Interpretation of insurance policies (contract construction) (Tex. 2015)

       

CONTRACT CONSTRUCTION - INSURANCE POLICY

    

An insurance policy is a contract, generally governed by the same rules of construction as all other contracts. Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010). When construing a contract, our primary concern is to ascertain the intentions of the parties as expressed in the document. Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 514 (Tex. 2014). We begin our analysis with the language of the contract because it is the best representation of what the parties mutually intended. Gilbert Tex. Constr., 327 S.W.3d at 126; see also Anglo-Dutch Petroleum Int’l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445, 451 (Tex. 2011). Unless the policy dictates otherwise, we give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage. See Gilbert Tex. Constr., 327 S.W.3d at 126; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). We strive to give effect to all of the words and provisions so that none is rendered meaningless. See Gilbert Tex. Constr., 327 S.W.3d at 126; Forbau, 876 S.W.2d at 133. “No one phrase, sentence, or section [of a contract] should be isolated from its setting and considered apart from the other provisions.” Forbau, 876 S.W.2d at 134 (quoting Guardian Trust Co. v. Bauereisen, 121 S.W.2d 579, 583 (Tex. 1938)).

     

When construing an insurance policy, we are mindful of other courts’ interpretations of policy language that is identical or very similar to the policy language at issue. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 824 (Tex. 1997). “Courts usually strive for uniformity in construing insurance provisions, especially where . . . the contract provisions at issue are identical across the jurisdictions.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 522 (Tex. 1995); see also Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 496–97 (Tex. 2008) (“We have repeatedly stressed the importance of uniformity ‘when identical insurance provisions will necessarily be interpreted in various jurisdictions.’”) (quoting Cowan, 945 S.W.2d at 824).

   

RSUI and Lynd offer conflicting constructions of the Scheduled Limit of Liability endorsement. If only one party’s construction is reasonable, the policy is unambiguous and we will adopt that party’s construction. See Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 459 (Tex. 1997). But if both constructions present reasonable interpretations of the policy’s language, we must conclude that the policy is ambiguous. See id. at 458; Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998). In that event, “we must resolve the uncertainty by adopting the construction that most favors the insured,” and because we are construing a limitation on  

coverage, we must do so “even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties’ intent.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991). “This widely followed rule is an outgrowth of the general principle that uncertain contractual language is construed against the party selecting that language,” and is “justified by the special relationship between insurers and insureds arising from the parties’ unequal bargaining power.” Balandran, 972 S.W.2d at 741 n.1 (citing STEVEN PLITT, ET AL., 2 COUCH ON INSURANCE § 22.14 (3d ed. 1997); Arnold v. Nat’l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987)).

In contract law, the terms “ambiguous” and “ambiguity” have a more specific meaning than merely denoting a lack of clarity in language. Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951). “An ambiguity does not arise simply because the parties offer conflicting interpretations.” Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). Instead, “a contract is ambiguous only when the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.” Daniel, 243 S.W.2d at 157; see Balandran, 972 S.W.2d at 741. Thus, a contract is ambiguous only if, after applying the rules of construction, it remains “subject to two or more reasonable interpretations.” Balandran, 972 S.W.2d at 741. Our task in this case is to determine whether Lynd’s construction of the RSUI policy is reasonable. If it is, we must enforce that construction, even if RSUI’s construction is also reasonable. 

SOURCE: Texas Supreme Court – No. 13-0080 - 5/8/2015  

Conclusion

We hold that the Scheduled Limit of Liability endorsement at issue in this case is reasonably subject to both parties’ proposed constructions and that the endorsement is therefore ambiguous. Because our rules require us to construe an insurance policy’s ambiguous coverage limitation in favor of coverage for the insured, we affirm the court of appeals’ judgment adopting Lynd’s proposed construction. 

SOURCE: RSUI Indemnity Company v The Lynd Company, No. 13-0080 (Tex. May 8, 2015)

(Opinion by Boyd)(Hecht wrote a dissenting opinion)  

      

Contract Construction as explained by the Texas Supreme Court (2015)

 
CONTRACT CONSTRUCTION 
 
"In construing contracts, we must ascertain and give effect to the parties' intentions as expressed in the document." Lopez v. Muñoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex. 2000). We attempt to harmonize all contractual provisions by "analyzing the provisions with reference to the whole agreement." Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per curiam). We "construe contracts from a utilitarian standpoint bearing in mind the particular business activity sought to be served," and, when possible and proper, we avoid a "construction which is unreasonable, inequitable, and oppressive." Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987). If, through the use of relevant rules of construction, the contract can be given a definite meaning, we construe it as a matter of law. Frost Nat'l Bank, 165 S.W.3d at 312.

SOURCE: TEXAS SUPREME COURT HOOKS v. SAMSON LONE STAR, LIMITED PARTNERSHIP, No. 12-0920 (Tex. January 30, 2015) 

Under what circumstances is a contract construed as a matter of law, and extrinsic evidence precluded?

CONTRACT CONSTRUCTION AS A MATTER OF LAW 

If a written contract has a definite legal meaning, then a court should read the text and construe it as a matter of law without help from a jury. Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005) (per curiam); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). When the words on the page suffice, a court should not look outside the document to decide what the parties agreed. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). The overriding objective is to "ascertain and give effect to the parties' intentions as expressed in the document." Frost Bank, 165 S.W.3d at 311-12.

However, if a contract is ambiguous, the court should accept parol evidence and can empanel a jury to decide, as an issue of fact, the "true intent of the parties." Coker, 650 S.W.2d at 394-95. A contract is ambiguous if it is open to more than one reasonable reading. Frost Bank, 165 S.W.3d at 312. Deciding whether a contract is ambiguous is itself an issue of law for the court. Webster, 128 S.W.3d at 229.

To determine whether a contract is ambiguous, courts apply standard rules of interpretation. Frost Bank, 166 S.W.3d at 312. These rules require an attempt to harmonize the contract as a whole. Id. An ideal harmonization will not treat any clause as a nullity, and courts generally presume that every provision was intended to have some effect. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). Words should be given their ordinary meaning unless it appears from context that they were used in a technical or different sense. Id. Courts should interpret contracts from a utilitarian perspective, keeping in mind the parties' business objectives. Frost Bank, 165 S.W.3d at 312. Absurd, inequitable, or oppressive interpretations are to be eschewed unless they prove unavoidable. Id.

SOURCE: HOUSTON COURT OF APPEALS - No. 01-12-00677-CV - 2/13/2014

The lease unambiguously does not require First Industrial to give Michelin advance notice of the amount of the policy's deductible. See R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 519 (Tex. 1980) ("If a written instrument is so worded that a court may properly give it a certain or definite legal meaning or interpretation, it is not ambiguous."). As the contract is unambiguous, our determination of its meaning is a legal conclusion. See Frost Bank, 165 S.W.3d at 312. The trial court correctly disregarded the jury's findings and entered judgment in favor of First Industrial.

ADDITIONAL CASE

See Gilbert Tex. Contr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 133 (Tex. 2010) ("If a contract as written can be given a clear and definite legal meaning, then it is not ambiguous as a matter of law.").

How do courts interpret contracts in Texas?

CONTRACT CONSTRUCTION IN TEXAS: 

Basic Principles 

“[A] court interprets a contract by ascertaining the true objective intentions of the parties, based on the contract language.” SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. 2005) (citing Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)). A court construes written instruments as a whole in an effort to harmonize and give effect to all the provisions of the instrument so that none will be rendered meaningless. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). Shell Oil Co. v. Khan, 138 S.W.3d 288, 292 (Tex. 2004). Contract terms are given their “plain, ordinary, and generally accepted meanings unless the contract itself shows them to be used in a technical or different sense.” Dorsett, 164 S.W.3d at 662. If a contract is capable of more than one reasonable interpretation, it is ambiguous; if, however, the contract can be given a certain or definite legal meaning or interpretation, then it is not ambiguous and we will construe it as a matter of law. Coker, 650 S.W.2d at 393; Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 131 (Tex. App.—Houston [14th Dist.] 2000, pet. dism’d). 

SOURCE: Houston Court of Appeals 01-10-00141-CV 5/12/12
 LEGAL TERMS: contract construction (interpretation) of contractual provisions, terms of agreement

Declarations as a form of judicial relief (under the DJA)

Declaratory relief under the DJA (Declaratory Judgments Act)
   

CLAIMS UNDER THE TEXAS VERSION OF THE UNIFORM DECLARATORY JUDGMENTS ACT (UDJA)

Under the declaratory judgment act, "[a] person interested under a . . . written contract. . . may have determined any question of construction or validity arising under the . . . contract . . . and obtain a declaration of rights, status, or other legal relations thereunder." See Tex. Civ. Prac. & Rem. Code Ann. § 37.004 (West 2008). 

A declaratory-judgment proceeding is "an additional remedy and does not supplant any existing remedy, but is intended as a speedy and effective remedy for the determination of the rights of the parties when a real controversy has arisen." Cobb v. Harrington, 144 Tex. 360, 190 S.W.2d 709, 713 (Tex. 1945). A declaratory-judgment action "is appropriate when a justiciable controversy exists as to the rights and status of the parties and the controversy will be resolved by the declaration sought." Texas Health Care v. Seton Health Plan, Inc., 94 S.W.3d 841, 846 (Tex. App.-Austin 2002, pet. denied). 
  
A declaratory-judgment action may not be used to obtain an advisory opinion. Transportation Ins. Co. v. WH Cleaners, Inc., 372 S.W.3d 223, 227 (Tex. App.-Dallas 2012, no pet.) (explaining that declaratory-judgment action is proper only when justiciable controversy exists). In other words, the declaratory-judgment statute does not empower courts to comment on "hypothetical or contingent situations, or to determine questions not then essential to the decision of an actual controversy." Texas Health Care, 94 S.W.3d at 846.

SOURCE: AUSTIN COURT OF APPEALS - 03-10-00784-CV - 01/4/2013

How do Texas courts resolve disagreements about what the contract means or requires?

CONTRACT-CONSTRUCTION PRINCIPLES EMPLOYED BY COURTS WHEN ANALYZING CONTRACT PROVISIONS

"The construction of an unambiguous contract is a question of law for the court," which we review de novo. Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011). "A contract is not ambiguous simply because the parties disagree over its meaning." Dynegy Midstream Servs., Ltd. P'ship v. Apache Corp., 294 S.W.3d 164, 168 (Tex. 2009). Rather, a contract is ambiguous only when "its meaning is uncertain and doubtful or is reasonably susceptible to more than one interpretation." Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). "When discerning the contracting parties' intent, courts must examine the entire agreement and give effect to each provision so that none is rendered meaningless." Tawes, 340 S.W.3d at 425.

When performing this review, no single provision will be given controlling effect; instead, all of the provisions must be considered in light of the whole agreement. Id. "In construing a written contract, the primary concern of the court is to ascertain the true intentions of the parties as expressed in the instrument." Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). Accordingly, we "give contract terms their plain and ordinary meaning unless the instrument indicates the parties intended a different meaning." Apache Corp., 294 S.W.3d at 168.

STANDARD OF REVIEW ON APPEAL

The construction of a contract is a question of law that we review de novo in light of the entire agreement. See Chrysler Ins. Co. v. Greenspoint Dodge of Houston, Inc., 297 S.W.3d 248, 252-53 (Tex. 2009).

Contract construction is a question that we review de novo, and when performing that task, we review the entire contract. See Greenspoint Dodge of Houston, Inc., 297 S.W.3d at 252-53.

SOURCE: AUSTIN COURT OF APPEALS - 03-10-00784-CV - 01/4/2013

The interpretation or construction of an unambiguous contract is a matter of law to be determined by the court. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). When interpreting a contract, our primary concern is to ascertain and give effect to the intent of the parties as expressed in the agreement. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex.2006). To discern this intent, we examine and consider the entire writing in an effort to harmonize and give effect to all of its provisions so that none will be rendered meaningless. Id. No single provision taken alone will be given controlling effect; rather, all the provisions must be considered with reference to the whole instrument. Id. Interpretation of an insurance policy is governed by the same rules of construction applicable to other contracts. Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).

SOURCE: HOUSTON COURT OF APPEALS - Nos. 14-10-00821-CV, 14-10-00856-CV, 14-10-01145-CV – 5/17/12 375 -  Garcia v. Bank of America Corporation, 375 S.W.3d 322 (2012)