State Farm Lloyds v. Page

• Decision Date: 11 June 2010
• Docket Number: No. 08-0799.,08-0799.
• Citation: 315 S.W.3d 525
• Parties: STATE FARM LLOYDS and Erin Strachan, Petitioners, v. Wanda M. PAGE, Respondent.
• Court: Texas Supreme Court

315 S.W.3d 525

STATE FARM LLOYDS and Erin Strachan, Petitioners, v. Wanda M. PAGE, Respondent.

No. 08-0799.

Supreme Court of Texas.

Argued November 19, 2009.

Decided June 11, 2010.

Rehearing Denied August 20, 2010.

Levon G. Hovnatanian, Christopher W. Martin, Martin Disiere Jefferson & Wisdom LLP, Houston, TX, Sydney Lynn Hewlett, Melinda Ruth Burke, Shannon Gracey Ratliff & Miller LLP, Fort Worth, TX, for Petitioners.

John Foster Melton, Melton & Kumler, L.L.P., Austin, TX, William Allen Kendall Jr., William A. Kendall, P.C., Dallas, TX, for Respondent.

Justice O'NEILL delivered the opinion of the Court.

Once again we are called upon to interpret the Texas Standard Homeowner's Policy-Form B, in this instance to decide whether it affords coverage for mold contamination resulting from plumbing leaks. We hold that when a plumbing leak results in mold contamination, the policy covers mold damage to personal property but not to the dwelling. Accordingly, we reverse the court of appeals' judgment in part, affirm in part, and remand to the trial court for further proceedings.

I. Background

State Farm Lloyds issued Wanda Page a Texas Standardized Homeowners Policy—Form B ("HO-B") to insure her dwelling and its contents. In June 2001, Page discovered mold and water damage to her home and some of her personal property. She filed a claim with State Farm pursuant to her homeowner's policy. Erin Strachan, a State Farm claims specialist, was assigned Page's claim. At Strachan's behest, a plumber tested Page's plumbing system and discovered leaks in the sanitary sewer lines. Strachan then hired Industrial Hygiene & Safety Technology, Inc. ("IHST") to perform an indoor environmental quality assessment. The assessment revealed a variety of different molds growing in the home. To abate the mold, IHST recommended that Page remediate the structure and some of its contents.

Following IHST's recommendation, Page sought and received an estimate for remediation. In January 2002, State Farm provided Page with drafts in the amount of $12,644 to cover remediation and repair of the structure, and $13,631 to cover personal property remediation and three months of living expenses while the work was performed. In May 2002, Page sought additional funds to repair damage to her carpet, which State Farm refused to pay. A dispute ensued over the amounts needed to fully remediate and repair the home and its contents.

In September 2004, Page filed suit against State Farm alleging breach of contract, breach of the duty of good faith and fair dealing, fraudulent misrepresentation, and DTPA and Insurance Code violations. She also sued Strachan, alleging violations of the DTPA and the Insurance Code. About a year after the suit was filed, Page provided State Farm with an estimate for remediating her attic, and State Farm sent her $13,042 to cover the cost.

State Farm and Strachan (hereafter collectively "State Farm") filed no-evidence and traditional summary judgment motions, claiming entitlement to judgment as a matter of law on Page's breach of contract claim. State Farm argued that the HO-B policy expressly excludes coverage for all mold damage, there was no evidence that the mold damage resulted from a covered peril, and there was no evidence that Page was owed additional money. Because Page's breach of contract claim was not viable, State Farm contended, summary judgment was proper on her extra-contractual claims as well. The trial court initially denied State Farm's motions. After our decision in Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex.2006), however, the trial court reconsidered and granted summary judgment in State Farm's favor disposing of Page's mold-related claims. The court of appeals reversed, holding that Page's HO-B policy covered mold damage to the dwelling and its contents. 259 S.W.3d 257. We granted State Farm's petition to consider the extent of coverage Page's HO-B policy affords for mold contamination resulting from plumbing leaks.

II. Discussion

When analyzing an insurance contract, we are guided by the well-established principles of contract construction. See State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.1995). Our primary goal is to determine the contracting parties' intent through the policy's written language. See id.; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). We must read all parts of the contract together, giving effect to each word, clause, and sentence, and avoid making any provision within the policy inoperative. See Beaston, 907 S.W.2d at 433; Forbau, 876 S.W.2d at 133. Our analysis of the policy is confined within the four corners of the policy itself. See Houston Lighting & Power Co. v. Tenn—Tex Alloy & Chem. Corp., 400 S.W.2d 296, 300 (Tex.1966). Whether a particular provision or the interaction among multiple provisions creates an ambiguity is a question of law. See Nat'l Union Fire Ins. Co. v. CBI Indus., 907 S.W.2d 517, 520 (Tex.1995). The fact that the parties may disagree about the policy's meaning does not create an ambiguity. See Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 465 (Tex.1998). Only if the policy is subject to two or more reasonable interpretations may it be considered ambiguous. See id. With these principles in mind, we turn to the policy language in issue.

A. The Policy

The standard HO-B policy before us separately provides coverage for the dwelling (Coverage A) and its contents (Coverage B). Specifically, the policy provides:

SECTION I—PERILS INSURED AGAINST

COVERAGE A (DWELLING)

We insure against all risks of physical loss to the property described in Section I Property Coverage, Coverage A (Dwelling) unless the loss is excluded in Section I Exclusions.

COVERAGE B (PERSONAL PROPERTY)

We insure against physical loss to the property described in Section I Property Coverage, Coverage B (Personal Coverage) caused by a peril listed below, unless the loss is excluded in Section I Exclusions.

* * *

9. Accidental Discharge, Leaking 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). The last sentence excepting Exclusions 1.a. through 1.h. from the Section I Exclusions is commonly known as the "exclusion repeal provision."

Under Coverage A, the dwelling is insured against "all risks" except those excluded in Section I Exclusions. Under Coverage B, on the other hand, personal property is only insured against twelve enumerated perils, plumbing leaks being one. As with Coverage A, Coverage B is limited by the exclusions listed in Section I Exclusions. Those exclusions are as follows:

SECTION I EXCLUSIONS

1. The following exclusions apply to loss to property described under Coverage A (Dwelling) or Coverage B (Personal Property)....

* * *

f. We do not cover loss caused by:

...

(2) rust, rot, mold or other fungi.

...

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.

* * *

In interpreting the foregoing provisions, the parties before us start at different points. State Farm begins with our decision in Fiess, contending we unequivocally construed the same policy there to exclude all mold damage to a dwelling irrespective of its cause. Page responds that our holding in Fiess only concerned mold from roof and window leaks, not mold damage caused by plumbing leaks, and points to our holding in Balandran v. Safeco Insurance Company, 972 S.W.2d 738 (Tex.1998), as controlling. As Page reads Balandran, the mold exclusion and the exclusion repeal provision, when read together, expressly cover mold damage caused by plumbing leaks or at the very least create an ambiguity, affording coverage under the policy in either event. Although we agree with State Farm that Page's policy does not afford coverage for mold damage to her dwelling, neither Balandran nor Fiess is directly on point.

B. Fiess

In Fiess, Tropical Storm Allison caused flood damage to the Fiesses' home. 202 S.W.3d 744. An inspection revealed that the flooding had caused some mold contamination, but the bulk of the mold was caused by roof leaks, plumbing leaks, leaks in the HVAC system, exterior door leaks, and window leaks, all of which had occurred before the storm. Id. In the course of the ensuing litigation over the scope of the Fiesses' mold coverage, the United States Court of Appeals for the Fifth Circuit certified to us the question whether the ensuing-loss provision in part 1.f of the HO-B policy's Section I-Exclusions provided coverage for mold contamination caused by water damage that is otherwise covered under the policy. Id. at 745-46. Concluding there was no ambiguity in the policy language, we answered that it did not. First, we reasoned that the ensuing-loss provision reinstates coverage only as to "losses caused by an intervening cause (like water damage) that in turn follow from an exclusion listed in paragraph 1(f)." Id. at 749 (citing Lambros v. Standard Fire Ins. Co., 530 S.W.2d 138 (Tex.Civ. App.-San Antonio 1975, writ. ref'd)). In other words, the water damage must be the result, not the cause, of the types of damage that the coverage exclusions enumerate. Id. We also reasoned that the ensuing loss must be caused by water damage, not merely water, else the insurance policy would become a maintenance agreement. Id. at 750. We thus concluded that the ensuing-loss clause did not reinstate coverage for otherwise excluded mold damage.

While our ...