Fiess v. State Farm Lloyds

Decision Date30 March 2005
Docket NumberNo. 04-1104.,04-1104.
Citation202 S.W.3d 744
PartiesRICHARD FIESS AND STEPHANIE FIESS, Appellants, v. STATE FARM LLOYDS, Appellee.
CourtTexas Supreme Court

Justice BRISTER delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice HECHT, Justice WAINWRIGHT, Justice GREEN, Justice JOHNSON, and Justice WILLETT joined.

SCOTT BRISTER, Justice.

The question in this case is not whether insurers should provide mold coverage in Texas, a public policy question beyond our jurisdiction as a court. The question instead is whether the language in an insurance policy provides such coverage — no more and no less.

The rules for construing insurance policies have been around for a long time, long before this dispute arose. Those rules require us to construe a policy according to what it says, not what regulators or individual insurers thought it said. Ambiguities in the plain language must be settled in favor of consumers, but they must appear in the policy itself — we cannot create ambiguities from previous policies, an agency's interpretation, or a "mold crisis."

The policy here provides that it does not cover "loss caused by mold." While other parts of the policy sometimes make it difficult to decipher, we cannot hold that mold damage is covered when the policy expressly says it is not. Accordingly, we answer the Fifth Circuit's certified question "No."

I. "We do not cover loss caused by mold"

This case comes to us on a certified question1 from the United States Court of Appeals for the Fifth Circuit, which asks us:

Does the ensuing loss provision contained in Section I-Exclusions, part 1(f) of the Homeowners Form B (HO-B) insurance policy as prescribed by the Texas Department of Insurance effective July 8, 1992 (Revised January 1, 1996), when read in conjunction with the remainder of the policy, provide coverage for mold contamination caused by water damage that is otherwise covered by the policy?2

The policy provision in question provides as follows:

We do not cover loss caused by:
(1) wear and tear, deterioration or loss caused by any quality in property that causes it to damage or destroy itself.
(2) rust, rot, mold or other fungi.
(3) dampness of atmosphere, extremes of temperature.
(4) contamination.
(5) rats, mice, termites, moths or other insects.
We do cover ensuing loss caused by collapse of the 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.3

The rules for construing this provision are well settled. If a policy provision has only one reasonable interpretation, it is unambiguous and we must construe it as a matter of law.4 If an exclusion has more than one reasonable interpretation, we must construe it in favor of the insured as long as that construction is not unreasonable.5 A policy provision is not ambiguous merely because different parties or different courts have interpreted it differently.6

As with any other contract, the parties' intent is governed by what they said, not by what they intended to say but did not.7 Moreover, in cases like this involving a standard form policy mandated by a state regulatory agency, we have held for more than 100 years that the actual intent of the parties is not what counts (as they did not write it), but the ordinary, everyday meaning of the words to the general public.8

In this case, it is hard to find any ambiguity in the ordinary meaning of "We do not cover loss caused by mold." While the ensuing-loss clause that follows may be difficult to parse (a matter discussed below), few ordinary people would imagine that it changes the meaning of the first sentence to read "We do too cover loss caused by mold."

The dissent finds this policy ambiguous, primarily by construing the preceding HO-B policy, on the basis that no change was intended when that form was dropped in 1990. Evidence of prior policies is extrinsic evidence, and thus inadmissible unless this policy is ambiguous.9 Ambiguity must be evident from the policy itself; it cannot be created by introducing parol evidence of intent.10 And while we have looked at a prior policy in deciding between reasonable constructions of a current one,11 we have never done so in lieu of construing the current one at all. Given the complexities found in most insurance policies, it is surely wiser to stick with our long-standing legal rule that insurance policies must be construed one policy at a time.

Nor can we agree with the dissent that this policy is ambiguous because the Texas Department of Insurance advances an interpretation that, while not convincing, is a reasonable alternative to our own. It is true that courts give some deference to an agency regulation containing a reasonable interpretation of an ambiguous statute.12 But there are several qualifiers in that statement. First, it applies to formal opinions adopted after formal proceedings, not isolated comments during a hearing or opinions in documents like the Department's amicus brief here.13 Second, the language at issue must be ambiguous; an agency's opinion cannot change plain language.14 Third, the agency's construction must be reasonable;15 alternative unreasonable constructions do not make a policy ambiguous.16 An agency's opinion can help construe an existing ambiguity, but it cannot create one; that the Department agrees with the Fiesses' construction does not make this policy ambiguous.17

Moreover, neglecting what this policy says in favor of what the Department says it intended would raise a host of other problems. First, construing a statewide policy according to what a single regulator, insurer, or insured thought about it would bind many others without hearing what they might have intended. Second, even if no change was intended in 1990, that does not tell us what anyone intended before 1990, an issue we have never addressed. And finally, deriving intent from extrinsic evidence raises a fact question for jurors, not judges;18 while ambiguous exclusions must be construed in favor of the insured as long as that construction is not unreasonable,19 ambiguous intentions are not governed by the same legal rule.

We must of course consider an insurance policy in its entirety. But in doing so, we cannot overlook the obvious — that the policy provision here begins by stating unambiguously, "We do not cover loss caused by mold."

II. "We do cover ensuing loss caused by water damage . . . "

The Fiesses argue that we must disregard how this policy provision starts ("We do not cover loss caused by mold") because of how it ends ("We do cover ensuing loss caused by water damage"). We disagree; it has again long been the rule that we must read all parts of a policy together, giving meaning to every sentence, clause, and word to avoid rendering any portion inoperative.20

In Lambros v. Standard Fire Insurance Co.,21 homeowners alleged underground water cracked the slab of their home. Like the policy here, their policy excluded losses due to cracked foundations, but also stated that this exclusion "shall not apply to ensuing loss caused by . . . water damage." Justice Cadena writing for the Fourth Court of Civil Appeals found that the only reasonable construction of this clause was that it applied when an excluded risk was followed by an intervening occurrence that in turn caused an ensuing loss:

To "ensue" means "to follow as a consequence or in chronological succession; to result, as an ensuing conclusion or effect." An "ensuing loss," then, is a loss which follows as a consequence of some preceding event or circumstance. . . . If we give to the language of the exception its ordinary meaning, we must conclude that an ensuing loss caused by water damage is a loss caused by water damage where the water damage itself is the result of a preceding cause. What is the preceding cause which gives to the exception the effect of taking the ensuing loss out of the reach of exception k [the foundation exception]? Again, the plain language of the exception compels the conclusion that the water damage must be a consequence, i.e., follow from or be the result of the types of damage enumerated in exception k. "Ensuing loss caused by water damage" refers to water damage which is the result, rather than the cause, of "settling, cracking, . . . of foundations . . . "22

This Court refused the application for writ of error, thus giving the Lambros opinion the same force and effect as one of our own.23

The part of the ensuing-loss clause at issue in Lambros is indistinguishable from the part at issue here. The Department of Insurance asserts that the Lambros policy covered fewer water risks and the homeowners' claim did not involve mold. But the relevant ensuing-loss language has changed in no material respect; that Lambros involved a different house, different homeowners, and a different insurer does not make it distinguishable. If Lambros is still the law, then this clause too applies only to losses caused by an intervening cause (like water damage) that in turn follow from an exclusion listed in paragraph 1(f).

The Fiesses and the Department make several arguments for construing ensuing-loss clauses differently, but all would require reversing Lambros. That of course is not out of the question; our opinions are not like the law of the Medes and the Persians — unalterable once written.24 But we are bound to consider the principles of stare decisis before taking such a step.

Stare decisis has its greatest force in cases construing statutes, partly because our errors may be corrected by statutory amendments.25 Although Lambros did not construe a statute, it was the next thing to it — a mandatory policy form promulgated by a state agency that private parties could not alter. If our policy interpretation in Lambros was wrong, it is strange that insurance regulators did nothing to change the policy for a quarter...

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