## IN THE SUPREME COURT O F TEX AS

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. 13-0080

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### RSUI I N D E M N IT Y 

### C O M P A N Y 

### , P E T IT IO N E R

v 

### . T H E 

### L Y N D 

### C O M P A N Y 

### , R E S P O N D E N T

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O N P E T I T I O N F O R R E V I E W F R O M T H E C O U R T O F A P P E A L S F O R T H E F O U R T H D I S T R I C T O F T E X A S

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Argued Septem ber 18, 2014

C H I E F J U S T I C E H E C H T , joined by J U S T I C E G R E E N and J U S T I C E B R O W N , dissenting.

RSUI I ndemnity Compa

n y s o ld T h e L

y n d Co mp a n y e xc e s s proper

ty insurance cover ing more than 100 commerc ial proper t i es . On e p roper

ty , the L e C hatea

u apar tments, sustained about $11.1 milli on in losses in Hurri ca n e R i t a. Had this proper ty been the only one damag ed in that storm, RSUI ’s policy would have paid only $8.8 milli on of the loss, 115% of $7.7 milli on value stated for the proper

ty by L y nd in its policy

. But beca use the total values of all 15 L y nd proper ties damag ed 1 in the same storm exceede d total losses, the Court conclude s that L y nd should be paid the full $11.1 milli on loss for L e Chatea u. I t’s called a

meterolog ical policy . What y ou’re paid depe nds on the wea ther.

T h e l o s s e s c o v e r e d b y R S U I ’ s e x c e s s p o l i c y a r e , o f c o u r s e , l e s s p r i m a r y c o v e r a g e a n d d e d u c t i b l e s , a n d I t a k e 1 t h a t a s a g i v e n w i t h o u t r e p e a t i n g i t

.The pol i cy d o es n o t cover all losses to all L y nd’s proper

ties, as a blanket policy would. I t

cover s only the proper

ties L y nd lists with sta t ed values. L y nd can state any values it chooses, but values chosen aff

ect premiums and cover ag e. Premiums are 2.5¢/$100 of stated value. And RSUI ’s liability for any one occur renc e is the least of (a) the adjusted loss, (b) “115% of t h e i n d i v i d u all y stated value for eac h schedule d item of proper ty ”, or (c) policy limit s. Policy limit s are $480 milli on, far more than the $24.5 milli on total losses involved in this case , so (c) is not a limit ation. When one proper ty is damag ed, RSUI ’s liability i s s i mple: the policy pay s the lesser of the adjusted loss or 11 5 % of the stated value. The dispute is over how to apply (a) and (b) when multipl e proper ties suffe r losses in the same oc curr ence . The following scena

rio for thre e prope rties damag ed in the same occur renc e illustrates the differ ence s in the parties’ inter preta tions of the liability

limit ation:
Stated Value (b) 115% (a)

Adjusted L oss L esser of (a) & ( b) Bla ckac re – 15 17.25 20.00 17.25 Br ownac re – 10 11.50 8.00 8.00 Whit eac re – 5 5.75 2.00 2.00 Total 

## X 34.50 

## Y 30.00 

## Z 27.25
L y nd arg ues that the policy pay s the lesser of X and Y ; the total adjusted loss is compar ed to 115% of the total stated va lues of the pr operties da mag ed. RSUI arg ues that the policy pay s the lesser of
Y and Z ; eac h adjusted loss is compar ed to 115% of eac h stated value. L y nd arg ues the policy is like a blanke t policy ; RS UI

arg ues it is a schedule d policy

. Wit h a neurosur g eon’s scalpe l, the Court parse s ever y jot and tittl e of policy text

. Five of the

seven scrutinized fra g ments, it turns out, are unhelpful. The title of the liability limit ation provision
2“provide s some support for RSUI ’s construction” but not much, and none for L y n d ’s

. The 2 “ca utionary lang uag e” “does not indicate which party ’s construction

. . . i s co rre ct.” The 3 “introductory statement” “is equally consistent with both parties’ constructions”. E l em en t (a) “is 4 consistent with both parties’ constructions.” And element (c) , as al re ady noted, “is superf luous 5 under e ither par

ty ’s construc tion.” 6 That leave s element (b) and the require ment that the amounts in both (a) an d (b ) b e “l ess

a p p li c a b le d e d u c tibles and primary and underly ing excess limit s”. Element (b) express ly r e q u ir e s th a t adjusted losses be compar ed to stated values for proper ties “individually ” and thus, as the Court admits, “supports RSUI ’s

. . . construction

. . . and does not support L y nd’s”. Be cause element (b)

7 is clea r, the Court seems to think that RSUI ’s position has to be that deductibles and other cover ag e
must also be allocate d separ ately to eac h proper ty loss , something that is “diffic ult at best”. But 8 RSUI ’s arg ument is simply that deducti bles and other cover ag e come off the bottom line, as one would expect. The liability limit ation quite natura lly rea ds: liability . . . shall be limited to the least of . . . [t ]he actual a djusted amount of the loss . . . [or]

A n t e a t

_ _ _ . T h e t i t l e i s “ S c h e d u l e d L i m i t o f L i a b i l i t y ”

. 2
A n t e a t

_ _ _ . T h e l a n g u a g e t o w h i c h t h e C o u r t r e f e r s s t a t e s : “ T h i s E n d o r s e m e n t C h a n g e s T h e P o l i c y . P l e a s e 3 R e a d I t C a r e f

u l l y . . . . T h i s e n d o r s e m e n t m o d i f i e s i n s u r a n c e p r o v i d e d u n d e r . . . A L L C O V E R A G E P A R T S

. ”
A n t e a t

_ _ _ . T h e C o u r t ’ s r e f e r e n c e i s t o t h e p h r a s e , “ i n t h e e v e n t o f l o s s ”

. 4
A n t e a t

_ _ _ . 5
A n t e a t

_ _ _ . 6
A n t e a t

_ _ _ . 7
A n t e a t

_ _ _ . 8 3115% of the individually stated value for eac h schedule d item of proper ty

. . . less applicable deductibles a nd primary

and under ly ing e x cess limits. Thi s re ading does indeed “support[] L y nd’s

. . . approa ch”, as the Court conclude s, but it hardly 9 “make s RSUI ’s . . . construc tion difficult at best”. I t is RSUI ’s construc tion. 1 0
Even if RSUI wer e somehow constraine d to take a “diffic ult” individual-allocation view of the policy ’s trea tment of deductibles and primary limit s, the Court’s ultimate conclusion—that the “policy ’s lang uag e could rea sonably be con s trued to support

. . . both [R SUI ’s and L y nd’s positio n s ] ”

— i s, by its own analy sis, simply wrong . The Court finds nothing in the pol icy that is

1 1 inconsistent with RSUI ’s position, but element (b), the key passag e, “does not”, in the Court’s own words, “support L y

nd’s [ const ruction]”. To this the Court responds that by quoting its opinion, I have “cle verly misstate[ d]” its analy sis. Con ce d i n g t hat “standing alone,” element (b) does not support L y

nd’s pos ition, the C o u rt n ev er t heless ins ists that taking element (b) i n context with the entire policy , L y

nd’s position is as rea sonable as RSUI ’s. How that can be, the Court cannot explain. How RSUI ’s interpre tation of the policy , which is consistent with ever y provision, is as rea sonable

as L y nd’s, which cannot be square d with t h e ce n t ra l provision at issue, is simply baff ling. The Court’s stated purpose of its excruciating ly detailed analy sis of the policy text is to deter mine whose position is consistent with the text and whose is not. After stating that RSUI ’s is and L y nd’s is not, the exercise tur

ns out to have bee n a wa ter ha ul. But inconsistenc y

is not the Court’s only

flaw, or even its most serious. So conce ntrated is

A n t e a t

_ _ _ . 9
A n t e a t

_ _ _ . 10
A n t e a t

_ _ _ . 11 4the Court on text ual fly specking that it is all but obliviou s t o the g laring peculiar ity of its

interpre tation—that the policy pay s more of the losses for one proper ty if others are damag ed at the

same time. The Court dismiss es this result as “mer ely fortuitous”. But while the risk that loss will 1 2

occur is a matter of chanc e, the result of the loss pa y ment calculation should not be. (What’s L oss 1? 2. What’s L oss 2? 2. What’s L oss 1 + L oss 2? For tuitousl y , 5.) I t is difficult to imag ine an insured risking an uncover ed loss whe n only one its prope rties is da mag ed, or an insurer pay ing more than it would otherwise bec ause multiple proper ties are damag ed in the same event. A blanket policy cover s all losses but costs more than a schedule d policy

. A schedule d policy has advanta g es for both the insurer and the insured. The insured can state whateve r value it chooses for a proper

ty and pay only for insurance to cover the l oss of t hat value. The insure r’s li ability for loss to the proper

ty is cappe d at 115% of the stated value, in eff ect g iving the insured a 15% marg in of err or in stating the values of proper ties. I n the Court’s view, L y nd paid for a schedule d policy but
g ot a blanket policy when multipl e proper ties are dam a g e d in th e s a

me occur renc e—a schedule d-butsometimes-blanket hy

brid. And the Court’s rea ction to this twisted result is: que sera sera . I f RSUI is dissatisfied with the result, it should chang e its underw riting proce dures or its premium schedule , or better y et, write

a clea rer policy

. Those are cer

tainly RSUI’

s options and none of our business. What is our business is whether an analy sis that y ields so strang e a result might be incorre ct. I t is a question the Court does not consider. The Court conclude s th a

t b o th L y n d ’ s a nd RSUI ’s policy interpre tations are rea sonable—that is, it is possible for the words to have the meaning ascr ibed. The Court’s approa ch g ives no

A n t e a t

_ _ _ . 12 5consideration to whether an unrea listi c interpre tation is rea sonable. Rather, the rea sonablene ss of an

interpre tat i o n i s m easured by an advocate’s or judge ’s linguistic inge nuity and absorption with minutiae, untroubled by

rea lities and conseque nces. I ag ree with the Court that L y nd’s interpre tation of the policy cannot be square d with element (b) of the liability limit ation. I disag ree that the interpre tation is never theless rea sonable, espec ially
g iven the nonsensica l conseque nces. A ccor dingly , I respe ctfully dissent.

Nathan L . Hec ht Chief J ustice Opinion delivere d: May

8, 2015

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