RSUI Indem. Co. v. The Lynd Co.
No. 13-0795
Case summary written by Samantha Kelly, Articles Editor.
JUSTICE BOYD delivered the opinion of the Court, in which JUSTICE JOHNSON, JUSTICE WILLETT, JUSTICE GUZMAN, JUSTICE LEHRMANN, and JUSTICE DEVINE joined.
The Lynd Company manages the insurance needs of over 100 commercial properties located in multiple states. Lynd purchased the following two insurance policies to cover the properties: a primary policy from Westchester Fire Insurance Company (covering up to $20 million per occurrence) and an excess policy from RSUI Indemnity Company (covering losses exceeding $20 million, up to $480 million per occurrence).
Before the excess policy became effective, RSUI required Lynd to provide RSUI with a list of the properties to be covered and their values, referred to as the “Statement of Values.” The Scheduled Limit of Liability endorsement on RSUI’s policy conditioned the policy’s premium on the values that Lynd reported in the Statement of Values. In effect, Lynd controlled the premium amount it owed to RSUI through the values it reported in the Statement of Values. Lynd estimated its highest-valued property at $22.3 million. This meant that a single occurrence could result in losses greater than the $20 million limit of Westchester’s primary policy and therefore trigger RSUI’s excess policy. Besides this one property, Westchester’s primary policy was sufficient to cover single occurrence losses at any one property. Under the terms of the excess insurance policy, RSUI’s liability was limited to the lesser of the adjusted loss or 115% of the stated value of the property.
In 2005, Hurricane Rita, in a single occurrence, caused Lynd to sustain over $24.5 million in losses between the fifteen properties affected. Westchester paid its $20 million, but RSUI paid only $750,000 instead of the $4.5 million remaining. RSUI calculated the amount by including the actual adjusted amounts of the losses incurred at thirteen of the properties because they were less than 115% of the values listed in the Statement of Values. One of the remaining properties sustained $5 million in losses ($2 million more than the total insured value Lynd had listed), and the other sustained $11 million in losses ($3.5 million more than the listed value). RSUI paid 115% of the reported values for these properties, not the actual adjusted amount of the loss.
Issue: Whether RSUI’s policy limited its liability to 115% of the reported values of the properties that sustained losses greater than the amount listed in the policy, rather than requiring RSUI to pay the actual adjusted amount of the loss incurred at those properties.
The trial court granted summary judgment in favor of RSUI and ordered that Lynd take nothing. The court of appeals agreed with Lynd’s construction of the policy and entered judgment awarding Lynd $7.5 million, which included the disputed coverage, interest, penalties, and attorney’s fees. The Supreme Court affirmed the decision of the court of appeals.
The majority set out general contract principles particular to insurance policies. It noted that it must first analyze the language of the policy itself and the result that various contract principles dictate if the court finds the policy is ambiguous. RSUI and Lynd proposed conflicting constructions of the Scheduled Limit of Liability provision in the policy. If one party’s construction was reasonable, then the policy was unambiguous and the court would have had to adopt the construction that was reasonable. If both constructions were reasonable, then the court would have had to conclude that the policy was ambiguous. Where there is ambiguity, precedent dictates that the uncertainty must be resolved by adopting the construction that is more favorable to the insured. The court cited precedent concluding that this holds true even if the insurer’s construction more accurately reflected the intention of the parties.
After parsing the language of the Scheduled Limit of Liability, the majority concluded that both parties presented reasonable constructions and the policy was therefore ambiguous. The term “scheduled” in the heading provided support for RSUI’s construction—a “scheduled” policy provides “scheduled coverage,” that is, coverage that is limited on an item-by-item basis. The Court noted that headings are not determinative and that it must examine the operative language in the policy. It cited to several other sections of the policy that did not support either party’s construction. Rather, these provisions referred to “the loss” sustained by Lynd, but the policy defined “loss” to mean either a loss or a series of losses. For example, the first alternative limit on the policy limited RSUI’s liability to “the actual adjusted amount of the loss, less applicable deductibles and primary and underlying excess limits.” Because the limit referred to “the loss,” it could have referred to $11 million (the actual adjusted amount to repair one of the properties that Lynd listed in the Statement of Values at $7.5 million) or it could refer to $24.5 million (the actual adjusted amount of the entire series of losses at issue).
For these reasons, the majority determined that the policy was ambiguous, and it resolved the uncertainty in favor of the insured, Lynd. The majority qualified its conclusion that RSUI’s policy was a blanket policy, clarifying that insurers may still offer scheduled policies that limit their liability on an item-by-item basis. The holding only demandw that when insurers do offer scheduled policies, they must use language that unambiguously asserts they are doing so.
CHIEF JUSTICE HECHT, joined by JUSTICE GREEN and JUSTICE BROWN, dissenting.
The dissenting Justices contended that the contract was not ambiguous, and that the majority’s analysis of the policy’s text revealed that RSUI’s position was consistent with the language of the provisions. Furthermore, the dissent noted that reading the policy in line with Lynd’s aggregate approach resulted in a “glaring peculiarity.” If it was a blanket policy and not a scheduled policy, the provisions of the policy required RSUI to pay more of the losses for one property if other properties were also damaged at the same time. However, insurers should not be required to pay more just because multiple properties are damages in the same event rather than separate events. The dissent emphasized that under a scheduled policy, the insured states the value of a property and pays only for insurance to cover the loss of the stated value that the insured chose. The insurer’s liability is then capped at 115% of that amount. Lynd paid for this arrangement, a scheduled policy, but under the majority’s holding, it received a blanket policy, which ordinarily costs much more than a scheduled policy and covers all losses. Because of these “nonsensical consequences,” the dissent would have held that Lynd’s construction was unreasonable.