RSUI Indem. Co. v. Lynd Co.

• Decision Date: 08 May 2015
• Docket Number: No. 13–0080,13–0080
• Citation: 466 S.W.3d 113
• Parties: RSUI Indemnity Company, Petitioner, v. The Lynd Company, Respondent
• Court: Texas Supreme Court

466 S.W.3d 113

RSUI Indemnity Company, Petitioner

v.The Lynd Company, Respondent

No. 13–0080

Supreme Court of Texas.

Argued September 18, 2014

Opinion delivered: May 8, 2015

Rehearing Denied September 11, 2015

Thomas R. Phillips, David F. Johnson, Jay W. Brown, Stephen R. Wedemeyer, Houston, Douglas W. Alexander, Austin, Bruce Wilkin, Houston, for Petitioner RSUI Indemnity Company.

Trey Gillespie, for Amicus Curiae Property and Casualty Insurers Association of America.

Brendan K. McBride, San Antonio, for Amicus Curiae Texas Hotel & Lodging Association, Texas Apartment Association, Inc.

Henry S. Platts Jr., Houston, for Amicus Curiae Axis Surplus Insurance Company.

R. David Fritsche, San Antonio, for Amicus Curiae San Antonio Apartment Association, Inc.

Edwin Todd Lipscomb, Ernest Martin Jr., Dallas, Robert W. Loree, San Antonio, Nina Cortell, Jeremy Daniel Kernodle, Dallas, Thomas H. Crofts Jr., San Antonio, Cassandra Pruski, for Respondent The Lynd Company.

Linda Marie Dedman, Dallas, for Amicus Curiae Texas Policyholder Coverage Lawyers.

Paul Thomas Martin, for Amicus Curiae National Association of Mutual Insurance Companies.

Opinion

Justice Boyd delivered the opinion of the Court, in which Justice Johnson, Justice Willett, Justice Guzman, Justice Lehrmann, and Justice Devine joined.

This appeal involves an excess insurance policy that covered multiple commercial properties and limited the coverage to “the least” of three alternative amounts. When fifteen of the covered properties were damaged in one occurrence, the insurer calculated “the least” of the three alternative limits separately for each covered item at each damaged property, on an item-by-item basis. The insured contends that “the least” of the three limits applies just once in any one occurrence to the total of all losses from all covered items at all of the damaged properties. The trial court agreed with the insurer, and a split court of appeals agreed with insured. We conclude that both constructions are reasonable and the policy is therefore ambiguous. Because we construe an insurance policy's ambiguous language in favor of coverage for the insured, we affirm.

I.Background

The Lynd Company manages the insurance needs of more than 100 commercial properties located in eleven different states. In 2005, Lynd purchased two layers of insurance to cover the properties, which Lynd ultimately valued at a total of about $1 billion. The first layer, a primary policy from Westchester Fire Insurance Company, provided coverage up to $20 million per occurrence. The second layer, an excess policy from RSUI Indemnity Company, covered losses that exceeded $20 million, up to $480 million per occurrence. Instead of identifying the covered properties, the RSUI policy required Lynd to provide a list of the properties to RSUI before the policy became effective. The policy's “Scheduled Limit of Liability” endorsement referred to this list as the “Statement of Values.” In addition to the properties' names, addresses, and other details, the Statement of Values included the values that Lynd or the properties' owners assigned to each of three types or “items” of coverage the policy provided at each location: (1) the building replacement value, (2) the value of the building's contents, and (3) the value of one year's rental income from the property.

The Scheduled Limit of Liability endorsement provided that the policy's premium would be based on the values that Lynd reported in the Statement of Values. The policy also included a Reporting Endorsement, which identified the premium rate as $0.025 per $100 of reported value. The Reporting Endorsement required Lynd to update the Statement of Values quarterly, and sooner for any newly acquired properties that Lynd valued over $1 million. It also provided that RSUI would recalculate the premium every quarter by applying the same $0.025/$100 rate to all values reported for that quarter. Throughout the policy's term, as Lynd added additional properties or increased the values of properties it had previously reported, the parties added four separate endorsements to confirm quarterly increases in the reported values and premium.

The Scheduled Limit of Liability endorsement also provided that the policy would only cover losses “at the locations listed on the latest Statement of Values” and only if “a value is shown for [the] scheduled item.” But the policy did not require Lynd to list any particular properties or report the values with any particular accuracy. As a result, Lynd effectively controlled the amount of the premium it paid through the values it reported in the Statement of Values. For its highest-valued property, Lynd listed about $18.2 million for building replacement, $10,000 for contents, just over $4 million for rental income, and a total insured value of about $22.3 million. It was thus at least possible that a single occurrence could cause losses at that property in excess of Westchester's primary policy's $20 million limit. None of the other listed properties had a total insured value exceeding $20 million. But with the exception of the one most valuable property, Westchester's $20 million primary policy was sufficient to cover all losses that a single occurrence could cause to any one property. In other words, only an occurrence that was catastrophic enough to damage more than one of the listed properties was likely to trigger coverage under RSUI's excess policy.

In September 2005, the Gulf Coast experienced such an occurrence: Hurricane Rita. The storm damaged fifteen of the properties that Lynd had listed in the Statement of Values. The parties agree that a single “occurrence” caused all of the damage and that the combined total of Lynd's resulting losses was just over $24.5 million. After Westchester paid its $20 million limit, RSUI refused to pay the remaining $4.5 million and instead paid Lynd about $750,000. In calculating this amount, RSUI included the actual adjusted amounts of the losses incurred at thirteen of the properties, because those amounts were less than 115% of the values Lynd had listed for those items in the Statement of Values. But one property, the Willow Bend apartment complex, incurred about $5 million in losses, which was about $2 million more than the total insured value that Lynd listed for that property, and another, the Le Chateau apartment complex, sustained about $11 million in losses, nearly $3.5 million more than Lynd's reported total value. For these two properties, RSUI paid 115% of the reported values, rather than the actual adjusted amount of the loss. The parties dispute whether the policy limited RSUI's liability in that manner.

Lynd filed this suit against RSUI to recover the difference between its $24.5 million in losses and the $20,750,000 that Westchester and RSUI had paid, plus statutory prompt-payment penalties, prejudgment interest, and attorney's fees. The parties stipulated to the amounts at issue: about $4.2 million in disputed coverage, $2.5 million in penalties, and $866,000 in interest and attorney's fees, totaling just over $7.5 million. On cross-motions for summary judgment, the trial court agreed with RSUI's construction of the policy and ordered that Lynd recover nothing. The court of appeals agreed with Lynd's construction, reversed, and rendered judgment awarding Lynd the full $7.5 million. That court denied RSUI's motion for rehearing en banc, but three justices dissented, and one of the remaining four wrote separately to urge this Court to grant review and resolve the parties' dispute.

II.Governing Legal Principles

An insurance policy is a contract, generally governed by the same rules of construction as all other contracts. Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 126 (Tex.2010). When construing a contract, our primary concern is to ascertain the intentions of the parties as expressed in the document. Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 514 (Tex.2014). We begin our analysis with the language of the contract because it is the best representation of what the parties mutually intended. Gilbert Tex. Constr., 327 S.W.3d at 126 ; see also Anglo–Dutch Petroleum Int'l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445, 451 (Tex.2011). Unless the policy dictates otherwise, we give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage. See Gilbert Tex. Constr., 327 S.W.3d at 126 ; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). We strive to give effect to all of the words and provisions so that none is rendered meaningless. See Gilbert Tex. Constr., 327 S.W.3d at 126 ; Forbau, 876 S.W.2d at 133. “No one phrase, sentence, or section [of a contract] should be isolated from its setting and considered apart from the other provisions.” Forbau, 876 S.W.2d at 134 (quoting Guardian Trust Co. v. Bauereisen, 132 Tex. 396, 121 S.W.2d 579, 583 (1938) ).

When construing an insurance policy, we are mindful of other courts' interpretations of policy language that is identical or very similar to the policy language at issue. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 824 (Tex.1997). “Courts usually strive for uniformity in construing insurance provisions, especially where ... the contract provisions at issue are identical across the jurisdictions.” Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 522 (Tex.1995) ; see also Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 496– 97 (Tex.2008) (“We have repeatedly stressed the importance of uniformity ‘when identical insurance provisions will necessarily be interpreted in various jurisdictions.’ ”) (quoting Cowan, 945 S.W.2d at 824 ).

RSUI and Lynd offer conflicting constructions of the Scheduled Limit of Liability endorsement. If only one party's construction is reasonable, the policy is unambiguous and we will adopt that party's...