Betco Scaffolds Co. Houston United Cas.

• Decision Date: 12 October 2000
• Citation: 29 S.W.3d 341
• Parties: <!--29 S.W.3d 341 (Tex.App.-Houston 2000) BETCO SCAFFOLDS COMPANY, INC., Appellant V. HOUSTON UNITED CASUALTY INSURANCE COMPANY, Appellee NO. 14-98-00179-CV In The Fourteenth Court of Appeals
• Court: Texas Court of Appeals

Page 341

29 S.W.3d 341 (Tex.App.-Houston [14th Dist.] 2000)

BETCO SCAFFOLDS COMPANY, INC., Appellant

V.

HOUSTON UNITED CASUALTY INSURANCE COMPANY, Appellee

NO. 14-98-00179-CV

In The Fourteenth Court of Appeals

October 12, 2000.

On Appeal from the 333rd District Court Harris County, Texas trial Court Cause No. 96-40980 En Banc Panel consists of Chief Justice Murphy and Justices Yates, Maurice E. Amidei, Anderson, Hudson, Fowler, Edelman, Wittig, Frost, and Draughn ^*.

MAJORITY OPINION ON MOTION FOR REHEARING EN BANC

EDELMAN, Justice.

Appellant's motion for rehearing en banc is overruled, the opinion issued in this case on August 12, 1999, is withdrawn, and the following majority and dissenting opinions are issued in its place.

In this insurance coverage case, Betco Scaffolds Company, Inc. ("Betco") appeals a summary judgment entered in favor of Houston United Casualty Insurance Company ("Houston United") on the grounds that: (1) coverage of Betco's claim is not barred by: (a) the "inventory exclusion" provision of the policy; or (b) Betco's failure to fully comply with the policy's sworn proof of loss provision; (2) Houston United acted in bad faith with regard to the spoliation of Betco's claim files and by not investigating Betco's claim; (3) a private cause of action exists for violation of Board Order 27085; and (4) Houston United did not have a reasonable basis to deny Betco's claim. Because we conclude that coverage of Betco's claim is barred by the inventory exclusion provision of the policy, we affirm.

Background

Houston United issued Betco an insurance policy (the "policy") insuring against theft, among other things. On June 13 and July 3 of 1995, Betco allegedly suffered two burglaries on its property (the "June and July losses"). Betco promptly reported these losses to the local police but did not report them to Houston United until after a further shortage was discovered in Betco's annual September 30 physical inventory (the "September shortage"). Houston United denied Betco's claim for coverage of the September shortage on the grounds that: (a) Betco did not file a sworn proof of loss within ninety-one days of the dates of the June and July losses as provided in the "proof of loss" provision of the policy; and (b) the September shortage fell within the "inventory exclusion" provision of the policy because Betco discovered it upon taking inventory.

Betco thereafter sued Houston United for breach of contract, breach of the duty of good faith and fair dealing, deceptive trade practices, and violations of the Texas Insurance Code. Houston United moved for summary judgment against the contractual claims on the grounds that coverage was precluded by the proof of loss and inventory exclusion provisions of the policy. Houston United moved for summary judgment against the extra-contractual claims on the grounds that: (1) it had a reasonable basis to deny Betco's claim; (2) the extra-contractual claims were barred by the lack of a contractual claim; (3) the dispute over the claim was bona fide as a matter of law; (4) there is no private right of action for violation of Board Order 27085; and (5) Houston United did not violate the Texas Deceptive Trade Practices Act ("DTPA") or Texas Insurance Code. The trial court entered two orders granting take nothing summary judgments against Betco's contractual and extra-contractual liability claims, respectively, without stating the grounds upon which either order was granted.

Standard of Review

A summary judgment may be granted if the evidence referenced in the motion or response shows that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion or response. See Tex. R. Civ. P. 166a(c). A defendant may obtain a summary judgment by disproving at least one element of each of the plaintiff's claims or by establishing all elements of an affirmative defense to each claim. See American Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997). In reviewing a summary judgment, we take as true all evidence favorable to the nonmovant and indulge every reasonable inference and resolve any doubts in the nonmovant's favor. See Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999). When the grounds for granting a summary judgment are not stated in the trial court's order, it may be affirmed on any grounds in the motion that have merit. See Bradley v. State ex rel. White, 990 S.W.2d 245, 247 (Tex. 1999).

Inventory Exclusion Provision

The first of Betco's four points of error argues that its contractual claims were not barred by the inventory exclusion provision of the policy (the "inventory exclusion provision") which states "This policy does not insure against . . . [l]oss or shortage disclosed upon taking inventory." Betco contends that such a provision excludes only a "paper" loss, i.e., a loss reflected solely on the insured's books, such as from a record-keeping error, but does not exclude an actual shortage of goods that is discovered upon taking a physical inventory. See Betty v. Liverpool & London & Globe Ins. Co., 310 F.2d 308 (4th Cir. 1962). Betco further asserts that a construction of the provision favoring the insured must be adopted because the provision is susceptible to more than one reasonable interpretation.

Insurance contracts are interpreted according to the rules of contract construction. See Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). In construing contracts, our primary concern is to ascertain the true intent of the parties as expressed in the instrument. See id. We give effect to all contract provisions so that none will be rendered meaningless. See id.

Where a policy exclusion is ambiguous, a court must adopt the construction urged by the insured as long as it is not unreasonable, even if the interpretation urged by the insurer appears to be a more reasonable or accurate reflection of the parties' intent.¹ See Balandran v. Safeco Ins. Co., 972 S.W.2d 738, 741 (Tex. 1998). Importantly, however, an ambiguity does not arise merely because the parties advance conflicting interpretations, but only where the language of the policy is subject to two or more reasonable interpretations. See Kelley-Coppedge, 980 S.W.2d at 465. Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered. See id. at 464.

Betco argues that its interpretation is necessarily a reasonable one because at least one court from another jurisdiction has adopted it. On the contrary, insurance policy provisions are not susceptible to more than one reasonable interpretation, and thus ambiguous, merely because other jurisdictions have reached differing conclusions about similar provisions. See Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 459 (Tex. 1997). Rather, although "[o]pinions from other states about insurance policy interpretation can be persuasive, . . . ambiguity is for this Court to decide." Id.² Therefore, with due consideration of the reasoning of decisions from other jurisdictions, we must reach our own determination as to whether Betco's interpretation is reasonable.

The parties have cited and we have found no Texas court opinion interpreting the effect of a similar provision. Even decisions from other jurisdictions have rarely specifically construed "disclosed on taking inventory" language.³ Of those which have, at least two have merely enforced the exclusion according to its plain meaning without much analysis.⁴ A third case, and that upon which Betco primarily relies, reached the opposite result because the court felt that such an exclusion was unfair and unreasonable:

In order to affirm the judgment below it is necessary to construe the exceptive clause of the policy to mean that no loss is covered if it is first discovered upon taking inventory, no matter what proof may be subsequently brought to light showing the loss to be clearly within the risks for which the policy was written. We feel that such a construction would be unrealistic. It does not seem reasonable to us that business men would enter into an agreement to insure against a loss discovered in one way and not insure against the same loss if it should be discovered in another way. We are, therefore, unable to accept this interpretation of the words under the circumstances of this case.

On the other hand, it would be both reasonable and fair for an insurer to except itself from a loss or shortage reflected solely on the insured's books and not substantiated by any independent external proof - a mere theoretical inventory loss. Such an interpretation is compatible with the other provisions of the exceptive clause which excludes "unexplained loss or mysterious disappearance."[ ⁵ ]

See Betty, 310 F.2d at 310. By contrast, Texas "courts cannot make new contracts between the parties, but must enforce the contracts as written." Royal Indem. Co. v. Marshall, 388 S.W.2d 176, 181 (Tex. 1965).

In this case, relevant provisions of the policy provide:

3. This policy insures against all risks of direct physical loss of or damage to the insured property from any external cause, except as hereinafter excluded.

4. This policy does not insure against:

* * *

(b)Loss or shortage disclosed upon taking inventory; . . .

Paragraph 3 establishes the overall scope of the policy to insure only against actual physical losses from external causes. In theory, a loss or shortage disclosed upon taking inventory can be the result of a variety of causes, such as: (1) errors not discovered in previous inventories; (2) errors or fraud in recording incoming and/or outgoing inventory; (3) errors or fraud in counting the current inventory; (4) theft by employees; or (5) theft by outsiders. Obviously, not all of these possibilities involve an actual...