Court Opinion

ID: 9459226
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:13:54.333301+00
Date Added: 2024-06-11T17:36:04.376637
License: Public Domain

GODBOLD, Circuit Judge
(concurring in part and dissenting in part):
I concur in the majority opinion to the extent that it upholds the introduction of expert testimony and submission of the case to the jury, but I dissent from that portion modifying the damages.
The insurer, MFB, construes its policy provisions to mean that repair or replacement is a condition precedent to indemnification under the endorsement. An available and opposite construction is that the insurer must pay replacement costs unless the insured fails to replace within a reasonable time. Under this latter construction, MFB’s obligation under the endorsement continues until passage of a reasonable time without repair or replacement. Implicitly rejecting MFB’s construction and embracing the opposing view, the trial court submitted the following special interrogatory to the jury:
Do you find from a preponderance of the evidence that it has been a reasonable time for the plaintiffs not to have repaired, replaced, or rebuilt the building in question since its damage on May 6, 1969 ?
ANSWER “It has been a reasonable time for plaintiffs not to have repaired” or “It has not been a reason*414able time for plaintiffs not to have repaired”
ANSWER It has been a reasonable time for plaintiffs not to have repaired.
Since the jury found that a reasonable time had not expired, the trial court awarded replacement costs to Lerer Realty. The majority reverse the implicit adoption by the trial judge of the construction favoring the insured and adopt, as a matter of law, the construction favoring MFB.
Boiled to its essence the issue is whether actual repair or replacement is a condition precedent or a condition subsequent to MFB's obligation under the endorsement. If actual repair or replacement within a reasonable time is a condition precedent, then the insurer’s obligation under the endorsement has never arisen. If, however, its obligation vests upon loss only to be divested upon passage of a reasonable time without repair or replacement, the insurer must lose on the strength of the jury’s finding that a reasonable time had not expired. The issue is to be viewed with the realization that the sole purpose of the endorsement is to extend to the insured, under certain conditions, coverage for replacement cost rather than actual cash value of the property lost. For this more extensive coverage the insured pays an additional premium.
With the issue so framed, I set out the crucial portions of the endorsement, which is stated in full in a footnote to the majority opinion:
[Tjhis Policy is hereby extended to indemnify the Insured for the difference between the actual cash value of such property and the cost ... of replacement in a new condition, all subject to the following conditions:
1. If property damaged or destroyed ... is not repaired, rebuilt, or replaced . . . within a reasonable time after loss or damage, this Company shall not be liable for more than the actual cash value of the property destroyed.
Under the wording of this endorsement, failure to repair or replace within a reasonable time is a condition subsequent.1 The endorsement has language indicating that the obligation is vested (“This Policy is hereby extended”) followed by language indicating that the obligation may become divested upon the occurrence of a subsequent condition (“all subject to the following conditions”). The endorsement consists, then, of language that “giveth” followed by language that “taketh away” upon expiration of a period of time. This type construction, particularly use of provisos such as “but if,” “provided however,” or “subject to the condition that,” traditionally has connoted conditions subsequent. See generally Restatement, Property § 157 (1936). Therefore, by its endorsement the insurer created a defeasible obligation that ceases only upon the expiration of a reasonable time. While research has disclosed no Texas insurance cases directly concerned with this issue, analogous language in deeds, trusts, and other instruments has been construed by Texas courts to create a condition subsequent. See, e. g., City of Dallas v. Etheridge, 152 Tex. 9, 253 S.W.2d 640, 641-642 (1952); Stevens v. Galveston, H. & S. A. Ry., 212 S.W. 639, 643-645 (Tex. Comm’n App., 1919, jdgmt adopted).
*415The obligation under the endorsement was subject to a second condition:
2. The total liability of the Company under this Policy for loss to property included under this endorsement shall not exceed the smallest of the following:
a. the cost to repair, or
b. the cost to rebuild or replace, all as of the date of loss, on the same site, with new materials of like size, kind and quality, or
c. the actual expenditure incurred in rebuilding, repairing or replacing on the same or another site.
As I read this provision, MFB’s obligation, construed at a time when actual replacement or repair has not been made but before expiration of a reasonable time, is the smallest of “a.” or “b.” In this case that amount is the amount awarded by the court below.
I think the Texas trial judge’s implicit acceptance of the insured’s construction and his like rejection of MFB’s construction was correct. But if I am in error, what is crystal clear is that there are two possible constructions. Ambiguous contracts of insurance are construed in Texas most strongly against the insurer. See 32 Tex.Jur.2d, Insurance § 60 (2d ed. 1962), and numerous cases cited therein. This requires affirmance.
Not only is the condition subsequent construction required, either as the single clear construction or as the necessary choice of an ambiguous contract, but also it comports with simple fairness. MFB’s construction permits the insurer, in some circumstances, by its own act of denying coverage, to decrease the amount of its potential liability under an endorsement the purpose of which is to increase that potential liability. If the insured is not financially strong enough to effect replacement through his own resources, he does not have the benefit of the increased coverage for which he paid. One need not be clairvoyant to predict that the Texas courts will not adopt a construction giving to an insurer any such leverage over the insured and bonus for denying coverage.

. Compare the endorsement in Bourazak v. North River Ins. Co., 379 F.2d 530 (7th Cir. 1967), which was described by the court as follows :
“The Extended Coverage clause provided that if the building were completely rebuilt the insurer would be liable for the repair or replacement cost, not exceeding $22,500; that the insurer would not be liable for loss ‘unless and until actual repair or replacement is completed,’ and that any claim for such additional liability must be made ‘within 120 days after loss.’ ”
Id. at 531.