Texas Industries, Inc. v. Factory Mut. Ins. Co.

• Decision Date: 11 May 2007
• Docket Number: No. 06-10681.,06-10681.
• Parties: TEXAS INDUSTRIES, INC., Plaintiff-Appellee, v. FACTORY MUTUAL INSURANCE CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

486 F.3d 844

TEXAS INDUSTRIES, INC., Plaintiff-Appellee, v. FACTORY MUTUAL INSURANCE CO., Defendant-Appellant.

No. 06-10681.

United States Court of Appeals, Fifth Circuit.

May 11, 2007.

Michael Anthony Miller, Josh Paul Norrell, Miller & McCarthy, Dallas, TX, for Plaintiff-Appellee.

Thomas Hal Cook, Zelle, Hofmann, Voelbel, Mason & Gette, Dallas, TX, for Defendant-Appellant.

Appeal from the United States District Court for the Northern District of Texas.

Before JONES, Chief Judge, and BENAVIDES and STEWART, Circuit Judges.

BENAVIDES, Circuit Judge:

Before the court is an appeal of the district court's grant of summary judgment in favor of Texas Industries, Inc. ("TXI"), denial of summary judgment in favor of Factory Mutual Insurance Co. ("Factory Mutual"), and denial of Factory Mutual's motion to reconsider. There is only one disputed issue: the proper calculation of the insurance deductible. We affirm.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The facts are not in dispute. The plaintiff, TXI, has a cement manufacturing plant with five kilns. TXI obtained property damage and business interruption insurance from the defendant, Factory Mutual. TXI started a previously-planned maintenance outage on Kiln No. 5 on January 5, 2003, which was to last until January 16, 2003. On January 7, 2003, a fire damaged Kiln No. 5, but had no effect on the other kilns. As a result of this fire, production was interrupted until January 30, 2003, and full production did not resume until February 3, 2003. There was a 23-day period in which Kiln No. 5 did not operate at all and a 4-day period in which partial operation occurred. Ten of the days without any operation were part of the previously-planned outage.

TXI submitted a business interruption insurance claim for its loss. The parties have stipulated that the total business interruption loss actually suffered by TXI was $3,916,905. The deductible is subtracted from the amount of loss suffered in order to determine the amount of insurance proceeds to which TXI is entitled. The proper calculation of this deductible is the sole issue before the court.

The policy at issue has a deductible for business interruption claims in the amount of "15 Day's Value Time Element of the Objects Experiencing the Loss or Damage." Factory Mutual's calculation of this deductible yields a deductible of $4,084,323, which is greater than the actual loss suffered by TXI. Factory Mutual accordingly refused to pay for TXI's business interruption claim. TXI calculated a deductible of $2,571,444, which is significantly less than the actual loss suffered. TXI therefore filed suit seeking the difference between its deductible figure and the actual loss, namely $1,345,461, as well as costs and interest.

Both TXI and Factory Mutual filed motions for summary judgment. The district court granted TXI's motion for summary judgment, and awarded TXI damages in the amount of $1,345,461 plus costs and interest. Factory Mutual filed a motion to reconsider that the district court denied. Factory Mutual timely appealed.

II. STANDARD OF REVIEW

We review the district court's grant of summary judgment de novo. Shell Offshore Inc. v. Babbitt, 238 F.3d 622, 627 (5th Cir.2001). "Summary judgment is appropriate if the record shows `that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.'" Id. (quoting FED.R.CIV.P. 56(c)).

In diversity cases, such as this one, federal courts look to the substantive law of the forum state. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); see also Farrell Constr. Co. v. Jefferson Parish, 896 F.2d 136, 140 (5th Cir.1990). Texas contract interpretation law indicates that "[i]f policy language is worded so that it can be given a definite or certain legal meaning, it is not ambiguous and we construe it as a matter of law." Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.2003). "Whether a contract is ambiguous is itself a question of law." Id. The fact that the parties offer different contract interpretations does not create an ambiguity. See id. "An ambiguity exists only if the contract language is susceptible to two or more reasonable interpretations."

"When construing the policy's language, we must give effect to all contractual provisions so that none will be rendered meaningless." Id. (internal citation omitted). Finally, when an insurance policy can be given multiple reasonable interpretations, "[i]t is a settled rule that policies of insurance will be interpreted and construed liberally in favor of the insured and strictly against the insurer." Kelly Assocs., Ltd. v. Aetna Cas. & Sur. Co., 681 S.W.2d 593, 596 (Tex.1984) (noting that this rule is "especially so when dealing with exceptions and words of limitation"); see also Am. States Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir.1998) ("Exceptions and limitations in an insurance policy are strictly construed against the insurer.").

III. DISCUSSION

The deductible for the business interruption at issue is equivalent to "15 Day's Value Time Element of the Objects Experiencing the Loss or Damage." The term in dispute is the "Day's Value Time Element of the Objects Experiencing the Loss or Damage." The policy defines this term as:

The amount equivalent to the number of days shown times the 100% daily Time Element value of the objects experiencing the direct physical loss or damage including the 100% daily Time Element value of all other objects or operations at the location where the loss or damage occurs which are dependent on the objects experiencing the loss or damage. The 100% daily Time Element value of the objects, including the other dependent daily value will be the full percentage contribution which would have resulted had the loss or damage not occurred to the 100% daily Time Element value of the entire premises at the location. In determining the 100% daily Time Element value, due consideration will be given to the experience of the business before the loss and the probable experience thereafter.

The parties do not dispute that Kiln No. 5 was the only object experiencing a loss; there were no objects dependent on Kiln No. 5. The parties present different methodologies, however, for calculating the deductible.

TXI starts with the total dollar amount of cement that would have been produced at the entire premises during the 27 day period at issue had the fire not occurred: $6,900,388.¹ TXI then divides this total amount by 27, representing the number of days in the period. The result is the "daily time element value" of the entire premises: $255,570. The parties stipulated that Kiln No. 5 produced 67.08% of the plant's total output during the relevant 27-day period, the "full percentage contribution." Accordingly, TXI multiplies the daily time element value of the entire premises by 67.08% to equal the "daily time element value" of Kiln No. 5: $171,430.² By multiplying this value by 15, TXI arrives at a deductible of $2,571,444. The difference between the deductible and the stipulated actual damages would thus be $1,345,461 under TXI's calculation.

Factory Mutual disagrees with this calculation method. First, Factory Mutual argues that the deductible should be reached by multiplying the stipulated average tons of clinker produced daily by Kiln No. 5 during the previous six months (5,635) by the number of deductible days (15), then multiplying that sum by the conversion rate of clinker to cement (.9912), and the value of cement per ton ($48.75). This results in a 15-day deductible of $4,084,323. Adopting the district court's equation in the alternative, Factory Mutual argues that total expected production value during the interruption period should...