American Mfrs. Mut. Ins. Co. v. Schaefer

• Decision Date: 17 October 2003
• Docket Number: No. 02-0295.,02-0295.
• Citation: 124 S.W.3d 154
• Parties: AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY, et al. v. Gary SCHAEFER, Individually and as Representative of All Persons Similarly Situated.
• Court: Texas Supreme Court

124 S.W.3d 154

AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY, et al. v. Gary SCHAEFER, Individually and as Representative of All Persons Similarly Situated.

No. 02-0295.

Supreme Court of Texas.

Argued February 19, 2003.

Decided October 17, 2003.

Heather Donise Bailey, Haynes & Boone, LLP, Dallas, Amicus Curiae for Heather McDaniel Bailey.

Sean D. Jordan, Jackson Walker, LLP, Austin, Amicus Curiae for Mid-Century Insurance Company.

Roger Higgins, Thompson Coe Cousins and Irons, Dallas, Amicus Curiae for National Association of Independent.

Larry F. York, York Keller & Field, LLP, Austin, Amicus Curiae for State Farm Mutual Automobile.

Scott K. Field, York Keller & Field, Austin, Amicus Curiae for State Farm Mutual Automobile I.

Jo Beth Eubanks, Pamela G. Matthews, Akin Gump Strauss Hauer & Feld, San Antonio, for Petitioner American Manufacturers Mutual Insurance Co.

David A. Jones, Akin Gump Strauss Hauer & Feld, San Antonio, for Petitioners American Motorists Insurance and American Protection Insurance.

Barry A. Chasnoff, Akin Gump Strauss Hauer & Feld, San Antonio, for Petitioner Kemper National Insurance Co.

David Roy Nelson, Akin Gump Strauss Hauer & Feld, San Antonio, for Petitioner Lumbermen's Mutual Casualty.

Christopher A. Kesler, Bruce B. Kemp, Kemp & Kesler, L.L.P., Sylvia Davidow, George M. Fleming, D'Lisa R. Simmons, Scott Anthony Love, Anita F. Kawaja,

Fleming & Associates, L.L.P., T. Gerald Treece, South Texas College of Law, Michael O'Brien, Houston, for Gary Schaefer.

Justice O'NEILL delivered the opinion of the Court.

In this case, we must decide whether the Texas Standard Personal Auto Policy obligates an insurer to compensate a policyholder for a vehicle's diminished market value when the car has been damaged but adequately repaired. We hold that it does not, and accordingly reverse the court of appeals' judgment.

I

Gary Schaefer purchased a standard automobile insurance policy¹ from American Manufacturers Mutual Insurance Company (AMM). Part D of the policy, entitled "Coverage for Damage to Your Auto," provides that AMM will pay for "direct and accidental loss to your covered auto ...." The payment obligation is subject to a contractual limitation of liability that reads, in pertinent part, as follows:

LIMIT OF LIABILITY

Our limit of liability for loss will be the lesser of the:

1. Actual cash value of the stolen or damaged property; or

2. Amount necessary to repair or replace the property with other of like kind and quality; or

3. Amount stated in the Declarations of this policy.

The policy also provides for the method of paying the loss:

PAYMENT OF LOSS

We may pay for loss in money or repair or replace the damaged or stolen property.

In October 1995, Schaefer's vehicle was involved in an accident. It was inspected by an AMM adjuster, and the insurance company elected to repair the vehicle. Schaefer does not dispute the quality or adequacy of the repairs. Instead, he maintains that its value decreased $2,600 due to market perceptions that a damaged and subsequently repaired vehicle is worth less than one that has never been damaged. Schaefer claims that the policy obligates AMM to compensate him for that diminished value.

Schaefer filed this class action against AMM and several other insurance companies that issue policies containing the same standard language.² He claims that AMM's refusal to compensate him for his vehicle's diminished market value violated the Texas Insurance Code and breached the insurance contract. Before any class was certified, Schaefer filed a motion for partial summary judgment arguing that AMM was liable for his vehicle's diminished value as a matter of law. AMM responded and filed a cross-motion for summary judgment on the same issue. The trial court granted AMM's motion and denied Schaefer's.

The court of appeals reversed the trial court's summary judgment in AMM's favor holding that Schaefer could seek diminished-value damages under the policy and that the jury should determine if the repairs did or could restore the vehicle to "substantially the same condition and value" it had prior to the accident. 65 S.W.3d 806, 810. The court expressly declined to follow a recent decision from the Fourteenth Court of Appeals, Carlton v. Trinity Universal Ins. Co., 32 S.W.3d 454 (Tex. App.-Houston [14th Dist.] 2000, pet. denied), which held that the same policy language did not obligate an insurer to pay diminished-value damages for a vehicle that was adequately repaired. Two other courts of appeals have also declined to follow Carlton. See State & County Mut. Fire Ins. Co. v. Macias, 83 S.W.3d 304 (Tex.App.-Corpus Christi 2002, pet. filed); Bailey v. Progressive County Mut. Ins. Co., 78 S.W.3d 708 (Tex.App.-Dallas 2002, pet. filed). Courts in other states have similarly split over this issue. We granted AMM's petition to resolve the conflict among our courts of appeals.

II

We interpret insurance policies in Texas according to the rules of contract construction. Tex. Farmers Ins. Co. v. Murphy, 996 S.W.2d 873, 879 (Tex.1999); Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998). If policy language is worded so that it can be given a definite or certain legal meaning, it is not ambiguous and we construe it as a matter of law. See Kelley-Coppedge, 980 S.W.2d at 464 (quoting Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995)); cf. Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). Whether a contract is ambiguous is itself a question of law. Kelley-Coppedge, 980 S.W.2d at 464. An ambiguity does not arise simply because the parties offer conflicting interpretations. Id. at 465; see also Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458 (Tex.1997). An ambiguity exists only if the contract language is susceptible to two or more reasonable interpretations. Kelley-Coppedge, 980 S.W.2d at 465. When construing the policy's language, we must give effect to all contractual provisions so that none will be rendered meaningless. Id. at 464.

The parties dispute whether the policy language obligates AMM to pay Schaefer for the diminished value of his fully repaired vehicle. Schaefer argues that a vehicle's diminished market value is a "direct or accidental loss" that AMM is required to compensate under the policy's insuring provision. Schaefer contends that construing the policy otherwise frustrates its underlying purpose to fully indemnify the insured. Citing as authority a number of cases from Texas and other jurisdictions, Schaefer contends that the policy language requiring AMM to pay the amount necessary "to repair or replace" with "other of like kind and quality" contemplates the payment of diminished value.³ AMM's payment obligation is further evidenced, Schaefer claims, by the policy's failure to expressly exclude diminished value from coverage under the policy's "Exclusions" section.

While Schaefer focuses on the "loss" language of the policy's insuring provision, AMM emphasizes the limitation of liability and payment provisions. AMM does not dispute that the term "loss" could encompass diminished value, but contends that the insuring language must be construed in light of the "Limit of Liability" section, which limits the insurer's liability to the lesser of the vehicle's actual cash value or the amount necessary to repair or replace it. According to AMM, the term "repair or replace" does not encompass any concept of "value." Like Schaefer, AMM cites cases from Texas and other jurisdictions that support its position.⁴ AMM also urges our consideration of the Texas Department of Insurance's interpretation of the policy language as not obligating an insurer to pay for a fully repaired vehicle's diminished value. See Tex. Dep't of Ins. Commissioner's Bulletin, No. B-0027-00 (Apr. 6, 2002) ("[A]n insurer is not obligated to pay a first party claimant for diminished value when an automobile is completely repaired to its pre-damage condition. The language of the insurance policy does not require payment for, or refer to, diminished value.").

III

We agree with AMM that the policy's plain language, when read in context, giving effect to all contractual provisions, is unambiguous and does not require payment for diminished value when a vehicle has been fully and adequately repaired. While a vehicle's diminished value may be a "direct loss" under the policy's insuring provision, AMM's obligation to compensate the insured for that loss is circumscribed by the policy's "Limit of Liability" section. That section states, in pertinent part, that AMM's liability for loss is limited to the damaged vehicle's "actual cash value" or the amount needed "to repair or replace" the vehicle, whichever is less. We must give the policy language its ordinary and generally accepted meaning unless the policy shows that the words used are intended to impart a technical or different meaning. Sec. Mut. Cas. Co. v. Johnson, 584 S.W.2d 703, 704 (Tex.1979).

The concept of "repair" with regard to a vehicle connotes something tangible, like removing dents or fixing parts. See Black's Law Dictionary 1298 (6th ed.1990) (defining "repair" as "to mend, remedy, restore, renovate; to restore to a sound or good state after decay, injury, dilapidation or partial destruction"); see also Siegle v. Progressive Consumers Ins. Co., 819 So.2d 732, 736 (Fla. 2002) (stating "`repair' means to restore by replacing a part or putting together what is torn or broken"); Carlton, 32 S.W.3d at 464 (defining "repair" as "bring[ing] back to good or useable condition"). We do not believe that the ordinary or generally accepted meaning of the word "repair" connotes compensating for the market's perception that a damaged but fully and adequately repaired vehicle has an intrinsic value less than that of a never-damaged car. See Hall v. Acadia Ins. Co., 801 A.2d 993, 995 (Me.2002) (stating "[t]he act of repairing an object typically focuses upon restoring the...