Court Opinion

ID: 9635244
Source: CourtListenerOpinion
Date Created: 2023-08-22 13:43:17.719724+00
Date Added: 2024-06-11T09:54:02.831371
License: Public Domain

PAUL C. MURPHY, Chief Justice,
dissenting.
Because we believe that the inventory exclusion provision in Houston United’s “all-risk” insurance policy does not exclude Betco’s claim, we respectfully dissent.
In interpreting insurance contracts, two points are well-established. First, the contract is construed against the insurer and liberally in favor of finding coverage for the insured. See Pioneer Chlor Alkali Co. v. Royal Indemnity Co., 879 S.W.2d 920, 929 (Tex.App.—Houston [14th Dist.] 1994, no writ) (citing Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex.1987). This is especially true when construing exclusions or exceptions to coverage under the contract. See National Union Fire Ins. *349Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991). Second, when an insurance policy is ambiguous, the court construing the policy must adopt the interpretation most favorable to the insured. See State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex.1998). Whether an insurance contract is ambiguous is a legal question decided by examining the entire contract in light of the circumstances present when the parties entered the contract. See id. Moreover, in addressing the propriety of the grant of summary judgment, we do not show deference to the trial court’s decision and must review its determinations de novo. See Elam v. Yale Clinic, 783 S.W.2d 638, 641 (Tex.App.—Houston [14th Dist.] 1989, no writ).
Both parties offer different interpretations of how the inventory exclusion applies. Betco argues that the inventory exclusion should be limited to losses of inventory that are shown only on the insured’s books and are not substantiated by any independent proof. Houston United, however, argues that any loss disclosed upon taking inventory, regardless of the type of inventory or its rationale, is excluded from coverage. Here, there is undoubtedly an ambiguity in the insurance contract regarding the meaning of the term “inventory” in Houston United’s insurance contract. Highlighting this ambiguity is the fact that both parties to this appeal, as well as the majority, discuss several different types of inventories, ranging from “paper” inventories to “actual, physical” inventories. Both parties and the majority opinion also compare regularly scheduled inventories to inventories taken to substantiate loss, the latter, under the majority’s interpretation, apparently would not included under the exclusion clause of Houston United’s insurance contract provided it was regularly scheduled and “coincided” with the investigation of the loss and was “intended” by the insured to quantify the loss.
Moreover, there are many situations which might arise where the meaning of the phrase “disclosed upon taking inventory” in the exclusionary clause would be ambiguous. For example, an insured who conducts an inventory to substantiate the losses incurred in a theft certainly would not expect that inventory to later be a grounds for the exclusion of coverage. Likewise, an insured who discovers a loss during an inventory, investigates the loss, and discovers the loss to be from a theft occurring just days before the inventory occurred would not expect the inventory exclusion clause to cut off his claim. However, under the majority’s analysis, insurance companies would be free to use the clause with impunity to escape their duty to indemnify.1 Situations such as these would create an ambiguity in the meaning of “disclosed upon taking inventory.” Our task here is to decide if, under the circumstances of this case, this phrase becomes ambiguous. See Vaughan, 968 S.W.2d at 933; see also State Farm Fire & Cas. Co. v. Reed, 873 S.W.2d 698, 701 n. 7 (Tex.1993).
Under the terms of the policy, Houston United must indemnify Betco for “all risks,” including any theft that is not attributable to an employee, agent, or principal of Betco. Here, the summary judgment proof shows that a theft occurred at Betco’s LaMarque site and Betco determined the loss to be minimal. The proof does not indicate that any Betco employees were involved in the theft. Three months later, when Betco employees went to the site to physically count its equipment and materials for an annual inventory, they *350discovered the losses were more substantial than they had first believed.
Under these circumstances, we believe that the phrase “disclosed upon taking inventory” becomes ambiguous since it conflicts with an area of coverage (i.e., theft by non-employees). Here, the loss was not discovered during the inventory. Rather, the proof shows the size of the loss was discovered during the inventory. The loss is also attributable to an external cause covered under the terms of the policy: the thefts three months earlier. Viewing the proof, as we must, in the light most favorable to Betco, we must presume that the loss was incurred during the thefts.
Even assuming the majority’s view is correct and the clause in not ambiguous, a fact issue exists about whether the loss was “disclosed upon taking inventory” or, rather, was quantified by it. This fact issue, under any view, makes the grant of summary judgment inappropriate.
The majority makes much of the fact that many more explanations for the loss exist. While we agree, such alternative explanations have no place when analyzing facts in a motion for summary judgment. We must view the evidence in the light most favorable to the nonmovant and indulge every inference in its favor.
Based on the facts of this case, the phrase “disclosed upon taking inventory” becomes ambiguous because the loss was known before the inventory was taken. Rather, what was disclosed by the inventory was the size of the loss.
This ambiguity is underscored in decisions from other jurisdictions. In Betty v. Liverpool and London and Globe Ins. Co., 310 F.2d 308 (4th Cir.1962), the court addressed a claim of ambiguity under a similar clause. There, the insured sought indemnity for the loss of 1,024 tires. See id. at 309. During its quarterly inventory, the insured discovered the loss. See id. Sometime later, a man pleaded guilty to stealing tires from the insured’s property during the quarter that the loss occurred. See id. The man stated that on the night of his theft, he saw a truck loaded with tires leaving the insured’s property. See id. at 310. The insured was not made aware of the theft until after the loss was disclosed in the inventory. See id. at 309. Based on these facts, the insurer denied the insured’s claim.
The court, in holding the term “inventory” ambiguous, held that:
to affirm the judgment below [for the insurer] it is necessary to construe the exceptive clause of the policy to mean that no loss is covered if it is first discovered upon taking inventory, no matter what proof may be subsequently brought to light showing the loss to be clearly within the risks for which the policy was written. We feel that such a construction would be unrealistic. It does not seem reasonable to us that business men would enter into an agreement to insure against a loss discovered in one way and not insure against the same loss if it should be discovered in another way. See id. at 310.
Based on this reasoning, the court held that the clause should be read to exclude only losses shown on the books of an insured that are not substantiated by any independent proof. See id.
In other jurisdictions, courts have reached similar conclusions. See McCormick & Co. v. Empire Ins. Group, 690 F.Supp. 1212 (S.D.N.Y.1988), aff'd, 878 F.2d 27 (2d Cir.1989); Van Dutch Prods. Corp. v. Zurich Ins. Co., 67 A.D.2d 844, 413 N.Y.S.2d 8 (N.Y.App.Div.1979); Balogh v. Jewelers Mut. Ins. Co., 167 F.Supp. 763, 769 (D.Fla.1958). Likewise, Betco’s interpretation of similar exclusionary language has been deemed reasonable by at least one commentator. See 11 Lee R. Russ & Thomas F. Segalla, Couoh on In-suranoe 3d § 151.43 (1998 ed.) (stating the inventory exclusion “is not applicable where the disappearance was discovered upon taking inventory, but at least some of the loss was attributable to theft by persons”). Even cases that have found the *351term unambiguous have held that the clause does not apply to situations where the loss is linked to an identifiable external cause. See, e.g., Dunlop Tire & Rubber Corp. v. Fidelity & Deposit Co., 479 F.2d 1243, 1247 (finding that because the only evidence of the insured’s loss was an inventory computation that could not be linked to an external cause, the inventory exclusion clause precluded indemnity); Southern Ins. Co. v. Domino of California, Inc., 173 Cal.App.3d 619, 626, 219 Cal. Rptr. 112,116 (1985) (same).
We find the fact that even decisions finding the phrase in the exclusionary clause unambiguous support the position urged by Betco particularly persuasive. The majority, however, without analysis of any of these decisions, dismisses them as unreasonable. This is not in keeping with the approach taken by this court and the Texas Supreme Court in addressing questions of ambiguity in insurance contracts raised as issues of first impression. Two such decisions from this court are applicable here and are ignored by the majority.
In Pioneer Chlor Alkali, 879 S.W.2d 920, and Bonner v. United Semces Auto. Ass’n, 841 S.W.2d 504 (Tex.App.—Houston [14th Dist.] 1992, writ denied), we addressed disputes of first impression over exclusionary language in insurance contracts. In both cases, we analyzed cases from other jurisdictions and found that some courts favored the interpretation offered by the insurer and some favored that offered by the insured. See Pioneer Chlor Alkali, 879 S.W.2d at 929-37; see also Bonner, 841 S.W.2d at 507. Based on these differences in opinion, we found the interpretations offered by the insureds were reasonable and held that the exclusionary clause did not apply to the claims.
The Texas Supreme Court has likewise followed this method of analysis in interpreting exclusionary clauses in insurance contracts. As we did in Pioneer Chlor Alkali and Bonner, the supreme court in Reed found that decisions from other jurisdictions supported the interpretations offered by both the insured and the insurer. See 873 S.W.2d 698 (Tex.1993). There, the court stated:
The cases from other jurisdictions support the conclusion that this exclusion and exception are susceptible to more than one reasonable interpretation .... pursuit. We must resolve the uncertainty of a policy exclusion by adopting the construction most favorable to the insured. Based upon an examination of the text of this exclusion and exception and considering other possible reasonable interpretations, we conclude that the provision is ambiguous.
Id. at 701.
The majority, however, turns a blind eye to this precedent from our own and other jurisdictions in reaching its conclusion. In so doing, it expresses its concern that in finding another non-binding court’s decision reasonable, we are impermissibly following non-binding decisions.2 To the contrary, our own cases and the cases from our supreme court are binding on us. See Penrod Drilling Corp. v. Williams, 868 S.W.2d 294, 296 (Tex.1993). Also, by finding other jurisdictions’ interpretations reasonable, we are not binding ourselves to them; rather, we are merely being persuaded by them. At the very least, we should analyze these decisions before deeming them unreasonable. The majority fails to do this, however, and fails to address the ambiguity in relationship to the facts under which it arises.
*352The appellate court’s role in construing an insurance contract with a claimed ambiguity is to determine if the interpretation offered by the insured is reasonable. See, e.g., Balandran v. Safeco Ins. Co., 972 S.W.2d 738, 741 (Tex.1998). As the majority acknowledges, we must adopt a reasonable interpretation of the contract offered by the insured even if that interpretation is less reasonable than the insurer’s or is a less accurate reflection of the partes’ intentions. See id. at 741. Though the majority sets out these standards, it does little more than pay lip service to them in its analysis. Because we believe the decisions from other jurisdictions adopting Betco’s construction are reasonable, we would find the inventory exclusion clause inapplicable to this case and would find coverage for Betco.
The majority’s analysis is flawed in other ways, as well. The majority contends Betco’s interpretation is unreasonable “[bjased on the overall intent of the policy and the plain meaning and rationale of the inventory exclusion clause.” These bases are problematic for several reasons.
First, the majority appears to adopt Houston United’s interpretation because it is a more reasonable expression of the parties’ intention than that offered by Bet-co. This directly contravenes Balandran ⅛ holding that a reasonable, but less accurate, interpretation of an exclusion offered by an insured should be accepted by an appellate court. See Balandran, 972 S.W.2d at 741. The majority should focus on how Betco’s interpretation fits into the overall intent of the parties as reflected in the policy rather than which interpretation best meets the “plain language” and “rationale” of the exclusion.
Second, the majority’s reliance on the “plain meaning” of the contract is likewise misplaced. It defies logic to rely on the plain meaning of the inventory exclusion when even the majority admits in note seven of its opinion the inventory exclusion does not mean what it plainly says. The exclusion states that Houston United is not hable for losses or shortages “disclosed upon taking inventory.” Under the plain language of this clause, Houston United would not be liable for any loss disclosed by an inventory, even if the inventory were intended to quantify the loss. The majority apparently finds this language ambiguous since it states that the exclusion does not apply to inventories intended to quantify a loss. Even so, however, it utilizes the oxymoron of ambiguously plain language in reaching its decision that the inventory exclusion cuts off Houston United’s liability.
Finally, though the majority relies on the rationale of the inventory exclusion provision in denying Betco’s interpretation, its interpretation fits squarely within that rationale. Houston United urges that the rationale for the inventory exclusion is to insure that an insurance company will not have to indemnify erroneous or falsified inventory, shoplifting, employee dishonesty, inaccurate accounting or losses that are not provable by independent external evidence. This is in keeping with the intent of the policy as expressed in other decisions. See Dunlop Tire, 479 F.2d 1243, 1246 (stating the inventory exclusion clause “was designed to protect insurers from claims based on erroneous or falsified inventory or profit and loss computations”) (citing Paramount Paper Prods. Co. v. Aetna Cas. & Surety Co., 182 Neb. 828, 157 N.W.2d 763 (1968)). Here, Betco’s loss is not merely a loss reflected on paper incapable of being traced to an external source or event. Rather, Betco’s loss is traceable to the June 13th and July 3rd burglaries through, at the least, circumstantial evidence. Moreover, the majority’s concern that finding the inventory exclusion inapplicable to this case would hamper investigatory efforts by the insurer is misplaced. Such a concern is covered elsewhere in the insurance contract which requires losses to be reported to the insurer within ninety days of the loss, thus providing another ground for an insurer to deny a claim. While the majority may be correct in finding Houston United’s interpretation the most reasonable, this does *353not foreclose the court from finding Bet-co’s interpretation reasonable, as well.
Because we believe that the interpretation of the inventory exclusion clause offered by Betco is reasonable, we would reverse the judgment of the trial court and remand the case for the resolution of fact issues so that a determination can be made that the losses disclosed by Betco’s inventory are indeed linked to the thefts. We are also concerned with the impact of the majority’s decision on coverage under “all risk” policies such as the one issued by Houston United to Betco. As the summary judgment proof shows, Houston United denied Betco’s claim under the inventory exclusion simply because Betco’s inventory revealed the size of the loss. Under the majority’s view, any loss disclosed by an inventory, whether or not the loss was due to an event covered under the policy, would not be covered under the policy. The moral of the story told by the majority is that an undetected thief is an insurer’s best friend. Since we do not believe this is what was intended under Houston United’s policy, we do not join in the majority’s decision.
FOWLER, WITTIG and DRAUGHN, JJ., join in this dissent.

. We note that the majority apparently carves out an exception to how far this clause reaches. It notes that annual inventories coinciding with the investigation of a loss or theft would not fall within the ambit of the inventory exclusion. Regardless, we find it instructive that Houston United, in its motion for rehearing, ignores this exception and argues that any loss discovered as a result of taking an inventory, no matter the purpose or type, would come within the terms of the exclusion.

. This court has addressed this concern in another case. See Vaughan v. State Farm Lloyds, 950 S.W.2d 205 (Tex.App.—Houston [14th Dist.] 1997), rev’d, State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931 (Tex.1998). There, we stated that though we recognized the problems inherent in finding ambiguities based on precedent from other jurisdictions, we were bound to follow this approach since it was utilized by the Texas Supreme court. See id. at 209 n. 6. We believe this approach still applies and we are bound to follow it even if we do not like the results.