United States Court of Appeals
                                                                            Fifth Circuit
                                                                         F I L E D
                 IN THE UNITED STATES COURT OF APPEALS
                                                                         August 10, 2005
                            FOR THE FIFTH CIRCUIT
                            _____________________                    Charles R. Fulbruge III
                                                                             Clerk
                                 No. 04-10447
                            _____________________

RIDGLEA ESTATE CONDOMINIUM ASSOCIATION,

                              Plaintiff - Counter Defendant -Appellant,

                                      versus

LEXINGTON INSURANCE COMPANY,

                                   Defendant - Counter Claimant -Appellee.

__________________________________________________________________

           Appeal from the United States District Court
                for the Northern District of Texas
_________________________________________________________________

                          ON PETITION FOR REHEARING

Before KING, Chief Judge, JOLLY and DENNIS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

     IT    IS   ORDERED    that    the   Petition    for   Panel   Rehearing      is

GRANTED.     The opinion of the court issued on July 1, 2005, is

withdrawn, and the following opinion substituted in its place, with

the only change appearing in Part II D.

     In    November   2001,       Ridglea   Estate   Condominium     Association

(“Ridglea”) submitted a claim to its insurer, Lexington Insurance

Company (“Lexington”), for hail damage –- apparently occurring in

1995 –- to the roofs of its property in Fort Worth, Texas.

Lexington denied the claim and brought suit against Ridglea,

seeking a declaratory judgment that it was not liable for the
damage.   The district court realigned the parties, making Ridglea

the plaintiff and Lexington the defendant. Both parties then moved

for summary judgment.             The district court granted Lexington’s

motion, holding that Ridglea’s claim was barred because Ridglea

failed to provide prompt notice of the damage and rejecting the

argument that      a    showing    of   prejudice   was   required.     Ridglea

appeals, arguing, inter alia, that the district court erred in not

requiring Lexington to show that its defense was prejudiced by

Ridglea’s late notice.        We agree, and therefore VACATE and REMAND.

                                          I

     In July 2001, a roofing inspector informed Ridglea that the

roofs of its property in Fort Worth, Texas had suffered significant

hail damage.    In November 2001, Ridglea submitted a claim to its

then-insurer, Chubb Custom Insurance.               Based on its inspection,

Chubb advised Ridglea that the damage must have been caused by a

May 5, 1995 hail storm, and that Ridglea would need to submit the

claim to the insurer who insured the property on that date.

     Ridglea then submitted a claim to Lexington, the insurer of

the property as of May 1995. After inspecting the roofs, Lexington

concluded   that       the   damage     likely   did   not   exceed   Ridglea’s

deductible. Lexington also asserted that it found no evidence that

the damage was incurred during the policy period, which ran from

February 1995 to February 1996.               As a result, in a letter of

December 19, 2001, Lexington denied Ridglea’s claim.



                                          2
      After    roughly   a   year    of    negotiations    involving   Ridglea,

Lexington, Chubb, and another insurer, General Star, Ridglea made

a final demand against Lexington for $449,198.63 plus attorney’s

fees of $10,000. Lexington again denied the claim and brought suit

seeking a declaratory judgment that it was not liable for the hail

damage to Ridglea’s property.             The district court dismissed the

declaratory judgment action and realigned the parties, making

Ridglea the plaintiff and Lexington the defendant in a direct suit

for damages on the insurance policy.

      Both parties moved for summary judgment.             The district court

granted Lexington’s motion, holding that Ridglea’s claim was barred

because   it    had   failed    to    comply    with     the   policy’s   notice

requirement.     Ridglea’s policy states, in pertinent part, that no

policy holder may bring an action against Lexington without first

giving “prompt notice of the loss or damage” to covered property.

The policy further requires that prospective litigants provide, “as

soon as possible[,] a description of how, when and where the loss

or   damage    occurred”.      The   district    court    concluded    that   the

interval between May 1995, when the damage allegedly occurred, and

November 2001, when Ridglea notified Lexington of its claim, was so

great that “no rational finder of fact could conclude ... that

Ridglea reported the hail loss and damage to buildings within a

reasonable time after it was suffered”.             Ridglea now appeals the

grant of summary judgment.

                                          II

                                          3
       We review the grant of summary judgment de novo, applying the

same   standard    as    the   district          court.    American      Guarantee   and

Liability Ins. Co. v. The 1906 Co., 

, 805 (5th Cir.

1997).   Summary judgment is appropriate where there are no genuine

issues as to any material fact and the movant is entitled to a

judgment as a matter of law.                  FED. R. CIV. P.           56(c); see also

Celotex Corp.      v. Catrett, 

, 322-23 (1986).

       Ridglea    contends     that     the      district       court   committed    four

discrete,    reversible        errors    –-       all     relating      to   the   notice

requirement of the policy –- in granting Lexington’s motion for

summary judgment.        Specifically, Ridglea asserts that the court

erred: (1) in finding that Lexington had not waived its late notice

defense;    (2)     in   failing        to       find     the     notice     requirement

unenforceable as a matter of public policy; (3) in failing to find

the notice requirement ambiguous, and thus construe it in the

manner most favorable to the insured; and (4) in not requiring

Lexington to show prejudice in order to raise late notice as a

defense.

                                             A

       We first address Ridglea’s contention that Lexington has

waived any defense it might have under the policy’s prompt notice

provision because it originally denied the claim (in its December

19, 2001 letter) on the sole basis that the damage did not occur

during the coverage period.



                                             4
     Ridglea relies on Farmers Insurance Exchange v. Nelson to

argue that, when an insurer denies a claim for reasons unrelated to

notice of damage, the insurer waives any requirement that the

insured provide notice before filing suit.     

, 721-22

(Tex. Civ. App. 1972).      Ridglea notes that Lexington’s claims

adjuster originally gave only one reason –- a lack of evidence that

the hail damage occurred during the coverage period –- for denying

Ridglea’s claim.    Thus, by failing to identify late notice of

damage as an independent reason for its denial of the claim,

Lexington waived its late notice defense.

     Lexington   replies   that   Texas   courts   have   recognized   an

exception to the general rule of Farmers Insurance Exchange and

points to United States Fidelity & Guaranty Co. v. Bimco Iron &

Metal Co.   There, the Texas Supreme Court held that an insurer’s

“total denial of liability on any grounds, after the time for

filing [a] proof of loss had expired would not constitute a waiver

of the defense of late filing of the proof of loss”.         

, 357 (Tex. 1971).       In Stonewall Insurance Co. v. Modern

Exploration, Inc., the Texas Court of Appeals applied the Supreme

Court’s holding in Bimco to the precise issue before this court,

holding that “waiver of [a] notice requirement occurs when the

insurer denies liability within the time limited for giving notice”

and “[c]onversely, a total denial of liability on any grounds after

the time limited for giving notice would not constitute a waiver of

the defense of unreasonably late notice”.          

, 436

                                   5
(Tex. App. 1988) (emphases in original) (citing 

).

     Our task, then, is to determine whether the exception to the

waiver rule set forth in Bimco and Stonewall Insurance applies in

the case before us.     In order to do so, we must determine whether

Lexington’s December 19, 2001 denial of liability was made within

the policy’s time limit for giving notice, or after it had expired.

Because Lexington’s denial of liability was made shortly after

Ridglea’s November 2001 notice of damage, the district court’s

conclusions   as   to   the   timeliness   of   notice   provide   a   useful

benchmark for the waiver inquiry.

     The district court held that “no rational finder of fact could

conclude from the summary judgment evidence that Ridglea reported

the hail loss and damage to its building within a reasonable

time”.1    In support of its conclusion, the court observed that

Ridglea’s own expert, Patrick Brady, testified that there was

“extensive damage to [Ridglea’s] buildings”, that said damage “was

such that it would require replacement of the roofs”, and even that

the “damage would have been evident on May 5, 1995".               Moreover,

Brady testified that the buildings’ shutters and windows had been

chipped and broken as a result of hail strikes, though he could not


     1
      As discussed infra, where, as here, an insurance policy does
not precisely define the period within which notice must be
provided, Texas courts will construe the policy as requiring notice
“within a reasonable time”. See, e.g., Stonewall 

.

                                     6
say with certainty that the May 1995 storm was the cause.                 Finally,

the record indicates that automobiles in the area of Ridglea’s

property suffered severe hail damage as a result of the May 1995

storm.

     In response to this evidence, Ridglea offers only Brady’s

assertion that the damage would have been difficult for Ridglea to

discover, as the roofs involved are on two story buildings, and

thus, “not visible from the ground”.                This argument is not on

point.    Given the magnitude of the 1995 storm, as well as the hail

damage to      other   portions   of    Ridglea’s    property     –-    i.e.,    the

shutters and windows –- Ridglea should have been aware of the

likelihood that its roofs had suffered hail damage, and thus,

should have had the roofs inspected by an expert at some reasonable

time soon after the hailstorm occurred.              The fact that Ridglea’s

management neglected to do so does not serve to toll the policy’s

prompt notice provision in Ridglea’s favor.

     Thus, we hold that the prompt notice period ran from on or

about the date on which Ridglea’s hail damage was incurred:                 May 5,

1995.    We need not determine precisely where, under Texas law, the

boundaries of “prompt notice” or “reasonableness” lay. Instead, we

simply affirm      the   district      court’s   holding   that    to    delay    an

inspection for six years is unreasonable as a matter of law.

     In sum, because Ridglea gave its notice of damage after the

period   for    prompt   notice   had    expired,    Lexington’s        subsequent

general denial of liability likewise came “after the time limited

                                         7
for giving notice” and thus did not constitute a waiver of the

defense of late notice.         See Stonewall 

.2

                                       B

        Ridglea    next   contends   that   the   policy’s   prompt   notice

provision is unenforceable as a matter of public policy, and thus

void.       Ridglea’s argument stems from an aggressive interpretation

of § 16.071 of the Texas Civil Practice and Remedies Code, which

provides in pertinent part:

               A contract stipulation that requires a
               claimant to give notice of a claim for damages
               as a condition precedent to the right to sue
               on the contract is not valid unless the
               stipulation is reasonable. A stipulation that
               requires notification within less than 90 days
               is void.

Ridglea then cites Western Indemnity Co. v. Free and Accepted

Masons of Texas, for the proposition that a notice period violates

        2
       Ridglea further contends that, even if Farmers Insurance
Exchange does not compel a finding that Lexington has waived its
late notice defense, Article 21.55, § 3(c) of the Texas Insurance
Code does so. This argument is without merit. Section 3(c) merely
requires an insurer to state the reasons for its rejection of a
claim. In 1995, four years after Article 21.55 was enacted, the
Texas Supreme Court held that, where a plaintiff seeks to bar an
insurer from raising a defense to liability, the insurer’s
“reliance on a different, perhaps erroneous, reason for denying
coverage [in its initial denial] is not dispositive.       What is
dispositive is whether, based upon the facts existing at the time
of the denial, a reasonable insurer would have denied the claim”.
Republic Insurance Co. v. Stoker, 

, 340 (Tex. 1995)
(citing Aranda v. Insurance Co. of North America, 

,
213 (Tex. 1988)). Ridglea does not allege that Lexington’s initial
reason for denial was unreasonable or made in bad faith. As such,
it has not stated a case for waiver of Lexington’s late notice
defense.

                                       8
§ 16.0713 if it is capable of being interpreted as spanning less

than 90 days.    

, 728-29 (Tex. Comm. App. 1925).          Next,

Ridglea cites Round Rock Independent School District v. First

National Insurance Co. of America, in which this court held that

provisions calling for “immediate notice” are capable of being read

as requiring notice in less than 90 days and thus unenforceable.

, 284 (5th Cir. 1963).         Finally, Ridglea reasons that

“prompt is a synonym for immediate”, thus rendering Lexington’s

requirement of “prompt notice” unenforceable under § 16.071.

      The argument, although novel, is irrelevant to the case before

us.   Section 16.071 provides that stipulations requiring notice of

“claims for     damages”   within   90   days   are   unenforceable.     The

provision in Ridglea’s policy requires notice of an “event of loss

or damage” to insured property.          The distinction is significant.

In Commercial Standard Insurance Co. v. Harper, the Texas Supreme

Court held that VERNON’S ANN. CIV. STAT. art. 5546, a nearly identical

predecessor to § 16.071, did not render unenforceable a stipulation

requiring notice of an “event of loss or damage”.          

,

145 (Tex. 1937).       The court reasoned that “[n]otice that an

automobile has been stolen is not ‘notice of a claim for damages’

as that term is used in [Article 5546].         It is only notice of the

happening of an event upon which liability may or may not result”.


      3
       Western Indemnity Co. dealt with the proper interpretation
of Article 5546, a nearly identical predecessor to § 16.071 that
likewise barred notice periods of less than 90 days.

                                     9
      The Texas Supreme Court has reaffirmed its holding in Harper

on several occasions.      See, e.g., Community Bank & Trust v. Fleck,

, 542 (Tex. 2002); American Airlines Employees

Federal Credit Union v. Martin, 

(Tex. 2000).              As such,

it   is quite     clear   that   Ridglea’s   contention   that   the    notice

provision is unenforceable under Texas law is without merit.

                                       C

      Ridglea argues that the policy’s prompt notice provision is

ambiguous, and thus, should be interpreted to favor the insured.

See St. Paul Mercury Insurance Co. v. Tri-State Cattle Feeders,

Inc., 

, 846 (Tex. App. 1982) (stating, in dicta, that

“[a]n ambiguous clause in an insurance policy is to be strictly

construed in favor of the insured”). To that end, Ridglea contends

that “interpreting the notice provision as requiring notice once

the insured discovers a loss ... would certainly be reasonable”.

(Emphasis added.)     Thus, Ridglea appears to contend that, because

the term “prompt” is ambiguous, the prompt notice period cannot

begin to run until the insured actually discovers the damage, no

matter how objectively unreasonable its failure to discover the

damage may have been.

      Ridglea’s     proposed     interpretation   of   the    prompt    notice

provision is not supported by Texas precedent.               As the district

court observed in its order, Texas courts have held that where “the

policy does not define the term ‘prompt,’ we construe the term as



                                      10
meaning that notice must be given within a reasonable time after

the occurrence”.     See Stonewall Insurance 

(emphasis added) (citing National Security Corp. v. Diggs, 

, 697 (Tex. Civ. App. 1954)).                 As 

, no

rational finder of fact could conclude that Ridglea’s notice, which

came six years after the alleged date of the hail damage, was given

within a reasonable time.          As such, the ambiguity that Ridglea

identifies does nothing to help it overcome Lexington’s defense of

late notice.

                                        D

     Having established that Lexington's late notice defense is a

viable   one   –-   i.e.,   that   it       has   not   been   waived,   is   not

unenforceable, and is not void for vagueness –- we turn to the

central issue in this case:         Ridglea's contention that Texas law

requires Lexington to show that it was prejudiced by Ridglea's

breach of the policy's "prompt notice" provision.

     As a preliminary matter, it is quite clear that Texas law

requires a showing of prejudice in order to raise breach of a

notice requirement as a defense against claims on certain types of

insurance policies.     The Texas Department of Insurance has issued

orders requiring mandatory endorsements in general liability and

automobile insurance policies stating that "unless the company is

prejudiced by the insured's failure to comply with the requirement,

any provision of this policy requiring the insured to give notice

of ... occurrence or loss ... shall not bar liability under this

                                        11
policy".   See Hanson Production Co. v. American Insurance Co., 

, 629 (5th Cir. 1997) (quoting Texas State Board of

Insurance, Order No. 23080).

     Lexington argued, and the district court agreed, that the

prejudice requirement applies only to those types of policies --

i.e.,   automobile    and   general   liability   --   designated    in   the

Insurance Board orders.      Ridglea, however, contends that Texas law

also requires a showing of prejudice in order raise late notice as

a defense to liability under certain policies not designated in the

orders, including the property insurance policy at issue here.

When deciding questions of state law, this court is bound by Erie

to rule as it believes the state's supreme court would.           See, e.g.,

Browning Seed Inc. v. Bayles, 

, 1002 (5th Cir. 1987)

(citing Erie R.R. v. Tompkins, 

(1938)). Given the

decision of the Texas Supreme Court in Hernandez v. Gulf Group

Lloyds, we believe that Ridglea's position is the correct one. See

(Tex. 1994).

     In Hernandez, the Texas Supreme Court held that an insured's

violation of a settlement-without-consent provision was not a bar

to recovery under an uninsured motorist policy, unless the insurer

could show that it was prejudiced by the violation.         

made no reference to the orders by the Board of Insurance; instead,

the court based its holding on general principles of contract

interpretation.      The court observed that "[i]nsurance policies are

contracts" and thus subject to the "fundamental principle of

                                      12
contract law ... that when one party to a contract commits a

material breach ... the other party is discharged ... from any

obligation to perform."      

  In order to determine whether

a breach is material, the court observed, it must consider, inter

alia, "the extent to which the non-breaching party will be deprived

of the benefit that it could have reasonably anticipated from full

performance".      

     The   court    then   considered    the   varying   extents   to   which

violation of a settlement-without-consent provision might deprive

an insurer of the benefit of its bargain.           The court ultimately

reinstated the trial court's verdict for the plaintiff, holding

that "an insurer who is not prejudiced by an insured's settlement

may not deny coverage under an uninsured/under-insured motorist

policy that contains a settlement-without-consent provision".             

method of the Texas Supreme Court's reasoning, and

the general principle underlying that reasoning, we conclude that

the prejudice requirement applies to the property insurance policy

at issue here.4     As such, we hold that the district court erred in

holding that Lexington was not required to show prejudice in order



     4
       We emphasize that our holding is a narrow one. We do not
read Hernandez as necessarily creating a prejudice requirement for
all insurance policies issued in Texas. We have previously held,
for example, that an insurer may deny coverage under a “claims
made” liability policy without a showing of prejudice. See Matador
Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 

,
659 (5th Cir. 1999). Whether other types of policies likewise fall
outside the scope of Hernandez is a question we need not reach.

                                    13
to raise breach of the policy's prompt notice provision as a

defense.

     Because the district court erred as a matter of law in failing

to require a showing of prejudice, we need not address whether

questions of material fact exist with regard to the prejudicial

effect   of   late   notice.   Where    a   trial   court   grants   summary

judgment, but fails to consider an element of a cause of action or

defense, it has erred, not because it has decided factual issues

properly reserved for trial, but because it has failed to determine

that no genuine issue of material fact exists with respect to the

omitted element.     See Trevino v. Celanese Corp., 

, 407

(5th Cir. 1983).      As such, it will be the task of the district

court on remand to determine whether Ridglea has raised questions

of material fact as to whether Lexington was prejudiced by its

breach of the policy's prompt notice provision.5

                                  III

     For the reasons set forth above, we VACATE the district

court’s grant of summary judgment for Lexington and REMAND for (1)

a determination of whether Ridglea has raised questions of material

fact as to whether Lexington’s defense was prejudiced by Ridglea’s




     5
       Although we have agreed with the district court that failure
to give notice for six years is "unreasonable" as a matter of law,
the parties have not cited, and we have not found, any Texas case
holding that a six-year delay gives rise to a presumption of
prejudice, rebuttable or irrebuttable.

                                   14
breach of the prompt notice provision; and (2) if such questions

exist, trial on the merits.

                          VACATED and REMANDED with instructions.




                               15