile (713) 685-1921 mcohn@craincaton.com

APPELLEE:

United Fire and Casualty Company APPELLEE’S APPELLATE ATTORNEYS:

George W. Vie III Susan L. Price Mills Shirley L.L.P. 2228 Mechanic Street, Suite 400 Galveston, Texas 77550 Telephone (713) 571-4232 Facsimile (713) 893-6095 gvie@millsshirley.com sprice@millsshirley.com

APPELLEES’ TRIAL ATTORNEYS:

Charles Dunkel Mills Shirley L.L.P. 3 Riverway, Suite 100 Houston, Texas 77056 Telephone (713) 225-0547 Facsimile (713) 225-0844

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TABLE OF CONTENTS

Corrected Identity of Parties and Counsel ................................................................ i Table of Contents ................................................................................................... iii Table of Authorities ................................................................................................. v Reply Issue Presented .............................................................................................. 1 Statement of Facts ................................................................................................... 1 Summary of the Argument ....................................................................................... 5 Argument and Authorities ....................................................................................... 7 1. The Standard and Scope of Review Applicable to the Competing Motions. .... 7

2. Kelley Street Associates Did Not Have Coverage Under the Policy’s Water Exclusion Endorsement. ...................................................................................... 8

A. Kelley Street Associates did not carry its burden as an insured and as a summary judgment movant. .................................................................... 8

B. The Water Exclusion Endorsement is interpreted like any other contract provision. ......................................................................................... 9

C. The Water Exclusion Endorsement is not ambiguous............................. 10

3. The Application of the Water Exclusion Endorsement is Required by the Policy’s Plain and Unambiguous Terms. ............................................................ 11

A. The words of the Water Exclusion Endorsement support summary judgment for United Fire. ............................................................................ 12

4. The Application of the Water Exclusion Endorsement is not Changed by Reference to Case Law. ...................................................................................... 18

Conclusion and Prayer ........................................................................................... 23 Certificate of Compliance ...................................................................................... 24

- iii -Certificate of Service.............................................................................................. 25

Appendix Tab 1 Order denying summary judgment to Kelley Street Associates Tab 2 Order granting summary judgment to United Fire Tab 3 Order granting motion to sever Kelley Street Associates’ claims against United Fire Tab 4 Insurance Policy Coverage and Declarations Tab 5 Insurance Policy – Causes of Loss – Special Form Tab 6 Insurance Policy - the Water Exclusion Endorsement Tab 7 Affidavit of Duane Kamins Tab 8 Affidavit of John Moore

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TABLE OF AUTHORITIES

Cases Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154 (Tex. 2003) ......................................................................... 9, 10, 14 Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738 (Tex. 1998) ...................................................................................17 Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) ................... 8 Ferguson v. Bldg. Materials Corp. of Am., 295 S.W.3d 642 (Tex. 2009) ................................................................................... 7 Fiess v. State Farm, 202 S.W.3d 744 (Tex. 2005) ................................................................................. 10 Fleming & Associates, L.L.P. v. Barton, 425 S.W.3d 560 (Tex. App.—Houston [14th Dist.] 2014, pet. requested) ............. 7 For Kids Only Dev. Ctr., Inc. v. Philadelphia Indem. Ins. Co., 260 S.W.3d 652 (Tex. App.—Dallas 2008, pet. denied) ....................................... 18 Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) .................................................................................... 8 Goebel v. Brandley, 174 S.W.3d 359 (Tex. App.—Houston [14th Dist.] 2005, pet. denied)................... 7 Haines v. United Sec. Ins. Co., 602 P.2d 901 (Colo. App. 1979)............................................................................. 20

-v-In re Deepwater Horizon, No. 13-0670, 2015 WL 674744 (Tex. Feb. 13, 2015) ............................................... 9 Jackson v. Am. Mut. Fire Ins. Co., 299 F. Supp. 151 (M.D.N.C. 1968) aff’d, 410 F.2d 395 (4th Cir. 1969)................. 21 Lundstrom v. United Servs. Auto. Ass’n-CIC, 192 S.W.3d 78 (Tex. App.—Houston [14th. Dist.] 2006, pet. denied) ..................17 Old Dominion Ins. Co. v. Elysee, Inc., 601 So.2d 1243 (Fla. Dist. Ct. App. 1992) ............................................................. 22 Pichel v. Dryden Mut. Ins. Co., 117 A.D.3d 1267, 986 N.Y.S.2d 268 (2014) ........................................................... 22 Progressive Cnty. Mut. Ins. Co. v. Kelley, 284 S.W.3d 805 (Tex. 2009) (per curiam) ............................................................ 10 Sec. Mut. Cas. Co. v. Johnson, 584 S.W.2d 703 (Tex. 1979) .................................................................................. 14 Shafaii Children’s Trust & Party & Reception Ctr., Inc. v. W. Am. Ins. Co., 417 S.W.3d 614 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) ................... 9 Silow v. State Farm Ins. Co., No. CIV.A. 94-2956, 1994 WL 709362 (E.D. Pa. Dec. 20, 1994) ...........................17 State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931 (Tex. 1998) ................................................................................... 11 State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430 (Tex. 1995) .................................................................................. 10

- vi -State Farm Lloyds v. Page, 315 S.W.3d 525 (Tex. 2010) ......................................................................... 9, 10, 11 Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773 (Tex. 2008) ................................................................................... 8 Western Reserve Life Ins. Co. v. Meadows, 261 S.W.2d 554 (Tex. 1953) ...................................................................................13 WesternGeco, L.L.C. v. Input/Output, Inc., 246 S.W.3d 776 (Tex. App.—Houston [14th Dist.] 2008, no pet.) ......................... 8

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TO THE HONORABLE FOURTEENTH COURT OF APPEALS:

Appellee United Fire and Casualty Company requests the Court affirm the summary judgment in its favor and deny Kelley Street Associates’ competing request to render summary judgment in its favor.

REPLY ISSUE PRESENTED

The trial court correctly granted summary judgment to United Fire and denied the cross-motion for summary judgment of its insured because Kelley Street Associates’ loss was excluded under the Water Exclusion Endorsement (responsive to Appellant’s Issue No. 1).

STATEMENT OF FACTS

This is an insurance-coverage dispute for property loss benefits, resolved by the district court on competing motions for summary judgment. CR 17 (Kelley Street Associates’ motion); CR 128 (United Fire’s motion).

Appellant Kelley Street Associates, LLC sued United Fire and Casualty Company and the City of Houston. CR 5. Kelley Street Associates complained the City of Houston and its public works department had caused property damage to the plumbing system of a commercial building owned by Kelley Street Associates. CR 6. Kelley Street Associates also claimed that the property damage was a covered loss under a commercial general liability insurance policy issued by United Fire. CR 7-8. United Fire determined that the policy excluded the loss caused by water that backs up or overflows from a sewer, drain, or sump. CR 7. The insurer did make a payment under the policy’s specific endorsement for sewer backup coverage, CR 7-8, but Kelley Street Associates claimed its damages exceeded the limits of that endorsement. United Fire answered the suit and asserted, among other defenses, that it had paid everything Kelley Street Associates was entitled to under the policy. CR 10-11.

Kelley Street Associates thereafter moved for partial summary judgment against United Fire. CR 17-24. Specifically, Kelley Street Associates sought summary judgment on the coverage question, reserving for later recovery its damages, attorney’s fees, and its claim for extra-contractual damages under the Insurance Code. CR 17. Its summary judgment proof included two affidavits and deposition excerpts, along with the United Fire insurance policy. CR 18. In its factual statement supporting the motion for summary judgment, Kelley Street Associates acknowledged that City of Houston’s work on a meter and valves has caused holding tanks in a septic system to fill, resulting in water backing up through the Kelley Street Associates’ building and floor drains, with resulting damage. CR 18-19. As in its petition, Kelley Street Associates conceded that United Fire had denied a claim for damages from the incident because of a policy exclusion for losses caused by “water that backs up or overflows from a sewer, drain, sump, sump pump, or related equipment.” CR 19. Kelley Street Associates argued that

-2-the City had caused damage to the plumbing system, which in turn had caused the damage to the building from water running into the storm sewer system, and therefore the loss was not from a “mere backup or overflow of water from a sewer, drain or sump.” CR 19. Kelley Street Associates also acknowledged that United Fire had paid a loss under the endorsement for “sewer backup” coverage that was part of the policy placed into effect after the loss.¹ CR 20. Kelley Street Associates argued that the exclusion did not apply, but did not assert the exclusion was ambiguous. CR 20.

United Fire amended its answer to more specifically plead the exclusions of the policy for loss or damage caused by water. CR 124-26.2 It then responded to the motion for summary judgment of Kelley Street Associates, and filed its cross-motion for summary judgment. CR 128-41. United Fire noted in its response and cross-motion that the rules of construction advanced by Kelley Street Associates

1 Following the loss, Kelley Street Associates and United Fire agreed to amend the policy and add a special endorsement that provided sewer backup coverage, limited to the Per Policy Property Damage Limit ($50,000), where the water loss or damage did not result from the intentional or negligent act of the insured. CR 154, 196 (CP 70 34 12 01). The special endorsement was made effective as of the original policy incept date. CR 147. Kelley Street Associates and United Fire also agreed that the payment under the special endorsement did not waive Kelley Street Associates’ right to seek additional coverage under the original Water Exclusion Endorsement, or United Fire’s coverage defenses to the applicability of that endorsement. CR 26 (affidavit); CR 98 (email). 2 It was later amended a second time. CR 258-61.

-3-applied only when the policy provision at issue was ambiguous, while the United Fire policy at issue was not ambiguous.CR 134. United Fire also argued that the undisputed summary judgment record showed that water had filled from a commercial property’s septic tank and then overflowed into the property’s floor drains, causing damage, satisfying the plain meaning of the exclusion. CR 131. United Fire also noted that the policy exclusion excluded loss “indirectly” caused by water and regardless of other events or causes that contributed to the loss concurrently or in any sequence. CR 134. Thus, Kelley Street Associates’ focus on the City of Houston events that preceded the water backing up from a sewer or drain did not alter the analysis. CR 134. Finally, United Fire argued that Kelley Street Associates’ interpretation of the exclusion was not reasonable and not supported by the case law on which it relied in its partial motion for summary judgment. CR 136-40.

Kelley Street Associates filed a reply in support of its motion and a response to United Fire’s cross-motion. CR 244-54. United Fire responded. CR 262-74.

The district court thereafter denied Kelley Street Associates’ motion for partial summary judgment, CR 276, and granted United Fire’s cross-motion. CR 277. After granting severance from the claims against the City of Houston, CR 285-

-4-87, Kelley Street Associates moved for reconsideration and new trial. CR 288-90. No such relief was granted, and this appeal followed. CR 294-95.

SUMMARY OF THE ARGUMENT

The parties agree that any coverage under the policy in excess of the payment by United Fire rests on the applicability of the Water Exclusion Endorsement. A policy is unambiguous, as a matter of law, if the Court can give it a definite legal meaning. Here, the policy and the Water Exclusion Endorsement are not ambiguous, and therefore the Court will not favor Kelley Street Associates’ interpretations of the policy and the Water Exclusion Endorsement. To the contrary, the unambiguous provisions were correctly construed by the district court, which rejected summary judgment for Kelley Street Associates and rendered judgment for United Fire. That result should be affirmed.

Kelley Street Associates focuses on origin of its loss; that is, it claims that the damages were caused not by “mere back-up or overflow of water from the City main” but backup or overflow caused by the City of Houston damaging Kelley Street Associates’ plumbing system. But the extra facts about why the water entered the building do not change the coverage analysis. The United Fire policy excluded losses or damage “caused directly or indirectly” by water, and “[s]uch loss or damage is excluded regardless of any other cause or event that contributes

-5-concurrently or in any sequence to the loss.” The impact of the Water Exclusion Endorsement is substantially expanded by the language extending it to losses caused “indirectly” by water that backups or overflows from a sewer or drain.

Further, the summary judgment record is uncontroverted that water overflowed or backed up into Kelley Street Associates’ premises or was otherwise discharged from a sewer, drain, sump, sump pump or related equipment. The sequence of how these events occurred –from City work, to failed valve, to filled septic system, to water that came up through the drains throughout the building – is not controlling since loss or damage is excluded “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”

Finally, Kelley Street Associates argues interpretations of the Water Exclusion Endorsement that rest on words or concepts absent from the policy itself. Whether these interpretations arise from factual distinctions or distinguishable case law, the Court would have to rewrite the policy or add to its language to accept Kelley Street Associates’ position. In contrast, a plain reading of the policy and the Water Exclusion Endorsement are all that is necessary to affirm the judgment.

The Court need not look to case law to determine what the Water Exclusion Endorsement means, because the question will be answered when the Court looks

-6-first to the policy itself. The policy and the Water Exclusion Endorsement were properly construed by the district court. That ruling should be affirmed.

ARGUMENT AND AUTHORITIES

1. The Standard and Scope of Review Applicable to the Competing Motions.

In its brief, Kelley Street Associates prays for rendition of judgment that its loss is covered, and a remand for determination of damages. See Appellant’s brief at 14. Instead, the Court should overrule the issues presented on appeal and affirm the summary judgment granted to United Fire.

This Court reviews the trial court’s decision to grant summary judgment to United Fire de novo. Fleming & Associates, L.L.P. v. Barton, 425 S.W.3d 560, 567 (Tex. App.—Houston [14th Dist.] 2014, pet. requested) citing Ferguson v. Bldg. Materials Corp. of Am., 295 S.W.3d 642, 644 (Tex. 2009). Typically, when reviewing cross-motions for summary judgment the Court considers both motions and renders the judgment that the trial court should have rendered. Each party must carry its own summary judgment burden and neither can prevail due to the other’s failure to meet that burden. Goebel v. Brandley, 174 S.W.3d 359, 362 (Tex. App.—Houston [14th Dist.] 2005, pet. denied). Because both Kelley Street Associates and United Fire were movants, the burden for each was the same: to establish entitlement to a summary judgment by conclusively proving all of the

-7-elements of the claim or defense as a matter of law. WesternGeco, L.L.C. v. Input/Output, Inc., 246 S.W.3d 776, 781 (Tex. App.—Houston [14th Dist.] 2008, no pet.).

2. Kelley Street Associates Did Not Have Coverage Under the Policy’s Water Exclusion Endorsement.

A. Kelley Street Associates did not carry its burden as an insured and as a summary judgment movant.

Initially, Kelley Street Associates has the burden to establish coverage under a commercial general liability policy. Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010). Further, an insured is not entitled to recover under an insurance policy unless it proves its damages are covered by the policy.

If the insured proves coverage, then United Fire must prove the loss is within an exclusion of the policy. Gilbert, 327 S.W.3d at 124 citing Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 782 (Tex. 2008). If the insurer proves that an exclusion applies, the burden shifts back to the insured to show that an exception to the exclusion brings the claim back within coverage. Gilbert, 327 S.W.3d at 124 citing Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181, 193 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). Kelley Street Associates did not carry that burden, while United Fire proved the loss was excluded by the Water

-8-Exclusion Endorsement. More specifically, Kelley Street Associates did not raise any genuine issue of fact to prove that the loss was not attributable to the pleaded excluded water hazard.

B. The Water Exclusion Endorsement is interpreted like any other contract provision.

Contracts of insurance are reviewed by this Court just like any other contract. Shafaii Children’s Trust & Party & Reception Ctr., Inc. v. W. Am. Ins. Co., 417 S.W.3d 614, 618-19 (Tex. App.—Houston [14th Dist.] 2013, pet. denied). The Court begins its analysis with the policy language. Id., citing Gilbert, 327 S.W.3d 118, 126 (Tex. 2010). The courts’ primary objective is to ascertain and give effect to the parties’ intent as expressed by the words they chose to effectuate their agreement. In re Deepwater Horizon, No. 13-0670, 2015 WL 674744, at *9 (Tex. Feb. 13, 2015). “To that end, we give the words in the policy their ordinary and generally accepted meaning unless the policy indicates that the parties intended the language to impart a technical or different meaning.” Id., citing Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 158 (Tex. 2003). Courts will examine the policy as a whole, seeking to harmonize all provisions and render none meaningless. Gilbert, 327 S.W.3d at 126. If an insurance contract uses unambiguous language, courts will construe it as a matter of law and enforce it as written. In re Deepwater Horizon, citing State Farm Lloyds v. Page, 315 S.W.3d 525, 527–28 (Tex. 2010). Whether a

-9-contract is ambiguous is a question of law for the court to decide by looking at the policy as a whole in light of the circumstances present when the contract was entered. In re Deepwater Horizon. Disagreement about a policy’s meaning does not create an ambiguity if there is only one reasonable interpretation. Id. “Parties’ conflicting interpretations alone do not establish ambiguity.” Shafaii, 417 S.W.3d at 619, citing State Farm Lloyds v. Page, 315 S.W.3d 525, 527 (Tex. 2010); see also Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). And extrinsic evidence is not admissible for the purpose of creating an ambiguity in an insurance policy. Progressive Cnty. Mut. Ins. Co. v. Kelley, 284 S.W.3d 805, 807 (Tex. 2009) (per curiam). Any ambiguity must be evident from the language of the policy itself. Fiess v. State Farm, 202 S.W.3d 744, 747 (Tex. 2005).

C. The Water Exclusion Endorsement is not ambiguous.

In section I of its argument, and its Summary of the Argument, Kelley Street Associates claims that it only needs to show that the construction of the policy it offers is “reasonable.” Appellant’s brief at 7. That claim requires, however, that there be some ambiguity in the insurance contract. See State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995) (explaining that only if insurance policy remains ambiguous after courts apply canons of interpretation should policy language be construed against the insurer in a manner that favors coverage). Thus,

- 10 -the first question for this Court is whether the United Fire policy is ambiguous, not whether Kelley Street Associates’ construction is reasonable. This first issue is a question of law, State Farm Lloyds v. Page, 315 S.W.3d 525, 527 (Tex. 2010), and thus suitable for summary judgment and this Court’s de novo review. The contrainsurer rule of construction is not applicable to this case, see State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex. 1998), and Kelley Street Associates is not to be favored in the Court’s construction of the insurance policy. Compare with appellant’s brief at 5.

3. The Application of the Water Exclusion Endorsement is Required by the Policy’s Plain and Unambiguous Terms.

Kelley Street Associates was the insured under a policy for building and personal property coverage, form CP 00 10 06 07. The United Fire policy has a cause of loss special form (CP 10 30 06 07) that sets out the covered causes of loss. CR 60. Risks of direct physical loss are covered causes of loss unless they are excluded in the special form, or limited. Id. Among the excluded losses are losses or damage “caused directly or indirectly” by water. CR 60-61. “Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” CR 60. The exclusion for loss or damage caused directly or indirectly by water included

o Water that backs up or overflows from a sewer, drain, or sump;

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CR 61.

The Water Exclusion Endorsement (CP 10 32 08 08) replaced the special form provision and excluded loss or damage directly or indirectly caused by

o Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;

CR 70, 244. Notably, the exclusion applies regardless of whether the “water” “is caused by an act of nature or is otherwise caused.” Appellant’s brief at 7; CR 70, 247.

The district court correctly granted summary judgment to United Fire because Kelley Street Associates losses are excluded as “caused directly or indirectly” by water that backed up, overflowed or was otherwise discharged from a sewer, drain, sump, sump pump or related equipment. There was no summary judgment evidence that a covered loss caused the alleged damages to Kelley Street Associates’ building.

A. The words of the Water Exclusion Endorsement support summary judgment for United Fire.

This case does not require the Court to make distinctions between “surface water,” “high water,” “tidal water,” “flood water” or other such terms. Rather, the Water Exclusion Endorsement excluded coverage for all risk of loss or damage caused directly or indirectly by “water,” whatever its nature or source – whether

- 12 -caused by an act of nature or otherwise. When a term is not defined in an insurance policy, it must be given its plain, ordinary, and generally accepted meaning, unless the policy indicates the term was used in a technical or different sense. Western Reserve Life Ins. Co. v. Meadows, 261 S.W.2d 554, 557 (Tex. 1953). “Water” is an unambiguous term with a plain, ordinary meaning. There is no dispute in this case about the water substance that was involved here – it was “water.”

The Water Exclusion Endorsement also broadly excludes water that backs up or overflows or is otherwise discharged. To “back up” includes water that accumulates, just as the water did here. As summary judgment evidence, Kelley Street Associates offered the affidavit of its President, who stated that on the date of Kelley Street Associates’ loss “water began to flow through a series of floor drains in the building . . . .”CR 25. Kelley Street Associates’ plumbing contractor stated the septic system was unable to keep up with the volume of water into the sanitary sewer system. CR 170. More specifically, the contractor testified that flush valves in the building were damaged and malfunctioning. Due to that malfunction,

water had been continually flowing into the sanitary sewer septic system in the building. The septic system could not keep up with the volume of water being introduced to the system; after the septic system filled, water came up through the drains throughout the building, resulting in the flooding of the building.

- 13 -CR 99 (emphasis added). This summary judgment evidence demonstrates water backed up or overflowed from a sewer or drain, in a direction opposite (“up”) the intended and usual flow, resulting in an excluded loss.

The terms “sewer,” “drain,” “sump,” and “sump pump” are also unambiguous and have no special, technical meaning. They should be given their ordinary and generally accepted meaning. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 158 (Tex. 2003) citing Sec. Mut. Cas. Co. v. Johnson, 584 S.W.2d 703, 704 (Tex. 1979). As United Fire explained in the district court, the noun “drain” is primarily defined by the Merriam-Webster dictionary as “something (such as a pipe) that is used for removing a liquid from a place or container.” CR 135. “Sewer” is primarily defined as “an artificial usually subterranean conduit to carry off sewage and sometimes surface water (as from rainfall).”

Kelley Street Associates claims that a different provision of the contract providing “additional water coverage” and a definition of “water damage,” both at CR 69, mean that the Water Exclusion Endorsement only applies to events outside the property and losses within the plumbing system of the building will be covered. See appellant’s brief at 8. To be sure, all of the policy terms should be read together; but the “additional water coverage” provision (referencing loss or

- 14 -damage from “covered water”) 3 does not modify the language of the Water Exclusion Endorsement. And the definition of “water damage” to mean leakage of water or steam as the direct result of breaking apart or cracking of a system located on the premises and containing water or steam does not aid in construing the Water Exclusion Endorsement. Further, the “water damage” definition excludes a “sump system, including its related equipment and parts” which is plainly part of the Water Exclusion Endorsement.

Moreover, there is simply no policy language that qualifies the terms “sewer,” “drain,” “sump,” and “sump pump” by dividing them into parts or with reference to building locations, or to the inside or outside of the insured premises. Even considering the “water damage” definition at CR 69, it provides no additional language that would permit the Court to construe the Water Exclusion Endorsement as Kelley Street Associates desires. Rather, the Court would have to assert additional language into the policy, which it should refuse to do. Gilbert, 327 S.W.3d at 126 (cautioning that courts will honor the parties’ agreement and must not remake the contact by reading additional provision into the insurance policy).

3 CR 69 (Water Damage, Other Liquids, Powder Or Molten Material Damage).

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Kelley Street Associates also attempts to reframe the issue here as an internal “failure of the plumbing system.” CR 25. In a similar fashion, Kelley Street Associates argues that an overflow of water originating inside the building would be covered. See appellant’s brief at 9. A failure of the plumbing system may not be explicitly excluded, but among the excluded losses are losses or damage “caused directly or indirectly” by water. CR 60-61. “Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” CR 60. Thus the policy language broadly covers damage by water that backs up or overflows or is otherwise discharged from a drain regardless of other events or causes that contributed to the event. With this language, Kelley Street Associates’ proposed internal/external distinction lacks any support in the insuring language of the policy.

Intent to make such distinctions could be easily reflected in the language of an exclusion, as this example shows:

This peril does not include loss

c. caused by or resulting from water from outside the plumbing system that enters through sewers or drains or water which enters into and overflows from within a sump pump, sump pump well or other type system designed to remove subsurface water which is drained from the foundation area . . . .

- 16 -Silow v. State Farm Ins. Co., No. CIV.A. 94-2956, 1994 WL 709362, at *1 (E.D. Pa. Dec. 20, 1994) (emphasis supplied). Such language is absent here.

Kelley Street Associates also deviates from a common understanding in its proposed definition of “drain.” See appellant’s brief at 9. It is undisputed in the summary judgment record that water in the Kelley Street Associates building backed up or overflowed from a floor drain because

“damaged flush valves caused the holding tanks in the septic system to fill rapidly. As a result of the Building’s tanks filling, water came up through the floor drains located throughout the Building, flooding it.”

CR 18 (Kelley Street Associates’ motion for summary judgment, at “The Facts” section); CR 23. See also CR 25 (affidavit of D. Kamins stating “water began to flow through a series of floor drains in the building.”); CR 96 (“According to [Kelley Street Associates] employees, . . . [w]hen the water was turn back on, they noticed water coming from the drains in all bathrooms and the wet bar drain in Mr. Kamins[‘] office.”). In construing this policy, the Court’s inquiry is, first, an effort to determine the ordinary lay meaning of the words to the general public. See Lundstrom v. United Servs. Auto. Ass’n-CIC, 192 S.W.3d 78, 91 (Tex. App.— Houston [14th. Dist.] 2006, pet. denied) citing Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 740–41 (Tex. 1998). The general meaning of “drain” as a pipe that carries off water would include a floor drain.

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Kelley Street Associates also criticizes United Fire for equating “sewer” with “septic system” or “septic tank.” See appellant’s brief at 10. But again, the subtle distinctions that Kelley Street Associates proposes are beyond the ordinary lay meaning of these words to the general public. 4 Further, these fine distinctions are not consistent with the policy language excluding losses from “water that backs up or overflows from a sewer, drain, sump, sump pump, or related equipment” (emphasis added).

For all of these reasons, based on the policy language, summary judgment for United Fire should be affirmed.

4. The Application of the Water Exclusion Endorsement is not Changed by Reference to Case Law.

In section III of its brief, Kelley Street Associates argues that case law supports its interpretation of the policy, primarily relying on a case from the Dallas Court of Appeals. See appellant’s brief at 10, citing For Kids Only Dev. Ctr., Inc. v. Philadelphia Indem. Ins. Co., 260 S.W.3d 652 (Tex. App.—Dallas 2008, pet. denied). The case arose from a day care center that was flooded with sewage

4 A septic tank or system is part of a sewer system. Kelley Street Associates’ attempt to distinguish between sewer as public system and septic as private system, see appellant’s brief at 10, is another construction requiring words to be read into the policy in the guise of interpretation.

- 18 -flowing from floor drains in the building. A witness said that water had also flowed from a manhole in the street outside, and a city official had testified that the overflow was caused by stoppage in the city sewer main.

The policy at issue provided covered causes of loss, representing direct physical losses subject to a long list of exclusions. 260 S.W.3d at 653. The exclusion at issue excluded from coverage such damage caused directly or indirectly by “water that backs up or overflows from a sewer, drain or sump.” There was also an endorsement that provided limited recovery for sewer and drain backups, including loss or damage resulting from flood damage or water that backs up from a sewer, drain or sump. The insured claimed that the sewage overflow was an overflow from its plumbing system that did not trigger the sewer and drain backup exclusion and its more limited coverage. Id. at 654.

The court of appeals held that the policy plainly excluded coverage for water that backed up from a sewer drain or sump. The court held that reading the exclusion so as to eliminate instances where water had traveled through the insured’s plumbing system “would read the exclusion out of the policy.” Id. at 655. The court of appeals thus concluded the policy unambiguously excluded from coverage the type of drain and sewer backup that the insured had experienced.

- 19 -

Thus, the claimant in the For Kids Only suit made a similar argument to Kelley Street Associates here: once water enters a building’s plumbing system, its status changes and any damage it causes becomes a non-excluded occurrence. Yet the Dallas Court of Appeals rejected that argument. Kelley Street Associates states that notwithstanding the Dallas court’s analysis, what matters is that the court focused “on the source of the overflow.” See appellant’s brief at 11. Thus, explains Kelley Street Associates, here the overflow was caused by damaged valves that were part of its plumbing system and the overflow thus “came” from Kelley Street Associates’ system. In this case, regardless of what the overflow source was, when water “backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment,” resulting damage is excluded from coverage. Compare with Haines v. United Sec. Ins. Co., 602 P.2d 901, 902 (Colo. App. 1979) (policy provided coverage for accidental discharge or “overflow from within a plumbing system” but not “water that backs up through sewers or drains,” thus requiring the court to determine whether cause of accidental discharge was inside or outside a plumbing system). In short, For Kids Only Dev. Ctr., Inc. v. Philadelphia Indem. Ins. Co. presents no reason to reverse the summary judgment for United Fire, and actually supports the result in this case.

- 20 -

Kelley Street Associates notes that the Dallas court in For Kids Only cited Jackson v. Am. Mut. Fire Ins. Co., 299 F. Supp. 151, 152 (M.D.N.C. 1968) aff’d, 410 F.2d 395 (4th Cir. 1969). See appellant’s brief at 11. Jackson, however, is quickly distinguished because it contained specific policy language that provided coverage for leaks or failure of the internal plumbing system, and thus the court concluded the “sewers or drains” in the exclusion must have referred to fixtures outside the internal plumbing system. Jackson, 299 F. Supp. at 155-56. Thus, the policy terms set up the “internal/external” analysis –although the court ultimately concluded “it would appear that the parties intended to exclude loss caused by the backing up of water through sewers or drains even though this water overflows from within the plumbing system in the plaintiff’s home.” Jackson, 299 F. Supp. at 157.

Kelley Street Associates also cites a New York case, see appellant’s brief at 13, for the on premises/off premises analysis.5 In that case, the court was faced with a water damage exclusion that applied to loss caused by “water which backs up through sewers or drains.” Another exclusion stated there was no coverage “for

5 Kelley Street Associates cites Pichel v. Dryden Mut. Ins. Co., 965 N.Y.S.2d 342, 343 (Sup. Ct. 2013) which is the trial court decision. The appellate decision is Pichel v. Dryden Mut. Ins. Co., 117 A.D.3d 1267, 1267-68, 986 N.Y.S.2d 268, 270 (2014).

- 21 -loss caused by repeated or continuous discharge, or leakage of liquids or steam from within a plumbing . . . system.” But that exclusion also stated the insurer would “pay for loss caused by the accidental leakage, overflow or discharge of liquids or steam from a plumbing . . . system.” And, the court noted, a “plumbing system” could include drains. The court reconciled these provisions so that the exclusion applied to a backup that originates off an insured’s property, while the coverage provision applies to an occurrence originating within the insured’s property and within the “plumbing system.” As the Court can see, the New York case incorporated the “plumbing system” concept because the policy language did too. Pichel v. Dryden Mut. Ins. Co., 117 A.D.3d 1267, 1267-68, 986 N.Y.S.2d 268, 270 (2014). Unlike the New York case, here there are no competing exclusion and coverage provisions.

Kelley Street Associates also cites Old Dominion Ins. Co. v. Elysee, Inc., 601 So.2d 1243 (Fla. Dist. Ct. App. 1992). See appellant’s brief at 13. In that case, a blockage formed in the main sewer line located outside the insured’s retail store at a mall. When other stores which were connected to the main sewer line used their toilets or sinks, the water was discharged onto the insured’s premises. The insurance policy at issue excluded damage caused by water that “backs up from a sewer or drain.” While the trial court had heard testimony about the relevant sewer

- 22 -system and where the mall owner and store owner divided responsibility, 601 So.2d at 1244, the court of appeals found that the water that discharged from the sewer and into the retail store was plainly water that had backed up from a sewer or drain. Id. at 1245. Contrary to Kelley Street Associates’ suggestion, the Old Dominion case does not set a bright-line rule that sewer systems always end at property lines, or cannot be part of an insured’s premises.

The other cases cited by Kelley Street Associates at appellant’s brief 13-14 likewise do not demonstrate that the district court’s summary judgment ruling as to this insurance contract was in error, or that Kelley Street Associates is entitled to rendition on its cross-motion. The cases also do not raise a genuine issue of fact precluding summary judgment for United Fire. At best, the case law reminds reviewing courts that each policy must be interpreted based on its own specific contract language. Here, Kelley Street Associates has failed to demonstrate that the district court incorrectly interpreted the Water Exclusion Endorsement and the CGL policy as a matter of law, or of fact.

CONCLUSION AND PRAYER

For the reasons stated in this brief, appellee United Fire and Casualty Company requests the Court affirm the judgment. The costs of appeal should be

- 23 -taxed against appellant Kelley Street Associates, LLC. Appellee also requests any other proper relief.

Respectfully submitted,

MILLS SHIRLEY L.L.P.

By: /s/ George W. Vie III George W. Vie III State Bar No. 20579310 2228 Mechanic Street, Suite 400 Galveston, Texas 77550 (713) 571-4232 Fax (713) 893-6095 gvie@millsshirley.com

ATTORNEYS FOR APPELLEE

CERTIFICATE OF COMPLIANCE

The undersigned hereby certifies that this computer-generated document contains (in full) 6002 words according to the word count provided by Microsoft Word 2010 (version 14.0.6129.5000 (32-bit)).

/s/ George W. Vie III

- 24 -

CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and accurate copy of the foregoing was served via e-service to the following counsel of record on April 3, 2015:

APPELLANT’S ATTORNEY:

H. Miles Cohn Michelle V. Frier Crain, Caton & James, P.C. 1401 McKinney St., 17th Floor Houston, Texas 77010 mcohn@craincaton.com

/s/ George W. Vie III George W. Vie III

- 25 -Appendix Tab 1

CAUSE NO. 2013-36796

KELLEY STREET APARTMENTS § IN THE DISTRICT COURT OF § vs. § HARRIS COUNTY, TEXAS § CITY OF HOUSTON and UNITED § AND CASUALTY COMPANY § 295 1h JUDICIAL DISTRICT

ORDER

Came on to be heard Plaintiff Kelley Street Apartments' Motion for Partial Summary Judgment. Upon consideration, the Court DENIES Plaintiff Kelley Street Apartments' Motion for Partial Summary Judgment.

Signed this 9th day of May, 2014

c~~6~ Judge Presiding

FILED · Chris Oanlel District Clerk MAY -9 201't nme·---~~~=---:;:::::-~ Harri• County, Texas

Appendix Tab 2

(? l CAUSE NO. 2013-36796 7A KELLEY STREET APARTMENTS § IN THE DISTRICT COURT OF /JCA § vs. § HARRIS COUNTY, TEXAS § CITY OF HOUSTON and UNITED § AND CASUALTY COMPANY § 295th JUDICIAL DISTRICT

ORDER

Came on to be heard Defendant United Fire and Casualty Company's Counter-Motion for Final Summary Judgment Upon consideration, the Court GRANTS Defendant United Fire and Casualty Company's Counter-Motion for Final Summary Judgment.

Signed this 9th day of May, 2014.

tv\_~6~ Judge Presiding

FILED Chrfa Danlal Dlatrlct Clerk' MAY - 9 201~ Timo:_•-,:r.:;:ir:-,r,~~~--­ Aarrl1 dounl;, foaa BY.------~a~.p~u~~:-------

Appendix Tab 3

6/6/2014 • 20 47 PM Chns Daniel • D1s1nc1 Clerk Hams Coun1y Envelope No 1473586 By GILBERT LIRA

.. .... CAUSE NO. 2013-36796 A 0 § IN THE DISTRICT COURT '"'"' KELLEY STREET ASSOCIATES, LLC, § '"' IO Plaintiff, § ..

..~ § V. § OF HARRIS COUNTY, TEXAS H § H CITY OF HOUSTON and UNITED FIRE § "' Cl Al'o'D CASUAL TY COMPANY, § ~ H § "'u~ Defendants. § 295TH JUDICIAL DISTRICT

ORDER GRANTING MOTION TO SEVER PLAINTIFF'S CLAIMS AGAINST DEFENDANT UNITED FIRE A.i'ID CASUALTY COMPANY & FOR ENTRY OF FINAL .nJOGMENT REGARDING DEF!i:NDANT UNITED FIRE AND CASUALTY COMPANY

On this day came on to .be considered Defendant,. United Fire and Casualty Company's

Motion to Sever and for Entry of Final Judgment regarding Plaintiffs claims against Defendant

United Fire and Casualty Company. After considering said Motion and the pleadings on file, the

Court is of the opinion and finds that said Motion is well taken. It is therefore,

ORDERED that United Fire and Casually Company's Motion to Sever and for Entry of

Fianl Judgment is GRANTED. It is further ORDERED that Plaintiffs claims against United Fire

and Casualty Company arc hereby severed from Plaintiffs remaining claims against City of

Houston. The Clerk of the Court shall assign the severed case the separate cause number of

2013-36796-A; and file copies of the following pleadings with new Cause Nu. 2013-36796-i\:

1. 06/2112013 Plaintiffs Original Petition

2. 07/12/2013 Citation filed with the Court pertaining to service on Defendant United Fire and Casualty Company

3. 0712612013 Defendant United Fire and Casualty Company's Original Answer

4. 08/05/2013 Notice of (Plaintiffs) Counsel's Change of Law Firm and Address

r~g.o 17

,.

5. 08/06/2013 Designation of Lead Counsel (Defendant United Fire's counsel)

6. 01108/2014 Plaintiffs Motion for Partial Summary Judgment against Defendant United Fire and Casualty Company, including exhibits and proposed order

7. 01110/2014 Notice of Oral Hearing (on Plaintiff's Motion for Partial Summary Judgment Against United Fire and Casualty Company)

8. 01/09/2014 Docket Control Order

9. 01/31/2014 Defendant's First Amended Answer

I 0. 01/31 /2014 Defendant, United Fire and Casualty Company's Response to Plaintiffs Motion for Partial Sununary Judgment & Counter-Motion for Final Summary Judgment Against Plaintiff & Request for Resetting of Oral Hearing. Including all exhibits and Proposed Orders

11. 02/05/2014 Defendant United Fire and Casualty~ Company's Unopposed Motion for Leave to File Exhibit Attachment to its MSJ Response, Exhibit and proposed Order

12. 02/06/2014 Amended Notice of Oral Hearing (on Plaintiff's Motion for Partial Summary Judgment Against United Fire and Casualty Company)

13. 02/06/2014 Notice of Hearing (For United Fire and Casualty Company's Counter· Motion for Final Summary Judgment Against Plaintiff)

14. 02/21/2014 Amended Notice of Hearing (for Defendant, United Fire and Casualty Company's Counter-Motion for Final Summary Judgment Against Plaintiff)

15. 02/24/2014 Second Amended Notice of Oral Hearing (for Plaintiffs Motion for Partial Sununary Judgment Against United Fire and Casualty Company)

16. 03/12/2014 Plaintiffs Combined (I) Reply In Support of Motion for Partial Summary Judgment and (II) Response to Defendant United Fire's Counter-Motion for Swnmary Judgment, including proposed Partial Summary Judgment Against United Fire and Casualty Company

17. 03/21/2014 Defendant's Second Amended Answer

·,::, 18. 03/24/2014 Defendant, United Fire and Casualty Company's Combined (1) Reply to Plaintiffs Response to United Fire's Motion for Final Summary

Pa g l: I 8 '~

. ' '

Judgment & (2) Sur-Reply to Plaintiff's Motion for Partial Summary Judgment

19. 03/31 /2014 Order Granting Defendant's Motion for Leave to File Exhibit Attaclunent to Its MSJ Response

20. 0413012014 Agreed Motion for Cominuance, and proposed Order

21. 05/09/2014 Order (Denying Plaintiff's Motion for Partial Summary Judgment)

22. 0510912014 Order (Granting Defendant United Fire and Casualty Company's Counter-Motion for Final Summary Judgment)

23. This Motion To Sever and for Entry of Final Judgment regarding Plaintiffs claims against Defendant United Fire and Casualty Company

24. This Order Granting Motion to Sever and for Entry of Final Judgment; and

25. Fjnal J~dgment Regardi11g Plaintiffs Claims Against Defendant United Fire and Casualty Company

SIGNED this ~ayof ~ ,2014.

~rO~ JUDGE PRESIDfNG

,., c ,.,

Sl.P/tr.ibn63909/000120 446 z

f' a g <: i 9 Appendix Tab 4

IL 70 28 UF 01 08

ll) UNITED FIRE GROUP®

UNITED FIRE & CASUAL TY COMPANY 118 Second Avenue SE P.O. Box 73909 Cedar Rapids, IA 52407-3909

Secretary

A STOCK INSURANCE COMPANY

IL 70 28 UF 01 08 EXHIBIT

I iA-1- UFGKelley_ 00386

0106 UNITED FIRE & CASUALTV COMPANY PO BOX 73909, CEDAR RAPIDS IA 52407 IPOLICY NUMBER: 85315789

ACCOUNT NUMBER:3000193367 (2) COMMERCIAL PROPERTY DIRECT BILL - 150 COMMERCIAL PROPERTY COVERAGE PART ISSUE DATE l 0 -1 Q - 2 Q 12 MD3 REPLACEMENT OF 0 1 0 6 85315789 DECLARATIONS AMENDED 06/20/2012 NAMED KELLEY STREET ASSOCIATES LLC AGENCY & CODE 830117 INSURED HOUSTON TRANSPORTATION SERVICE GEM INSURANCE AGENCIES LP AND ATTN DWANE KAMI NS PO BOX 27469 MAILING 5825 KELLEY ST ADDRESS HOUSTON TX 77026-1901 HOUSTON TX 77227 POLICY 12:01 A.M. Standard time FROM: 01-01-2012 TO: 01-01-2013 PERIOD: And ror successive policy poriods as staled below. We will provide the insurance described in this policy in return tor the premium and compliance with all applicable policy provisions. If we elect to continue this insurance, we will renew this policy if you pay the required renewal premium for each successive policy period. subject to our premiums. rules and forms then In effect. You must pay us prior to the end of the current policy period or else this policy will terminate after anv statutorilv reouired notices are malled to you. An insufficient funds check Is not considered payment. PREM/ LIMITOF BLDG DESCRIBED PREMISES AND COVERAGES INSURANCE RATE PREMIUM E:QUIPMENT BREAKDOWN 226 SEWER BACKUP 50,000 330

0106 06-20-2012

I POLICY NUMBER: 85315789

COMMERCIAL PROPERTY SUPPLEMENTAL DECLARATIONS

PREMf LIMIT OF BLDG DESCRIBED PREMISES AND COVERAGES INSURANCE RATE PREMIUM

01 01 CONTINUED PO BOX 909 SHELTON CT 06484-0949 ADDITIONAL INTEREST - Loss Payable BANK OF HOUSTON

3900 ESSEX LN STE 100 HOUSTON TX 77027-5316 ADDITIONAL INTEREST - LOSS Payable KONICA BUSINESS TECHNOLOGIES

15325 SW 30TH PLACE # 100 BELLEVUE WA 98007 0082255031000 02 OJlOOO LOUISIANA ST FL 81ST HOUSTON TX 77002-5005 FIRE RESISTIVE NON-GOVERNMENTAL OFFICES

YOUR BUSINESS PERSONAL PROPERTY 25,000 .336 84 Special causes of Loss 2,500 Ded Replacement Cost 80% Coins 4% Inflation Guard Sprinkler Leakage Exclusion 03 OJ600 TRAVIS ST RM K HOUSTON TX 77002-3009 FIRE RESISTIVE NON-GOVERNMENTAL OFFICES

YOUR BUSINESS PERSONAL PROPERTY 25,000 .338 84 Special Causes of Loss 2,500 Ded Replacement Cost 80% Coins 4% Inflation Guard Sprinkler Leakage Exclusion 04 015611 KELLEY ST HOUSTON TX 77026-1966 JOISTED MASONRY MERC - MODERATE SUSCEPTIBILITY

BUILDING 142,000 .292 415 Special causes of Loss 2,500 Ded Windstorm or Hail Deductible Percentage: 2% Replacement Cost 80% Coins Automatic Valuation Adjustment Sprinkler Leakage Exclusion

ADDITIONAL INTEREST - 1st Mortgagee BANK OF HOUSTON CONTINUED ON CP7002 CP 70 0212 92

UFGKelley_00388

0106 06-20-2012

IPOLICY NUMBER: 85315789

COMMERCIAL PROPERTY SUPPLEMENTAL DECLARATIONS

PREM/ LIMITOF BLDG DESCRIBED PREMISES AND COVERAGES INSURANCE RATE PREMIUM

04 01 CONTINUED

3900 ESSEX LN STE 100 HOUSTON TX 77027-5316 04 0~5611 KELLEY ST HOUSTON TX 77026-1966 JOISTED MASONRY MERC - MODERATE SUSCEPTIBILITY

BUILDING 21,000 .292 61 Special Causes of Loss 2,500 Ded Windstorm or Hail Deductible Percentage: 2% Replacement cost 80% Coins Automatic Valuation Adjustment Sprinkler Leakage Exclusion

ADDITIONAL INTEREST - 1st Mortgagee BANK OF HOUSTON

3900 ESSEX LN STE 100 HOUSTON TX 77027-5316

Certified Acts of Terrorism coverage 127

CP 70 0212 92

UFGKelley_00389

0106 06-20-2012

IPOLICY NUMBER: 85315789

FORMS SUPPLEMENTAL DECLARATIONS Premium Applicable to the state of Texas *SPECENDS(02-02) SPECIAL END-OUT OF SEQUENCE 143

Other Forms

Applicable to the state of Texas CP0010(06-07) BLDG & PERSONAL PROP COVG FORM CP0090(07-88) COMM PROP CONDITIONS CP0140(07-06) EXCL OF LOSS DUE TO VIRUS/BACTERIA CP0142(01-ll) TX-CHGS CP0321(06-07) WINDSTORM/HAIL PERCENTAGE DED CP1030(06-07) CAUSES OF LOSS-SPECIAL FORM CP1032(08-08) WATER EXCL END CP1056(06-07) SPRINKLER LEAKAGE EXCL CP1218(06-07) LOSS PAYABLE PROVISIONS *CP7001(12-92) COMM PROP DEC *CP7002(12-92) COMM PROP SUPPLEMENTAL DEC CP7003 (11-86) AUTOMATIC VALUATION ADJUSTMENT-APPLIES TO BLDG *CP7034 (12-01) SEWER BACKUP COVG CP7053(08-0l) TX-CHGS-EQUIPMENT BREAKDOWN CP7067(07-07) EQUIP BREAKDOWN ENHANCEMENT END CP9993(10-90) TENTATIVE RATE IL0017(11-98) COMMON POLICY CONDITIONS IL0275(09-07) TX-CHGS CANCEL & NONRENEW PROVISIONS FOR CASUALTY IL0415(04-98) PROTECTIVE SAFEGUARDS IL0952(03-0B) CAP ON LOSSES FROM CERTIFIED ACTS OF TERRORISM IL7083(08-10) PAYMENT OF LOSSES SPECEND(00-00) SPECIAL END ST0013 (05-08) EQUIPMENT BREAKDOWN STUFFER ST1333(05-07) TX-IMPORTANT NOTICE ST1644(01-09) POLICY WEBSITE STUFFER ST1646(03-09) NOTICE-IMPORTANT-SECURITY ST1698(03-ll) NOTICE-PROTECTIVE SAFEGUARDS :1cUW7002 (04-96) FORMS SUPPLEMENTAL DEC

UW70 02 04 96

UFGKelley_00390 Appendix Tab 5

COMMERCIAL PROPERTY CP 10 30 06 07

CAUSES OF LOSS - SPECIAL FORM Words and phrases that appear in quotation marks have special meaning. Refer to Section G., Definitions.

A. Covered Causes Of Loss b. Earth Movement When Special is shown in the Declarations, Covered (1) Earthquake, including any earth sinking, Causes of Loss means Risks Of Direct Physical rising or shifting related to such event; Loss unless the loss is: (2) Landslide, including any earth sinking, 1. Excluded in Section 8., Exclusions; or rising or shifting related to such event; 2. Limited in Section C., Limitations; (3) Mine subsidence, meaning subsidence that follow. of a man-made mine, whether or not mining activity has ceased; B. Exclusions (4) Earth sinking (other than sinkhole 1. We will not pay for loss or damage caused collapse), rising or shifting including directly or indirectly by any of the following. soil conditions which cause settling, Such loss or damage is excluded regardless of cracking or other disarrangement any other cause or event that contributes of foundations or other parts of realty. concurrently or in any sequence to the loss. Soil conditions include contraction, a. Ordinance Or Law expansion, freezing, thawing, erosion, The enforcement of any ordinance or law: improperly compacted soil and the action of water under the ground {1) Regulating the construction, use or surface. repair of any property; or {2) Requiring the tearing down of any But if Earth Movement, as described in b.(1) property, including the cost of removing through {4} above, results in fire or its debris. explosion, we will pay for the loss or damage caused by that fire or explosion. This exclusion, Ordinance Or Law, applies whether the loss results from: (5) Volcanic eruption, explosion or effusion. But if volcanic eruption, explosion or (a) An ordinance or law that is enforced effusion results in fire, building glass even if the property has not been break age or Volcanic Action, we will damaged; or pay for the loss or damage caused by (b) The increased costs incurred that fire, building glass breakage or to comply with an ordinance or Volcanic Action. law in the course of construction, Volcanic Action means direct loss or repair, renovation, remodeling or damage resulting from the eruption of a demolition of property, or removal volcano when the loss or damage is of its debris, following a physical caused by: loss to that property. (a) Airborne volcanic blast or airborne shock waves; {b) Ash, dust or particulate matter; or

CP 10 30 06 07 ©ISO Properties, Inc., 2007 Page 1of10

UFGKelley_00419

CP 10 30 06 07

{c) Lava flow. But if the failure or surge of power, or the All volcanic eruptions that occur within failure of communication, water or other any 168-hour period will constitute a utility service, results in a Covered Cause of single occurrence. Loss, we will pay for the loss or damage Volcanic Action does not include the caused by that Covered Cause of Loss. cost to remove ash, dust or particulate Communication services include but are not matter that does not cause direct limited to service relating to Internet access physical loss or damage to the or access to any electronic, cellular or described property. satellite network. c. Governmental Action f. War And Military Action Seizure or destruction of property by order (1) War, including undeclared or civil war; of governmental authority. {2} Warlike action by a military force, But we will pay for loss or damage caused including action in hindering or by or resulting from acts of destruction defending against an actual or expected ordered by governmental authority and attack, by any government, sovereign or taken at the time of a fire to prevent its other authority using military personnel spread, if the fire would be covered under or other agents; or this Coverage Part. (3} Insurrection, rebellion, revolution, d. Nuclear Hazard usurped power, or action taken by Nuclear reaction or radiation, or radioactive governmental authority in hindering or contamination, however caused. defending against any of these. But if nuclear reaction or radiation, or g. Water radioactive contamination, results in fire, we {1) Flood, surface water, waves, tides, tidal will pay for the loss or damage caused by waves, overflow of any body of water, that fire. or their spray, all whether driven by wind or not; e. Utility Services (2) Mudslide or mudflow; The failure of power, communication, water or other utility service supplied to the (3) Water that backs up or overflows from a sewer, drain or sump; or described premises, however caused, if the failure: (4) Water under the ground surface pressing on, or flowing or seeping (1} Originates away from the described through: premises; or (a) Foundations, walls, floors or paved (2) Originates at the described premises, surfaces; but only if such failure involves (b) Basements, whether paved or not; equipment used to supply the utility or service to the described premises from a source away from the described (c} Doors, windows or other openings. premises. But if Water, as described in g.(1) through Failure of any utility service includes lack of g.(4) above, results in fire, explosion or sufficient capacity and reduction in supply. sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or Loss or damage caused by a surge of power sprinkler leakage. is also excluded, if the surge would not have occurred but for an event causing a failure of power.

CP 10 30 06 07 ©ISO Properties, Inc., 2007 Page 2 of 10

UFGKelley_00420

CP 10 30 06 07

h. "Fungus", Wet Rot, Dry Rot And Bacteria c. Smoke, vapor or gas from agricultural Presence, growth, proliferation, spread or smudging or industrial operations. any activity of "fungus", wet or dry rot or d. (1) Wear and tear; bacteria. {2) Rust or other corrosion, decay, But if "fungus", wet or dry rot or bacteria deterioration, hidden or latent defect or results in a "specified cause of loss", we will any quality in property that causes it to pay for the loss or damage caused by that damage or destroy itself; "specified cause of loss". {3) Smog; This exclusion does not apply: (4) Settling, cracking, shrinking or expansion; 1. When "fungus", wet or dry rot or bacteria results from fire or lightning; or (5) Nesting or infestation, or discharge or release of waste products or secretions, 2. To the extent that coverage is provided by insects, birds, rodents or other in the Additional Coverage - Limited animals. Coverage For "Fungus", Wet Rot, Dry Rot And Bacteria with respect to loss or (6) Mechanical breakdown, including damage by a cause of loss other than rupture or bursting caused by centrifugal fire or lightning. force. But if mechanical breakdown Exclusions B.1.a. through 8.1.h. apply whether results in elevator collision, we will pay or not the loss event results in widespread for the loss or damage caused by that damage or affects a substantial area. elevator collision. (7) The following causes of loss to personal 2. We will not pay for loss or damage caused by or property: resulting from any of the following: (a) Dampness or dryness of a. Artificially generated electrical, magnetic or atmosphere; electromagnetic energy that damages, disturbs, disrupts or otheiwise interferes with (b) Changes in or extremes of any: temperature; or {c) Marring or scratching. {1) Electrical or electronic wire, device, appliance, system or network; or But if an excluded cause of loss that is listed in 2.d.{1) through (7) results in a "specified {2) Device, appliance, system or network cause of loss" or building glass breakage, utilizing cellular or satellite technology. we will pay for the loss or damage caused For the purpose of this exclusion, electrical, by that "specified cause of loss" or building magnetic or electromagnetic energy glass breakage. includes but is not limited to: e. Explosion of steam boilers, steam pipes, {a) Electrical current, including arcing; steam engines or steam turbines owned or (b) Electrical charge produced or leased by you, or operated under your conducted by a magnetic or control. But if explosion of steam boilers, electromagnetic field; steam pipes, steam engines or steam (c) Pulse of electromagnetic energy; or turbines results in fire or combustion explosion, we will pay for the loss or (d) Electromagnetic waves or damage caused by that fire or combustion microwaves. explosion. We will also pay for loss or But if fire results, we will pay for the loss or damage caused by or resulting from the damage caused by that fire. explosion of gases or fuel within the furnace b, Delay, loss of use or loss of market. of any fired vessel or within the flues or passages through which the gases of combustion pass.

CP 10 30 06 07 © ISO Properties, Inc., 2007 Page 3 of 10

UFGKelley_00421

CP 10 30 06 07

f. Continuous or repeated seepage or leakage (3) Any cracking, bulging, sagging, of water, or the presence or condensation of bending, leaning, settling, shrinkage or humidity, moisture or vapor, that occurs expansion as such condition relates to over a period of 14 days or more. (1) or (2) above. g. Water, other liquids, powder or molten But if collapse results in a Covered Cause material leaks or flows from plumbing, of Loss at the described premises, we will heating, air conditioning or other equipment pay for the loss or damage caused by that (except fire protective systems} caused by Covered Cause of Loss. or resulting from freezing, unless: This exclusion, k., does not apply: (1) You do your best to maintain heat in the building or structure; or (a) To the extent that coverage is provided under the Additional (2) You drain the equipment and shut off Coverage - Collapse; or the supply if the heat is not maintained. (b) To collapse caused by one or more h. Dishonest or criminal act by you, any of the following: of your partners, members, officers, (i) The "specified causes of loss"; managers, employees (including leased employees), directors, trustees, authorized (ii} Breakage of building glass; representatives or anyone to whom you {iii) Weight of rain that collects on a entrust the property for any purpose: roof; or (1) Acting alone or in collusion with others; (iv) Weight of people or personal or property. (2) Whether or not occurring during the I. Discharge, dispersal, seepage, migration, hours of employment. release or escape of "pollutants" unless the This exclusion does not apply to acts of discharge, dispersal, seepage, migration, destruction by your employees (including release or escape is itself caused by any of leased employees); but theft by employees the "specified causes of loss". But if the (including leased employees} is not discharge, dispersal, seepage, migration, covered. release or escape of "pollutants" results in a i. Voluntary parting with any property by you "specified cause of loss", we will pay for the or anyone else to whom you have entrusted loss or damage caused by that "specified the property if induced to do so by any cause of loss". fraudulent scheme, trick, device or false This exclusion, I., does not apply to damage pretense. to glass caused by chemicals applied to the j. Rain, snow, ice or sleet to personal property glass. in the open. m. Neglect of an insured to use all reasonable k. Collapse, including any of the following means to save and preserve property from conditions of property or any part of the further damage at and after the time of loss. property: 3. We will not pay for loss or damage caused by or (1) An abrupt falling down or caving in; resulting from any of the following, 3.a. through 3.c. But if an excluded cause of loss that is (2) Loss of structural integrity, including listed in 3.a. through 3.c. results in a Covered separation of parts of the property or Cause of Loss, we will pay for the loss or property in danger of falling down or damage caused by that Covered Cause of Loss. caving in; or

CP 10 30 06 07 © ISO Properties, Inc., 2007 Page 4 of 10

UFGKelley_00422

CP 10 30 06 07

a. Weather conditions. But this exclusion only (a) Delay in rebuilding, repairing or applies if weather conditions contribute in replacing the property or resuming any way with a cause or event excluded in "operations", due to interference at Paragraph 1. above to produce the loss or the location of the rebuilding, repair damage. or replacement by strikers or other b. Acts or decisions, including the failure to persons; or act or decide, of any parson, group, (b} Suspension, lapse or cancellation organization or governmental body. of any license, lease or contract. c. Faulty, inadequate or defective: But if the suspension, lapse or cancellation is directly caused by {1) Planning, zoning, development, the "suspension" of "operations", we surveying, siting; will cover such loss that affects your {2) Design, specifications, workmanship, Business Income during the "period repair, construction, renovation, of restoration" and any extension remodeling, grading, compaction; of the "period of restoration" in (3) Materials used in repair, construction, accordance with the terms of renovation or remodeling; or the Extended Business Income (4) Maintenance; Additional Coverage and the of part or all of any property on or off the Extended Period Of Indemnity described premises. Optional Coverage or any variation of these. 4. Special Exclusions (4) Any Extra Expense caused by or The following provisions apply only to the resulting from suspension, lapse or specified Coverage Forms. cancellation of any license, lease or a. Business Income {And Extra Expense) contract beyond the "period of Coverage Form, Business Income restoration". (Without Extra Expense) Coverage Form, (5} Any other consequential loss. Or Extra Expense Coverage Form b. Leasehold Interest Coverage Form We will not pay for: (1} Paragraph B.1.a., Ordinance Or Law, {1) Any loss caused by or resulting from: does not apply to insurance under this {a) Damage or destruction of "finished Coverage Form. stock"; or (2) We will not pay for any loss caused by: (b) The time required to reproduce (a) Your cancelling the lease; "finished stock". (b} The suspension, lapse or cancel- This exclusion does not apply to lation of any license; or Extra Expense. (c} Any other consequential loss. (2} Any loss caused by or resulting from direct physical loss or damage to radio c. Legal Liability Coverage Form or television antennas (including (1} The following exclusions do not apply to satellite dishes) and their lead-in wiring, insurance under this Coverage Form: masts or towers. (a} Paragraph 8.1.a., Ordinance Or (3) Any increase of loss caused by or Law; resulting from: (b} Paragraph B.1.c., Governmental Action; (c) Paragraph B.1.d., Nuclear Hazard; (d} Paragraph B.1.e., Utility Services; and {e) Paragraph B.1.f., War And Military Action.

CP 10 30 06 07 © ISO Properties, Inc., 2007 Page 5 of 10

UFGKelley_00423

CP 10 30 06 07

(2) The following additional exclusions C. Limitations apply to C. insurance under this The following limitations apply to all policy forms Coverage Form: and endorsements, unless otherwise stated. (a) Contractual Liability We will not pay for loss of or damage We will not defend any claim or to property, as described and limited in this "suit", or pay damages that you are section. In addition, we will not pay for any loss legally liable to pay, solely by that is a consequence of loss or damage as reason of your assumption of described and limited in this section. liability in a contract or agreement. a. Steam boilers, steam pipes, steam engines But this exclusion does not apply to or steam turbines caused by or resulting a written lease agreement in which from any condition or event inside such you have assumed liability for equipment. But we will pay for loss of or building damage resulting from an damage to such equipment caused by or actual or attempted burglary or resulting from an explosion of gases or fuel robbery, provided that: within the furnace of any fired vessel or within the flues or passages through which (1) Your assumption of liability was the gases of combustion pass. executed prior to the accident; and b. Hot water boilers or other water heating equipment caused by or resulting from any (ii) The building is Covered condition or event inside such boilers or Property under this Coverage equipment, other than an explosion. Form. (b) Nuclear Hazard c. The interior of any building or structure, or to personal property in the building or We will not defend any claim structure, caused by or resulting from rain, or "suit", or pay any damages, snow, sleet, ice, sand or dust, whether loss, expense or obligation, driven by wind or not, unless: resulting from nuclear reaction or radiation, or radioactive (1) The building or structure first sustains contamination, however caused. damage by a Covered Cause of Loss to its roof or walls through which the rain, 5. Additional Exclusion snow, sleet, ice, sand or dust enters; or The following provisions apply only to the (2) The loss or damage is caused by or specified property. results from thawing of snow, sleet or LOSS OR DAMAGE TO PRODUCTS ice on the building or structure. We will not pay for loss or damage to d. Building materials and supplies not attached any merchandise, goods or other product as part of the building or structure,. caused caused by or resulting from error or omission by or resulting from theft. by any person or entity (including those having possession under an arrangement where However, this limitation does not apply to: work or a portion of the work is outsourced) (1) Building materials and supplies held for in any stage of the development, production sale by you, unless they are insured or use of the product, including planning, under the Builders Risk Coverage Form; testing, processing, packaging, installation, or maintenance or repair. This exclusion applies (2) Business Income Coverage or Extra to any effect that compromises the form, Expense Coverage. substance or quality of the product. But if such error or omission results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

CP 10 30 06 07 © ISO Properties, Inc., 2007 Page 6 of 10

UFGKelley_00424

CP 10 30 06 07

e. Property that is missing, where the only c. $2,500 for patterns, dies, molds and forms. evidence of the loss or damage is a d. $250 for stamps, tickets, including lottery shortage disclosed on taking inventory, or tickets held for sale, and letters of credit. other instances where there is no physical These special limits are part of, not in addition evidence to show what happened to the to, the Limit of Insurance applicable to the property. Covered Property. f. Property that has been transferred to a This limitation, C.3., does not apply to Business person or to a place outside the described Income Coverage or to Extra Expense premises on the basis of unauthorized Coverage. instructions. 4. We will not pay the cost to repair any defect to a 2. We will not pay for loss of or damage to the system or appliance from which water, other following types of property unless caused by the liquid, powder or molten material escapes. But "specified causes of loss" or building glass we will pay the cost to repair or replace breakage: damaged parts of fire-extinguishing equipment if the damage: a. Animals, and then only if they are killed or their destruction is made necessary. a. Results in discharge of any substance from an automatic fire protection system; or b. Fragile articles such as statuary, marbles, chinaware and porcelains, if broken. This b. Is directly caused by freezing. restriction does not apply to: However, this limitation does not apply to (1) Glass; or Business Income Coverage or to Extra Expense Coverage. {2) Containers of property held for sale. c. Builders' machinery, tools and equipment D. Additional Coverage - Collapse owned by you or entrusted to you, provided The coverage provided under this Additional such property is Covered Property. Coverage - Collapse applies only to an abrupt However, this limitation does not apply: collapse as described and limited in 0.1. through (1) If the property is located on or within D.7. 100 feet of the described premises, 1. For the purpose of this Additional Coverage - unless the premises is insured under the Collapse, abrupt collapse means an abrupt Builders Risk Coverage Form; or falling down or caving in of a building or any (2) To Business Income Coverage or to part of a building with the result that the building Extra Expense Coverage. or part of the building cannot be occupied for its 3. The special limit shown for each category, a. intended purpose. through d., is the total limit for loss of or 2. We will pay for direct physical loss or damage to damage to all property in that category. The Covered Properly, caused by abrupt collapse of special limit applies to any one occurrence of a building or any part of a building that is theft, regardless of the types or number of insured under this Coverage Form or that articles that are lost or damaged in that contains Covered Property insured under this occurrence. The special limits are: Coverage Form, if such collapse is caused by a. $2,500 for furs, fur garments and garments one or more of the following: trimmed with fur. a. Building decay that is hidden from view, unless the presence of such decay is known b. $2,500 for jewelry, watches, watch to an insured prior to collapse; movements, jewels, pearls, precious and semi-precious stones, bullion, gold, silver, b. Insect or vermin damage that is hidden from platinum and other precious alloys or view, unless the presence of such damage metals. This limit does not apply to jewelry is known to an insured prior to collapse; and watches worth $100 or less per item.

CP 10 30 06 07 © ISO Properties, Inc., 2007 Page 7 of 10

UFGKelley_00425

CP 10 30 06 07

c. Use of defective material or methods in i. Walks, roadways and other paved surfaces; construction, remodeling or renovation if the if an abrupt collapse is caused by a cause abrupt collapse occurs during the course of of loss listed in 2.a. through 2.d., we will pay the construction, remodeling or renovation. for loss or damage to that property only if: d. Use of defective material or methods (1) Such loss or damage is a direct result of in construction, remodeling or renovation if the abrupt collapse of a building insured the abrupt collapse occurs after the under this Coverage Form; and construction, remodeling or renovation is {2) The property is Covered Property under complete, but only if the collapse is caused this Coverage Form. in part by: 5. If personal property abruptly falls down or caves (1) A cause of loss listed in 2.a. or 2.b.; in and such collapse is not the result of abrupt (2) One or more of the "specified causes of collapse of a building, we will pay for loss or loss"; damage to Covered Property caused by such (3) Breakage of building glass; collapse of personal property only if: (4) Weight of people or personal property; a. The collapse of personal property was or caused by a cause of loss listed in 2.a. (5) Weight of rain that collects on a roof. through 2.d.; 3. This Additional Coverage - Collapse does not b. The personal property which collapses is apply to: inside a building; and a. A building or any part of a building that is in c. The property which collapses is not of a kind danger of falling down or caving in; listed in 4., regardless of whether that kind b. A part of a building that is standing, even if of property is considered to be personal it has separated from another part of the property or real property. building; or The coverage stated in this Paragraph 5. does c. A building that is standing or any part of a not apply to personal property if marring and/or building that is standing, even if it shows scratching is the only damage to that personal evidence of cracking, bulging, sagging, property caused by the collapse. bending, leaning, settling, shrinkage or 6. This Additional Coverage - Collapse does not expansion. apply to personal property that has not abruptly 4. With respect to the following property: fallen down or caved in, even if the personal a. Outdoor radio or television antennas property shows evidence of cracking, bulging, (including satellite dishes) and their lead-in sagging, bending, leaning, settling, shrinkage or wiring, masts or towers; expansion. b. Awnings, gutters and downspouts; 7. This Additional Coverage - Collapse will not increase the Limits of Insurance provided in this c. Yard fixtures; Coverage Part. d. Outdoor swimming pools; 8. The term Covered Cause of Loss includes the e. Fences; Additional Coverage - Collapse as described f. Piers, wharves and docks; and limited in D.1. through D.7. g. Beach or diving platforms or appurtenances; h. Retaining walls; and

CP 10 30 06 07 ©ISO Properties, Inc., 2007 Page 8 of 10

U FGKelley_ 00426

CP 10 30 06 07

E. Additional Coverage - Limited Coverage For 4. The coverage provided under this Limited "Fungus", Wet Rot, Dry Rot And Bacteria Coverage does not increase the applicable Limit 1. The coverage described in E.2. and E.6. only of Insurance on any Covered Property. If a applies when the "fungus", wet or dry rot or particular occurrence results in loss or damage bacteria is the result of one or more of the by "fungus", wet or dry rot or bacteria, and other following causes that occurs during the policy loss or damage, we will not pay more, for the period and only if all reasonable means were total of all loss or damage, than the applicable used to save and preserve the property from Limit of Insurance on the affected Covered further damage at the time of and after that Property. occurrence. If there is covered loss or damage to Covered a. A "specified cause of loss" other than fire or Property, not caused by "fungus", wet or dry rot lightning; or or bacteria, loss payment will not be limited by the terms of this Limited Coverage, except to b. Flood, if the Flood Coverage Endorsement the extent that '1ungus", wet or dry rot or applies to the affected premises. bacteria causes an increase in the loss. Any 2. We will pay for loss or damage by "fungus", wet such increase in the loss will be subject to the or dry rot or bacteria. As used in this Limited terms of this Limited Coverage. Coverage, the term loss or damage means: 5. The terms of this Limited Coverage do not a. Direct physical loss or damage to Covered increase or reduce the coverage provided under Property caused by "fungus", wet or dry rot Paragraph F.2. (Water Damage, Other Liquids, or bacteria, including the cost of removal of Powder Or Molten Material Damage) of this the "fungus", wet or dry rot or bacteria; Causes Of Loss Form or under the Additional b. The cost to tear out and replace any part of Coverage - Collapse. the building or other property as needed to 6. The following, 6.a. or 6.b., applies only if gain access to the "fungus", wet or dry rot or bacteria; and Business Income and/or Extra Expense Coverage applies to the described premises and c. The cost of testing performed after removal, only if the "suspension" of "operations" satisfies repair, replacement or restoration of the all terms and conditions of the applicable damaged property is completed, provided Business Income and/or Extra Expense there is a reason to believe that "fungus", Coverage Form. wet or dry rot or bacteria are present. a. If the loss which resulted in '1ungus", wet or 3. The coverage described under E.2. of this dry rot or bacteria does not in itself Limited Coverage is limited to $15,000. necessitate a "suspension" of "operations", Regardless of the number of claims, this limit is but such "suspension" is necessary due to the most we will pay for the total of all loss or loss or damage to property caused by damage arising out of all occurrences of "fungus'', wet or dry rot or bacteria, then our "specified causes of loss" (other than fire or payment under Business Income and/or lightning) and Flood which take place in a 12- Extra Expense is limited to the amount of month period (starting with the beginning of the loss and/or expense sustained in a period of present annual policy period). With respect to a not more than 30 days. The days need not particular occurrence of loss which results in be consecutive. "fungus", wet or dry rot or bacteria, we will not pay more than a total of $15,000 even if the b. If a covered "suspension" of "operations" "fungus", wet or dry rot or bacteria continues to was caused by loss or damage other be present or active, or recurs, in a later policy than "fungus", wet or dry rot or bacteria but period. remediation of "fungus", wet or dry rot or bacteria prolongs the "period of restoration", we will pay for loss and/or expense sustained during the delay (regardless of when such a delay occurs during the "period of restoration"), but such coverage is limited to 30 days. The days need not be consecutive. CP 10 30 06 07 © ISO Properties, Inc., 2007 Page 9 of 10

UFGKelley_00427

CP 10 30 06 07

F. Additional Coverage Extensions 3. Glass 1. Property In Transit a. We will pay for expenses incurred to put up This Extension applies only to your personal temporary plates or board up openings if property to which this form applies. repair or replacement of damaged glass is delayed. a. You may extend the insurance provided by this Coverage Part to apply to your personal b. We will pay for expenses incurred to property (other than property in the care, remove or replace obstructions when custody or control of your salespersons) in repairing or replacing glass that is part of a transit more than 100 feet from the building. This does not include removing or described premises. Property must be in or replacing window displays. on a motor vehicle you own, lease or This Coverage Extension, F.3., does not operate while between points in the increase the Limit of Insurance. coverage territory. G. Definitions b. Loss or damage must be caused by or result 1. "Fungus" means any type or form of fungus, from one of the following causes of loss: including mold or mildew, and any mycotoxins, (1) Fire, lightning, explosion, windstorm spores, scents or by-products produced or or hail, riot or civil commotion, or released by fungi. vandalism. 2. "Specified causes of loss" means the following: (2) Vehicle collision, upset or overturn. fire; lightning; explosion; windstorm or hail; Collision means accidental contact of smoke; aircraft or vehicles; riot or civil your vehicle with another vehicle or commotion; vandalism; leakage from fire- object. It does not mean your vehicle's extinguishing equipment; sinkhole collapse; contact with the roadbed. volcanic action; falling objects; weight of snow, (3) Theft of an entire bale, case or package ice or sleet; water damage. by forced entry into a securely locked a. Sinkhole collapse means the sudden sinking body or compartment of the vehicle. or collapse of land into underground empty There must be visible marks of the spaces created by the action of water on forced entry. limestone or dolomite. This cause of loss c. The most we will pay for loss or damage does not include: under this Extension is $5,000. (1) The cost of filling sinkholes; or This Coverage Extension is additional {2) Sinking or collapse of land into insurance. The Additional Condition, man-made underground cavities. Coinsurance, does not apply to this Extension. b. Falling objects does not include loss or 2. Water Damage, Other Liquids, Powder Or damage to: Molten Material Damage {1) Personal property in the open; or If loss or damage caused by or resulting from covered water or other liquid, powder or molten {2) The interior of a building or structure, or material damage loss occurs, we will also property inside a building or structure, pay the cost to tear out and replace any part of unless the roof or an outside wall of the the building or structure to repair damage to building or structure is first damaged by the system or appliance from which the water a falling object. or other substance escapes. This Coverage c. Water damage means accidental discharge Extension does not increase the Limit of or leakage of water or steam as the direct Insurance. result of the breaking apart or cracking of a plumbing, heating, air conditioning or other system or appliance (other than a sump system including its related equipment and parts), that is located on the described premises and contains water or steam.

CP 10 30 06 07 © ISO Properties, Inc., 2007 Page 10of10

UFGKelley_00428 Appendix Tab 6

COMMERCIAL PROPERTY CP 10 32 08 08

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

WATER EXCLUSION ENDORSEMENT This endorsement modifies insurance provided under the following:

COMMERCIAL PROPERTY COVERAGE PART STANDARD PROPERTY POLICY

A. The exclusion in Paragraph B. replaces the Water 5. Waterborne material carried or otherwise Exclusion in this Coverage Part or Policy. moved by any of the water referred to in B. Water Paragraph 1., 3. or 4., or material carried or 1. Flood, surface water, waves (including tidal otherwise moved by mudslide or mudflow. wave and tsunami), tides, tidal water, overflow This exclusion applies regardless of whether any of of any body of water, or spray from any of the above, in Paragraphs 1. through 5., is caused by these, all whether or not driven by wind an act of nature or is otherwise caused. An example (including storm surge); of a situation to which this exclusion applies is the 2. Mudslide or mudflow; situation where a dam, levee, seawall or other boundary or containment system fails in whole or in 3. Water that backs up or overflows or is otherwise part, for any reason, to contain the water. discharged from a sewer, drain, sump, sump pump or related equipment; But if any of the above, in Paragraphs 1. through 5., 4. Water under the ground surface pressing on, or results in fire, explosion or sprinkler leakage, we will flowing or seeping through: pay for the loss or damage caused by that fire, explosion or sprinkler leakage (if sprinkler leakage is a. Foundations, walls, floors or paved a Covered Cause of Loss). surfaces; b. Basements, whether paved or not; or c. Doors, windows or other openings; or

CP 10 32 08 08 @ Insurance Services Office, Inc., 2008 Page 1of1

UFGKelley_00429 Appendix Tab 7

CAUSE l'\O. 2013-36796 KELLEY STREET ASSOCIATES, LLC § IN Tl IF DISTRICT COURT OF ~ s Plaintifl s~ ss vs. ss OF HARRIS COU::-..ITY. TEXAS § CITY OF I IOUSTO:.l :\ND UNITED FIRE § AND CASUALTY COMl'A:.IY § ~ ~

Defendants. ~ 295 1i; JUDICIAi. DISTRICT

AFFIDAVIT OF DUANE H. KAM INS IN SUPPORT OF PLAIJWIFF'S MOTION FOR PARTIAL SUMMARY .JUDGMENT AGAINST UNITED FIRE AND CASUALTY COMPANY

THE ST ATE OF TEXAS

COUNTY OF HARRIS

On this day Duane I I. Kamins personally appeared before me. the undersigned notary public, \\ho being by me duly sworn on his oath deposed and said:

l."My name is Duane 11. Kamins. I am the President of Kelley Street Associates. LLC ("Kelley Street"). the Plaintiff in the above-styled lawsuit. I am responsible for insuram:c coverage and claims for Kelley Street. l have personal knowkdge of all the statements made herein. each of which is trm: and corre<:I.

2. "Kelley Street was formed in 2005 for the purpose of developing and owning an office building and industrial facility located at 5825 Kelley Stn:et in l louston. Texas (the ·Kelley Street Building'). The Kelley Street Building was completed in 2008.

3. "Kelley Street purchased commercial propc11y insurance for the Kelley Street Building from United Fire & Casualty Company(' United Fire'), an insurance company licensed to ::;ell property insurance in Texas. LJnited Fire issued Sl1ch insmancc under its policy no. 85315789 (the 'Policy'). co\'ering the period from January I. 2012. to 2013. A true copy of the Policy is attached hereto as Exhibit A-1.

4. ..On October 2, 2012, Kelley Street suffered a loss due to a failure of the plumbing system in the Kelley Street Building. Specifically. on the evening of October 2 water began to flow through a series of floor drains in the building. most but not all of which wcre lrn:atcd in bathrooms. The water Jcvcl reached scvcrnl inchcs throughout the building beforc water to the building was shut off. Kelley Street incurred costs of more than $150.000.00 to drain and dry the building and to repair the damagc caused by this cxeessivc water llow.

5. "On Oetobcr 3. 2012. Kelley Street provided notice of this loss to United Fire. Notice was givcn to United Fire by Kelley Street's insurance llgcnt, GEM Insurance Agencies. LP. A true copy of the Property l.oss Notice is attached hereto as Exhibit A-2.

EXHIBIT

I A

6. "'By letter dated October 8. 2012, United Fire denied coverage for this loss. A true copy of this letter is attached hereto as Exhibit A-3.

7. ..ln November 2012. United Fire issued an endorsement to the Policy that. according lo United Fire, would provide coverage for the loss to $50.000.00. Payment in that amount was subsequently made and accepted by Kelley Street without waiving the right to claim full coverage under the Policy. An exchange of emails between myself and Joyce Wilson, an adjustt:r for United fire. is attached hert:to as Exhibit A-4: Ms \Vi Ison confirmed that the payment and acceptance of this partial payment of losses would not prejudice Kelley Street's cl<iim to seek recovery of the rest or its loss under the Policy. 8. '·Kelley Street subsequently retained counsel to pursue collection of its full loss under the Policy, and Kelley Street's counsel made demand for payment of such loss. To date, however, no addition:1l payment has been made on Kelley Street's claim."

Duane H. Kamins

STATE OF TEXAS § ~ ~ COUNTY OF HARRIS §

SWORN TO AND SCBSCRIBED B,' El:\~~E,:vtE on. th('· ~.0th d.·ay <.ifDc,·ccmbcr. 2013. I j \ \ V\ I I,. \..i..s,:;v v . ) ~ :. I I'/' ,. ' f ......_, '

Notary Public inand for The State of TEXAS

letJAR~~CIS NOTARY PUBLIC Slllto of Tl>OIS ~,.,,.,...._..... __ Comm, EJll CM/0512017 ~~...,.,..

2 Appendix Tab 8

CAUSE NO. 2013-36796 KELLEY STREET ASSOCIATES, LLC § IN THE DISTRICT COURT OF § Plaintiff, § § VS. § OF HARRIS COUNTY, TEXAS § CITY OF HOUSTON AND UNITED FIRE § AND CASUALTY: COMPANY § § Defendants, § 295TH JUDICIAL DISTRICT

AFFIDAVIT OF JOHN MOORE IN SUPPORT OF PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AGAINST UNITED FIRE AND CASUALTY COMPANY

THE STATE OF TEXAS § § COUNTY OF HARRIS §

On this day John Moore personally appeared before me, the undersigned notary public, who being by me duly sworn on his oath deposed and said:

1. "My name is John Moore. I am a plumber employed by Raven Mechanical, LP. I inspected the Kelley Street property personally, as described below. I have personal lrnowledge of all the statements made herein, each of which is true and correct.

2. "I have been employed as a plumber since about 2002, and I have been employed at Raven Mechanical since 2005, I am licensed as a Master Plumber in the'state of Texas.

3. "On October 2, 2012, Raven Mechanical was called regarding an emergency at 5825 Kelley Street i.J.1 Houston. I was assigned to visit the property, to assess the cause of the flooding water in the building, and to propose any necessary plumbing repairs.

4, "When I arrived and walked tlrrough the building, I found that the water level was at several inches throughout the building. 11 5. 1 examined the plumbing throughout the. building, including the bathrooms and 'kitchen as well as floor drains at various locations. I found that the flush valves in all the toilets were malfunctioning due to damage caused by debris, rocks and dirt that had been introduced into the domestic water main following a repair on the water main in Kelley Street, in front of the building. Due to the damaged flush valves, water had been continually flowing into the sanitary sewer septic system in the building. The septic system could not keep up with the volume of water being introduced to the system; after the septic system filled, water came up through the drains throughout the building, resulting in the flooding of the building.

EXHIBIT

I rs

6. 11 After my examination, I filled out a report on the work order issued by Raven Mechanical. A true copy of the completed Work Order, with the notes that I wrote on it the same day as my visit to the property, is attached hereto as Exhibit B-1. I made these notes in the ordinary course of business h1 connection with the above-des •'b site assessment."

STATE OF TEXAS § § COUNTY OF HARRIS §

SWORN TO AND SUBSCRIBED BEFO

e CJNDYYOUNG Notary Publlo, State of Tew My Comm!Mlon Expires SEPTEMBER 13. 2018

Footnotes

[01] 01 5825 KELLEY ST !HOUSTON TX 77026-1901 !FRAME bFFICES !BUILDING 1,083,508 .297 3,219 Special Causes Of Loss 2,500 Ded Windstorm or Hail Deductible Percentage: 2% Replacement cost 80% Coins Automatic Valuation Adjustment rt OUR BUSINESS PERSONAL PROPERTY 546,000 .349 1,906 Special causes Of Loss 2,500 Ded Windstorm or Hail Deductible Percentage: 2% Replacement cost 80% Coins 4% Inflation Guard 11.DDITIONAL INTEREST Loss Payable - PITNEY BOWES GLOBAL FINANCIAL SERVICES LLC CONTINUED ON CP7002 ABBREVIATIONS: BLDG=BUILDING COINS=CO!NSURANCE DED=OEDUCTtBLE INCL=INCLUOED PREM=PREMISES Premium Charge Forms Advance Premium Premium Charge Forms Advance Premium SEE UW7002 Other Forms SEE UW7002 ~--- AMEND REASON: ADDING SEWER BACKUP COVERAGE EFFECTIVE 01/01/2012 PREMIUM FOR THIS COVERAGE PART $ 6,452 Endorsement Adjustment Premium $ 187 ADDITIONAL This Declarations Page supersedes and replaces any preceding x declarations page bearing the same policy number ror 1hls polled period. (COUNTERSIGNED BY AUTHORIZED REPRESENTATIVE) CP 70 0112 92 UFGKelley_00387