Balandran v. Safeco Ins. Co. of America

• Citation: 972 S.W.2d 738
• Decision Date: 03 July 1998
• Docket Number: No. 97-1093,97-1093
• Parties: 41 Tex. Sup. Ct. J. 1153 Joe BALANDRAN and Dolores Balandran, Appellants, v. SAFECO INSURANCE COMPANY OF AMERICA, Appellee.
• Court: Texas Supreme Court

Page 738

972 S.W.2d 738

41 Tex. Sup. Ct. J. 1153

Joe BALANDRAN and Dolores Balandran, Appellants, v. SAFECO INSURANCE COMPANY OF AMERICA, Appellee.

No. 97-1093.

Supreme Court of Texas.

Argued Feb. 4, 1998.

Decided July 3, 1998.

John R. Harrison, San Antonio, for Appellants.

Brian Blakeley, San Antonio, Dan Morales, Austin, for Appellee.

PHILLIPS, Chief Justice delivered the opinion of the Court, in which GONZALEZ, ENOCH, SPECTOR, BAKER, ABBOTT and HANKINSON, Justices join.

This case comes to us on a certified question from the United States Court of Appeals for the Fifth Circuit. The issue certified is whether the 1991 Texas Standard Homeowner's Policy--Form B covers damage to the insured's dwelling from foundation movement caused by an underground plumbing leak. We hold that the policy provides this coverage.

I

Safeco Insurance Company of America insured the home of Joe and Dolores Balandran. The form of the policy was the 1991 Texas Standard Homeowner's Policy--Form B. In September 1993, the Balandrans filed a claim against Safeco for damage to their home caused by an underground plumbing leak. The leak caused the soil to expand, damaging the home's foundation as well as its interior and exterior finishes. When Safeco denied the claim, the Balandrans sued the company in state district court. Safeco removed the case to federal court on diversity jurisdiction.

At trial, the jury found that the structural damage was caused by the plumbing leak and awarded the Balandrans $66,500. Safeco, however, moved for judgment as a matter of law, contending that the Balandrans' policy excluded this structural damage regardless of the underlying cause. The trial court granted this motion, rendering a take-nothing judgment for Safeco.

The Balandrans appealed to the Fifth Circuit Court of Appeals. While their appeal was pending, a separate Fifth Circuit panel considered this issue, holding that an identical policy did not provide coverage for foundation damage from a plumbing leak. See Sharp v. State Farm Fire & Cas. Ins. Co., 115 F.3d 1258 (5th Cir.1997). Subsequently, however, the Texas Commissioner of Insurance issued a bulletin vigorously disagreeing with the Sharp decision. See TEX. DEP'T OF INS. BULLETIN B-0032-97 (Aug. 22, 1997). In light of these developments, the panel hearing the Balandrans' appeal certified to us the controlling question regarding policy coverage.

II

The Balandrans' policy provides two types of coverage. "Coverage A" insures the dwelling itself, while "Coverage B" insures personal property. Coverage A provides the following protection:

We insure against all risks of physical loss to the [dwelling] unless the loss is excluded in Section I Exclusions.

The exclusion relevant to this case is 1(h), which provides:

We do not cover loss under Coverage A (Dwelling) caused by settling, cracking, bulging, shrinkage, or expansion of foundations, walls, floors, ceilings, roof structures, walks, drives, curbs, fences, retaining walls or swimming pools.

We do cover ensuing loss caused by collapse of building or any part of the building, water damage or breakage of glass which is part of the building if the loss would otherwise be covered under this policy.

Safeco argues that the damage to the Balandrans' home clearly falls under this exclusion.

The Balandrans apparently concede that, if the exclusion applies, it excludes their claim. However, they present three arguments about why the exclusion does not apply. First, they contend that language in Coverage B (the personal property section of the policy) creates an exception to exclusion 1(h) when the structural damage results from a plumbing leak. Second, they argue that exclusion 1(h) does not apply to structural damage resulting from an underlying cause--in this case a plumbing leak--which itself is not an excluded peril under the policy. Finally, the Balandrans argue that the last sentence of exclusion 1(h) (the "ensuing loss" provision) creates an exception to exclusion 1(h) under the present circumstances. Because we conclude that the Balandrans are entitled to prevail on their first argument, we do not reach the other two.

III

A

Unlike Coverage A, which insures the dwelling against "all risks," Coverage B insures personal property only against twelve enumerated perils. The ninth of these twelve perils is:

Accidental Discharge, Leakage or Overflow of Water or Steam from within a plumbing, heating or air conditioning system or household appliance.

A loss resulting from this peril includes the cost of tearing out and replacing any part of the building necessary to repair or replace the system or appliance. But this does not include loss to the system or appliance from which the water or steam escaped.

Exclusions 1.a through 1.h under Section I Exclusions do not apply to loss caused by this peril.

(bold in original, italics added). Even though Coverage B deals with personal property loss, which the Balandrans did not suffer, the Balandrans rely heavily on the last sentence quoted above. They argue that this provision (the "exclusion repeal provision") means exactly what it says: Exclusions 1(a) through 1(h) do not apply to a loss caused by a plumbing leak. Because exclusion 1(h) does not apply to the Balandrans' loss, it is covered under Coverage A, which insures against any risk to the dwelling. In other words, the exclusion repeal provision, on its face, applies to any "loss," not just personal property losses.

Safeco, relying on the structure of the policy, argues that the exclusion repeal provision applies only to personal property losses resulting from a plumbing leak. Because Coverage B deals with personal property coverage, Safeco contends that the exclusion repeal provision should be similarly limited. Safeco argues that we may not construe this sentence without considering its context within the policy. See State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.1995) ("[C]ourts must be particularly wary of isolating from its surroundings or considering apart from other provisions a single phrase, sentence, or section of a contract.").

As we have already noted, one Fifth Circuit panel has adopted Safeco's approach. See Sharp v. State Farm Fire & Cas. Ins. Co., 115 F.3d 1258 (5th Cir.1997). Under identical facts, the court held that the damage to the dwelling was excluded under exclusion 1(h), and that the exclusion repeal provision applied only to personal property losses:

We are sympathetic to the Sharps' situation, but we cannot agree that text specifically included in Coverage B, which applies only to personal property, may be imported into Coverage A, which applies to the dwelling or house, in order to create coverage for a loss that does not involve personal property damage. The Sharps' policy clearly and unambiguously divides dwelling losses and personal property losses into two separate "coverages." It therefore would appear to be nonsensical, and a rejection of the obvious structure of the policy, to reach into text that applies solely to Coverage B (Personal Property) to determine the extent of coverage provided under Coverage A (Dwelling).

115 F.3d at 1262.

B

Several rules of construction guide our consideration of this issue. First, insurance If, after applying these rules, a contract is subject to two or more reasonable interpretations, it is ambiguous. See National Union, 907 S.W.2d at 520. Where an ambiguity involves an exclusionary provision of an insurance policy, we "must adopt the construction ... urged by the insured as long as that construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent." National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991); see also Glover v. National Ins. Underwriters, 545 S.W.2d 755, 761 (Tex.1977). ¹

                contracts are subject to the same rules of construction as other contracts.  See Beaston, 907 S.W.2d at 433;  National Union Fire Ins. Co. v. CBI Indus., 907 S.W.2d 517, 520 (Tex.1995);  Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994).  Our primary goal, therefore, is to give effect to the written expression of the parties' intent.  See Beaston, 907 S.W.2d at 433;  Forbau, 876 S.W.2d at 133.   We must read all parts of the contract together, see Beaston, 907 S.W.2d at 433, striving to give meaning to every sentence, clause, and word to avoid rendering any portion inoperative.  See United Serv.  Auto. Ass'n v. Miles, 139 Tex. 138, 161 S.W.2d 1048, 1050 (1942).  While parol evidence of the parties' intent is not admissible to create an ambiguity, see National Union, 907 S.W.2d at 520, the contract may be read in light of the surrounding circumstances to determine whether an ambiguity exists.  See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.1996);  National Union, 907 S.W.2d at 520
                

Applying these rules, we conclude that the exclusion repeal provision is subject to two reasonable interpretations, and is therefore ambiguous. We are mindful of the Fifth Circuit's reasoning in Sharp, and we agree that it reflects one reasonable interpretation of the policy language. However, the Balandrans' interpretation is also reasonable. First, the policy on its face states that exclusion 1(h) does not apply to "loss" caused by a plumbing leak; this repeal of exclusion 1(h) is not expressly limited to "personal property loss." That the exclusion repeal provision is contained in Coverage B does not necessarily dictate Safeco's narrow reading. Instead, the exclusion repeal provision could be located under Coverage B simply because that is the only place in the policy that the "accidental discharge" risk is specifically described. Because the exclusion repeal provision applies solely to that risk, it is logical for it to be adjacent to the policy's description of the risk.

Further, Safeco's construction of the policy...