Case: 10-50283 Document: 00511455381 Page: 1 Date Filed: 04/25/2011




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                              FILED
                                                                April 25, 2011

                                 No. 10-50283                   Lyle W. Cayce
                                                                     Clerk

MARYLAND CASUALTY COMPANY,

                                           Plaintiff–Appellee
v.

ACCEPTANCE INDEMNITY INSURANCE COMPANY,

                                           Defendant–Appellant




                Appeal from the United States District Court
                     for the Western District of Texas


Before KING, DAVIS, and SOUTHWICK, Circuit Judges.
KING, Circuit Judge:
      Appellant Acceptance Indemnity Insurance Company filed a motion for
panel rehearing in this case. The motion is granted. The prior opinion issued
on March 24, 2011, Maryland Casualty Co. v. Acceptance Indemnity Insurance
Co., — F.3d —, 

(5th Cir. 2011), is withdrawn and the
following opinion is substituted in its place. No member of the panel nor judge
in regular active service on the court having requested that the court be polled
on rehearing en banc, the petition for rehearing en banc is denied.
      This case arises from Appellant Acceptance Indemnity Insurance
Company’s refusal to defend and indemnify its insured in an underlying lawsuit
in Texas state court. Appellee Maryland Casualty Company defended and
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                                  No. 10-50283

settled that lawsuit on behalf of their common insured, and then sued
Acceptance in diversity to recover Acceptance’s share of those costs under
theories of contribution and subrogation.      Acceptance moved for summary
judgment on all of Maryland’s claims. The district court found that Acceptance
had a duty to defend its insured. It dismissed Maryland’s claim for contribution,
but the subrogation claim went to trial and the jury rendered a verdict against
Acceptance, which the district court upheld against Acceptance’s post-verdict
challenges. We affirm.
                                BACKGROUND
      In 2002, Hugh McGee hired Russell Guidry d/b/a Olympic Pools (“Guidry”)
to build a “negative edge” swimming pool at McGee’s home in Lakeway, Texas.
The pool underwent several repairs over the next few years as four leaks and a
large crack developed. In April 2003, just after the pool had been completed and
filled with water for the first time, there was a leak under the northeast flower-
bed planter. Guidry repaired that leak. In March 2005, the second and third
leaks occurred: one in the pump/equipment area, and another under the pool
shell near the main drain. The leak under the pool shell caused the pool level
to drop twenty-four inches in sixteen hours, eventually draining the pool within
two days. After the pool had drained, McGee’s property manager noticed a long
crack running the length of the negative edge wall across the basin. A different
company was hired to fix the leak under the shell and to chisel, epoxy, and re-
plaster over the crack. The fourth leak occurred in August or September 2005,
after which McGee hired an engineer to analyze the pool structure.
      In December 2006, McGee filed suit against Guidry in Texas state court,
alleging that Guidry and his subcontractors had failed to exercise ordinary care
in designing and building the pool, resulting in physical damage to and loss of
use of the pool and other damage due to leaks. Guidry tendered McGee’s claim
to two insurers, Maryland Casualty Company (“Maryland”) and Acceptance

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Indemnity Insurance Company (“Acceptance”), which had issued four separate
commercial general liability policies to Guidry as follows:
            Insurer:           Effective Dates:
            Maryland           May 11, 2002 to May 11, 2003
            Acceptance         August 11, 2003 to August 11, 2004
            Acceptance         August 25, 2004 to August 25, 2005
            Acceptance         September 9, 2005 to September 9, 2006
      Maryland agreed to defend Guidry, but Acceptance denied any obligation
to defend or indemnify Guidry against McGee’s claims. Maryland eventually
paid $590,000 to settle the lawsuit in exchange for a full and final release of
McGee’s claims. Maryland then brought an action against Acceptance in federal
court, requesting a declaration that Acceptance owed a duty to defend and
indemnify Guidry, and seeking—under theories of contribution, contractual
subrogation, and equitable subrogation—Acceptance’s pro rata share of the costs
that Maryland incurred to defend and settle McGee’s claims.
      Acceptance moved for summary judgment on April 2, 2009, arguing that
it had no duty to defend and that the Texas Supreme Court’s holding in Mid-
Continent Insurance Co. v. Liberty Mutual Insurance Co., 

(Tex.
2007), barred Maryland’s claims for subrogation and contribution. The district
court held that Acceptance had a duty to defend, and that Maryland was
therefore entitled to recover a pro rata portion of its defense costs. The court
granted Acceptance summary judgment on the contribution claim but denied
summary judgment on the subrogation claim, distinguishing Mid-Continent on
the grounds that Acceptance completely refused to defend and indemnify its
insured, and that Maryland and Acceptance were not co-insurers because they
issued separate, consecutive policies that did not provide overlapping coverage
for the same claim.
      The surviving subrogation claim went to trial on October 19, 2009. At the
close of Maryland’s evidence, Acceptance orally moved for a directed verdict on

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the ground that Maryland’s claim for subrogation was precluded by Mid-
Continent. The court denied the motion after the case was submitted to the jury.
The jury found that the property damage that was the basis of McGee’s
underlying lawsuit was an “occurrence” covered by Acceptance’s policy, and that
75% of the $590,000 paid by Maryland to settle McGee’s claims was paid to
resolve claims for property damage that first occurred during one of Acceptance’s
policy periods. The jury also found that the damage to the pool had not been
caused by the subsidence of land, and that none of the $590,000 paid to settle the
claim was paid to resolve punitive or exemplary damages, thereby rejecting two
of Acceptance’s policy exclusions.
      On November 5, 2009, Acceptance moved for judgment notwithstanding
the verdict. Acceptance asserted three grounds in support of its motion: (1) Mid-
Continent precluded Maryland’s claim for subrogation; (2) the evidence was
insufficient to support the jury’s determination, in Question Two, that some of
the property damage first occurred during one of Acceptance’s policy periods; and
(3) the evidence was insufficient to support the jury’s determination, in Question
Four, that the property damage at issue was not caused by subsidence of earth.
The court declined to revisit the first argument, which it had previously rejected
in denying Acceptance’s motions for summary judgment and for directed verdict,
and refused to address the last two arguments because Acceptance failed to raise
them in a Rule 50(a) motion before the case was submitted to the jury, raising
them instead for the first time in a post-trial Rule 50(b) motion. The court
therefore denied Acceptance’s motion for judgment as a matter of law and
entered final judgment against Acceptance, awarding Maryland damages for
Acceptance’s separate failures to defend and to indemnify Guidry.
      Acceptance then moved for a new trial pursuant to Rule 59. Acceptance
first contended that the jury’s verdict—specifically, its answers to Questions Two
and Four—was against the great weight of the evidence. Second, Acceptance

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argued that the court improperly charged the jury by failing to include
Acceptance’s alternate proposed definition of an “occurrence” in its instructions.
Finally, Acceptance reiterated its argument that Mid-Continent barred
Maryland’s claim for subrogation. The court denied the motion, finding that the
jury’s conclusions as to Questions Two and Four were not against the great
weight of the evidence, that the court did not err in its jury charge, and again
declining to revisit the subrogation issue. Acceptance timely appealed from the
final judgment.
                                 DISCUSSION
      I.    Availability of a Claim for Subrogation under Mid-Continent
      Acceptance argues that the Texas Supreme Court’s decision in Mid-
Continent bars Maryland from recovering from Acceptance under a theory of
subrogation because Guidry, their common insured, has already been fully
indemnified. Acceptance preserved this argument by raising it in its motions for
summary judgment, directed verdict, and judgment as a matter of law. The
availability of a claim for subrogation under Mid-Continent is a question of law
subject to de novo review. See Salve Regina College v. Russell, 

, 231
(1991) (holding that “a court of appeals should review de novo a district court’s
determination of state law”).
      Mid-Continent involved a dispute between two primary liability insurers,
Mid-Continent Insurance Co. (“Mid-Continent”) and Liberty Mutual Insurance
Co. (“Liberty Mutual”), which provided the same insured with coverage under
policies with $1 million limits and standard provisions. 

at 769.
Liberty Mutual also provided additional coverage under a $10 million excess
policy. 

insurers admitted coverage and cooperatively assumed
defense of a lawsuit against their common insured. 

Liberty
Mutual reached a settlement in the amount of $1.5 million and demanded that
Mid-Continent contribute its proportionate part, but Mid-Continent valued the

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case at no more than $300,000 and refused to contribute any more than
$150,000. 

The settlement was eventually funded $1.35 million by
Liberty Mutual and $150,000 by Mid-Continent. 

then sued
Mid-Continent under theories of direct contribution and contractual and/or
equitable subrogation, seeking to recover Mid-Continent’s pro rata portion of the
settlement payment. 

Supreme Court held that Liberty Mutual could not recover
under theories of contractual or equitable subrogation against Mid-Continent.1

Under either theory, “the insurer stands in the shoes of the insured,
obtaining only those rights held by the insured against a third party, subject to
any defenses held by the third party against the insured.” 

had
been fully indemnified against his loss, and therefore had no contractual right
to recover an additional pro rata portion of the settlement from Mid-Continent.

The court held that Liberty Mutual, standing in the shoes of the
insured, likewise had no contractual rights against Mid-Continent that it could
assert in subrogation. 

       We recently rejected an overly broad view of Mid-Continent’s subrogation
exclusion, holding that Mid-Continent does not bar contractual subrogation
simply because the insured has been fully indemnified. See Amerisure Ins. Co.
v. Navigators Ins. Co., 

, 305–07 (5th Cir. 2010). We further held in
Amerisure that Mid-Continent does not bar contractual subrogation where, as
here, an insurer has denied coverage. 

Mid-Continent therefore
does not bar Maryland’s recovery, on a claim of subrogation, of Acceptance’s pro
rata share of the settlement.         Acceptance absolutely refused to defend and



       1
        The court also held that Liberty Mutual did not have a claim for contribution against
Mid-Continent, 

but that portion of its ruling is irrelevant here because
Maryland’s claim for contribution was dismissed by the district court and is not before us on
cross-appeal.

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indemnify Guidry; Maryland’s insurance policy created a right of contractual
subrogation; and its settlement of the McGee lawsuit preserved its right to seek
reimbursement from Acceptance for those indemnification costs.
       Turning to Maryland’s recovery of Acceptance’s share of the defense costs,
Acceptance’s sole argument is that Mid-Continent bars Maryland from recovery.
But as we recently made clear in Trinity Universal Insurance Co. v. Employers
Mutual Casualty Co., 

(5th Cir. 2010), Mid-Continent does not
address the recovery of defense costs from a co-insurer who violates its duty to
defend a common insured.2 

We therefore affirm the district court’s
judgment as to Maryland’s subrogation claim.3
       II.    Jury Instructions
       Acceptance argues that the district court erred in defining “occurrence” in
its instructions to the jury, and that the district court’s incomplete definition
misled and confused the jury as to the law. Acceptance timely objected to the
jury charge, and we therefore review the instructions for an abuse of discretion.
Jowers v. Lincoln Elec. Co., 

, 352 (5th Cir. 2010). “We review a
defendant’s objection to the jury instruction by assessing whether the district
court’s charge, as a whole, was a correct statement of the law and whether it
clearly instructed the jurors as to the principles of the law applicable to the
factual issues confronting them.” United States v. Conner, 

, 486
(5th Cir. 2008).


       2
        Acceptance never presented, and we therefore do not address, the question raised by
Maryland in its response brief whether our holding in Trinity Universal (allowing an insurer
to recover a co-insurer’s share of defense costs under a claim for contribution) extends to
awarding defense costs on a claim for subrogation, as the district court did here. We express
no opinion on this question.
       3
        The district court also based its decision on Maryland’s argument that Mid-Continent
does not apply to cases involving consecutive, rather than concurrent, liability policies.
Because we affirm on the alternate ground that Acceptance denied coverage, we need not
reach the consecutive coverage argument here.

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      The court instructed the jury as follows:
      “Occurrence” means an accident, including continuous or repeated
      exposure to substantially the same general harmful conditions. A
      deliberate act, performed negligently, is an accident if the effect is
      not the intended or expected result.
The first sentence is quoted from Acceptance’s policy language, while the second
sentence—proffered by Maryland—is language taken from the Texas Supreme
Court’s opinion in Lamar Homes, Inc. v. Mid-Continent Casualty Co., 

(Tex. 2007).
      Acceptance argues that the district court should have included the
following third sentence: “An occurrence is not an accident if circumstances
confirm that the resulting damage was the natural and expected result of the
insured’s actions, that is, was highly probable whether the insured was negligent
or not.”   This language is also taken from Lamar, and directly follows the
language that was proffered by Maryland and accepted by the district court. See

Acceptance contends that the district court’s refusal to include this
third sentence resulted in an unbalanced instruction, giving the jury a
misleading or inadequate understanding of what constitutes an “occurrence” and
tilting the playing field in Maryland’s favor.
      It seems to us that Acceptance’s proffered instruction on what is not an
occurrence is fairly close to the converse of the instruction that was already
given to the jury.   See Davis v. Ector Cnty., 

, 786 (5th Cir. 1994)
(“The district court has wide latitude in instructing the jury on the law and we
will thus ignore technical imperfections.” (citation and internal quotation marks
omitted)). This point is bolstered by the fact that Acceptance has not shown how
it would have argued the case any differently had the court given its requested
instruction. See 

we will reverse if we conclude that, based upon
the record, an erroneous instruction affected the outcome of the case).
Furthermore, including both definitions may have risked confusing the jury. See

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of the reviewing court with respect to instructions is to satisfy
itself that the instructions show no tendency to confuse or mislead the jury with
respect to the applicable principles of law.” (citation and internal quotation
marks omitted)). We therefore hold that the district court did not abuse its
discretion in excluding Acceptance’s proffered instruction.4
       III.   Insufficiency of the Evidence
       Finally, Acceptance argues that the district court erred in denying its
motion for judgment as a matter of law because Maryland’s evidence was legally
insufficient to support the jury’s verdict as to Questions Two and Four.5
Acceptance raised this argument for the first time in its post-verdict motion
under Rule 50(b); it did not move for judgment as a matter of law under Rule
50(a) before the case was submitted to the jury. As we have previously stated:
       If a party fails to move for judgment as a matter of law under [Rule]
       50(a) on an issue at the conclusion of all of the evidence, that party
       waives both its right to file a renewed post-verdict Rule 50(b) motion
       and also its right to challenge the sufficiency of the evidence on that
       issue on appeal. As such, it is the unwavering rule in this Circuit
       that issues raised for the first time on appeal are reviewed only for
       plain error. On plain error review, the question for this court is not
       whether there was substantial evidence to support the jury verdict,


       4
         Acceptance also points to our own use of its proffered language in discussing whether
the negligent construction of a different swimming pool was an “occurrence” in Century Surety
Co. v. Hardscape Construction Specialties, Inc., 

(5th Cir. 2009). However, we
used that language in Century Surety only to show that the Texas Supreme Court has held
that “allegations of unintended construction defects may constitute an ‘accident’ or ‘occurrence’
under commercial general liability (CGL) policies.” 

(quoting 

). In fact, we held in Century Surety that the policy definition of “occurrence” in Century
Surety—which was identical to Acceptance’s policy definition—covered the defective
construction of the swimming pool that was alleged to be a product of the contractor’s
negligence in that case. 

       5
         Acceptance also argues, as a separate issue on appeal, that the trial court “should
have disregarded the jury’s findings and entered judgment in favor of Acceptance because all
of the evidence establishes that the Subsidence Exclusion and Ongoing Damages Exclusion
preclude coverage in this case.” This argument simply repeats Acceptance’s challenge to the
sufficiency of the evidence in Questions Two and Four, and we do not address it separately.

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      but whether there was any evidence to support the jury verdict. If
      any evidence exists that supports the verdict, it will be upheld.
Flowers v. S. Reg’l Physician Servs., 

, 238 (5th Cir. 2001) (emphasis
added) (citations, footnote, and internal quotation marks omitted). We therefore
review for plain error only, and we will not reverse the district court unless there
is no evidence to support the jury’s verdict.
      A.    The “Ongoing Damages” Exclusion (Question Two)
      The “ongoing damages” exclusion in Acceptance’s policies is actually an
endorsement that modifies the coverage agreement. It states that Acceptance’s
insurance coverage applies to “property damage” only if the property damage is
caused by an “occurrence,” and the property damage “first occurs” during the
policy period. “Property damage” is defined in Acceptance’s policies, and was
defined for the jury, as “[p]hysical injury to tangible property, including all
resulting loss of use of that property.”
      Question Two asked the jury: “Did any of the property damage that was
the basis of the lawsuit brought by Hugh McGee first occur during any of the
three Acceptance policy periods?” The jury answered “Yes.”
      There is evidence to show that two significant types of property damage
first occurred during one of Acceptance’s policy periods: the third leak that
drained the pool, and the long crack along the negative edge wall. Hugh McGee
and Stephen LeBreton, McGee’s property manager, both testified that this third
leak occurred in March 2005.         Stewart Verhulst, Maryland’s structural
engineering expert, testified that both this leak and the negative edge wall
crack, which was discovered after the pool had drained, first occurred in March
or April of 2005, well within Acceptance’s second policy period. The factual
testimony of Hugh McGee and Stephen LeBreton, and the expert testimony of
Stewart Verhulst, is evidence that “[some] of the property damage that was the
basis of the lawsuit brought by Hugh McGee first occur[red] during [one] of the


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three Acceptance policy periods.” Because there is some evidence in the record
to support the jury’s verdict on this question, there is no plain error.
      Acceptance does not appear to contest that these damage events of March
2005—the major leak that drained the pool and the crack along the negative
edge wall—occurred during its policy period. Nevertheless, Acceptance argues
that there was no evidence to support the jury’s finding that this damage first
occurred during its policy period. Acceptance’s theory is that the damage to the
pool was entirely caused by Guidry’s alleged failure to properly set the support
piers in the pier-and-beam structure on solid rock in 2003.           This failure,
according to Acceptance, resulted in a continuous movement of earth over the
next few years, which ultimately caused the leaks and the negative edge wall
crack that developed in 2005. Acceptance argues, therefore, that all of the
damage that occurred in 2005—including the major leak and the wall
crack—should merge with the failure to properly set the piers, and should
therefore be deemed to have “first occurred” in 2003, during Maryland’s policy
period.
      This theory required the jury to conclude, as a factual matter, that Guidry
failed to properly set the support piers on solid rock, that this failure caused the
earth to move under the pool structure, and that all the damage to the pool can
be traced to this failure and the resulting movement of earth. However, there
is some evidence from which the jury could have concluded otherwise.
Maryland’s structural engineering expert, Stewart Verhulst, testified that it was
structural movement between the pool shell and the pier-and-beam structure,
as distinct from earth movement, that led to the large crack. Verhulst also
testified that Mike Martinez—one of Guidry’s subcontractors, who testified that
he had not set the support piers on solid rock—was not qualified to testify on
that issue, and that Martinez might have believed that an acceptable limestone
formation was not “solid rock.”

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        Even if the jury had agreed with Acceptance’s premises, Acceptance’s
“bootstrapping” theory of when property damage “first occurs” is foreclosed as
a matter of law. See VRV Dev. L.P. v. Mid-Continent Cas. Co., 

, 458
(5th Cir. 2011) (“ ‘[P]roperty damage’ does not necessarily ‘occur’ at the first link
in the causal chain of events giving rise to that property damage. . . . As the
Texas Supreme Court has instructed, we must focus on the time of the ‘actual
physical damage’ to the property, and not the time of the ‘negligent conduct’ or
the ‘process . . . that later results in’ the damage.” (second alteration in original)
(quoting Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 

, 24,
29–30 (Tex. 2008))); Wilshire Ins. Co. v. RJT Constr., LLC, 

, 225
(5th Cir. 2009).
        In Wilshire, the insured repaired the foundation of a home after the home
was damaged by an accidental discharge of plumbing 

.
When cracks appeared in the walls and ceiling of the home, its owner attributed
the damage to the foundation being out of level and sued the insured. 

        The cracks themselves are physical damage allegedly caused by the
        faulty foundation. This is not a case where latent internal rot long
        lies undiscovered before external signs warn of the festering
        damage. The cracks are not merely a warning of prior undiscovered
        damage; they are the damage itself. It is of no moment that the
        faulty foundation work occurred in 1999 [before the policy period],
        or that the damage was discovered in 2005; it matters only that
        damage was alleged to have occurred in 2005.

(footnotes omitted); see also VRV 

(stating that
in Wilshire, “we refused to conflate an allegedly defective foundation with the
separate property damage that ultimately resulted”).
        Here, the actual physical damage to the property—the leaks and
crack—occurred in March 2005, well within Acceptance’s second policy period.
It is therefore of no moment that any alleged negligence that purportedly later


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                                    No. 10-50283

resulted in this damage occurred during Maryland’s policy period. As we stated
in VRV Development, the Texas Supreme Court instructs us to “focus on the time
of the actual physical damage to the property, and not the time of the negligent
conduct or the process . . . that later results in the damage.” 

at 458
(alteration in original) (citation and internal quotation marks omitted).
      We therefore affirm the district court’s judgment against Acceptance’s
challenge on this ground.
      B.    The “Subsidence of Earth” Exclusion (Question 4)
      The “subsidence of earth” exclusion in Acceptance’s policies reads:
      It is agreed this policy shall not apply to any claim of liability for . . .
      “property damage” caused by, resulting from, attributable or
      contributed to, or aggravated by the subsidence of land as a result
      of landslide, mudflow, earth sinking or shifting, resulting from your
      operations or your subcontractor’s operations.
      It is further agreed we shall have no obligation to defend or
      indemnify any insured for such loss, claim or suit.
      Question Four asked the jury: “Was any of the property damage caused by,
resulting from, attributable or contributed to, or aggravated by the subsidence
of land as a result of landslide, mudflow, earth sinking or shifting, resulting from
Russell Guidry d/b/a Olympic Pools’ operations or his subcontractor’s
operations?” The jury answered “No.”
       There is some evidence in the record to support the jury’s verdict as to
Question Four. Stewart Verhulst, Maryland’s structural engineering expert,
testified that it was structural movement between the pool shell and the pier-
and-beam structure that led to the large crack, and that structural movement
was different and distinct from soil movement.            He also testified that the
measurements he took of the coping elevations gave no indication that the pier-
and-beam structure had moved. Verhulst further testified that he had not




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                                     No. 10-50283

reviewed any evidence to indicate that any landslide, mud flow, earth sinking
or shifting, or erosion was the result of Guidry or his subcontractors’ operations.
      Maryland’s claims adjuster, Kathy Murray, testified that, had she believed
that earth movement led to the leaks and the crack in the pool, she would not
have settled the claim because Maryland also had an earth movement exclusion
that would have allowed it to deny coverage. Maryland’s “earth movement”
exclusion stated, in relevant part, that Maryland would not pay for loss or
damage caused directly or indirectly by “[a]ny earth movement (other than
sinkhole collapse), such as an earthquake, landslide, mine subsidence or earth
sinking, rising or shifting.”
      The expert testimony of Stewart Verhulst and the factual testimony of
Kathy Murray is evidence from which the jury could have concluded that none
of the property damage at issue in this case was “caused by, resulting from,
attributable or contributed to, or aggravated by the subsidence of land as a
result of landslide, mudflow, earth sinking or shifting, resulting from Russell
Guidry d/b/a Olympic Pools’ operations or his subcontractor’s operations.” We
therefore conclude that there was no plain error, and we affirm the district
court’s judgment against this challenge.6
      IV.    Motion for New Trial
      Acceptance contends that the district court erred in denying its motion for
new trial under Rule 59(a). Its arguments in support of this contention have
been addressed and disposed of above. Assuming, without deciding, that we may
review a district court’s decision not to grant a new trial under Rule 59(a), we
necessarily find—given our affirmance of the district court’s judgment against




      6
        Because we affirm on this ground, we do not reach Maryland’s alternative argument
that Acceptance’s subsidence exclusion does not apply as a matter of law.

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                                        No. 10-50283

all of Acceptance’s challenges—that the district court did not err in denying
Acceptance’s motion for new trial.7
                                       CONCLUSION
       For the foregoing reasons, we AFFIRM the judgment of the district court
entered on the verdict in this case.




       7
         “Ordinarily, a district court’s decision not to grant a new trial under Rule 59(a) is not
appealable.” Youmans v. Simon, 

, 349 (5th Cir. 1986); see also 12 Moore’s Federal
Practice § 59.51[1] at 59-133 (3d ed. 2011); 11 Charles Alan Wright, Arthur R. Miller & Mary
Kay Kane, Federal Practice and Procedure § 2818 at 191 (2d ed. 1995). “The only exception
to this rule is when ‘new matters arise after the entry of the judgment.’ ” 

(citation omitted). There are no such new matters here.

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