Scheduled Policy Applied as Blanket Due to Ambiguous Policy Wording

Case: RSUI Indem. Co. v. Lynd Co.
Supreme Court of Texas
No. 13-0080, 2015 Tex. LEXIS 442 (May 8, 2015)

In a Hurricane Rita property damage case, the insured, Lynd Co., urged a different interpretation of the Scheduled Limit of Liability provision than did the carrier, RSUI. The trial court agreed with RSUI and entered a take nothing judgment. The court of appeals agreed with the insured and awarded just over $7.5 million, including the agreed disputed $4.2 million in damage the insured’s interpretation warranted, $2.5 million in penalties and $866,000 in interest. The Texas Supreme Court held both interpretations of the policy were reasonable, rendering the policy ambiguous. The Court noted that when construing a limitation on coverage, Texas law requires a reasonable construction by the insured to be accepted “even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties’ intent,” in finding in favor of the insured. The Court stated its task was to determine whether the insured’s interpretation was reasonable and if so, to enforce it, even if the carriers’ was at least equally so.

There were multiple (15) properties damaged by a single occurrence (Hurricane Rita). The parties disagreed on the application of the Scheduled Limit of Liability provision which advised the liability of RSUI would be limited as follows:

1. In the event of loss hereunder, liability of the Company shall be limited to the least of the following in any one "occurrence":

a. The actual adjusted amount of the loss, less applicable deductibles and primary and underlying excess limits;

b. 115% of the individually stated value for each scheduled item of property insured at the location which had the loss as shown on the latest Statement of Values on file with this Company, less applicable deductibles and primary and underlying excess limits. If no value is shown for a scheduled item then there is no coverage for that item; or

c. The Limit of Liability as shown on the Declarations page of this policy or as endorsed to this policy.

Lynd argued application of the Scheduled Limit of Liability provision required that the amount payable for all fifteen properties be determined in the same manner, by the method set forth in 1.a., or 1.b. or 1.c. RSUI instead considered each of the fifteen properties separately under the options presented and applied the least value for each, resulting in application of 1.a. to thirteen of the properties and 1.b. to the remaining two. The difference in methodology was the $4.2 million in damages sought by Lynd, as 1.b. would have limited the amount recoverable for two of the properties to 115% of their scheduled value, which was considerably less than the actual adjusted amount of the loss.

The Texas Supreme Court considered the context of the policy as a whole, including the endorsement, its title, cautionary statements, introductory statements, and the options presented for valuation and concluded the endorsement could reasonably be read to support either interpretation. A significant contributor to the ambiguity found was the policy’s definitions of “loss” and “occurrence” to include both one loss and a series of losses resulting from one event. As a result, use of those terms in the endorsement did not assist in determining whether the damage to the individual properties were to be separately or collectively considered as the terms must be replaced with both the singular and the plural forms in each place they appeared.

RSUI argued the scheduled nature of the policy required each property to be considered individually under the three options as the carrier’s liability was limited by property according to the scheduled values and that failing to do so violated the nature of the policy, with the insured’s interpretation converting the policy into a blanket policy. The Court was not persuaded, noting several cases have found some property policies include schedules of properties for other reasons. The Court decided “the ‘bare fact’ that this policy required Lynd to file a Statement of Values does not indicate that it limited liability on an item-by-item basis.” In reviewing the policy here, the Court found the premium was calculated on a flat rate per reported value, with no individual consideration given to the particular risks associated with the different scheduled properties, such that the calculation of premium was more consistent with a blanket policy.

While agreeing its adoption of Lynd’s interpretation resulted in the amount paid for the two properties in question being more simply because multiple properties were damaged in the same event, the Court discounted the argument that no premium had been paid for that extra recovery by referring to the blanket rate applied to all properties. The Court explained that whereas this interpretation resulted in damages being paid in excess of 115% for two of the properties damaged, it resulted in less than 115% (the actual adjusted amount of the loss) being paid for the other thirteen. Rejecting all criticisms of the sharp dissent, the Court expressed confidence RSUI and its competitors can “provide the clarity needed to resolve these issues by significantly revising the endorsement to say what the insurers really want it to mean.”